International Carbon Market Mechanisms in a Post-2012 Climate Change Agreement

This report by the International Institute for Sustainable Development (IISD) examines the role of international carbon market mechanisms within the context of negotiations for a post-2012 climate change agreement. It reviews the existing Kyoto Protocol instruments—International Emissions Trading (IET), Joint Implementation (JI), and the Clean Development Mechanism (CDM)—and explores potential expansions or new mechanisms, such as sectoral crediting and REDD, to enhance cost-effectiveness and engage developing countries in mitigation efforts.

• The Kyoto Protocol established three primary market-based instruments: International Emissions Trading (IET), Joint Implementation (JI), and the Clean Development Mechanism (CDM). These were designed to help countries meet targets cost-effectively, encourage private sector contribution to greenhouse gas (GHG) reduction, and stimulate sustainable development and technology transfer in developing countries.
• The Clean Development Mechanism (CDM) is the only Kyoto mechanism involving developing countries, allowing them to generate Certified Emission Reductions (CERs) for Annex I Parties. As of May 1, 2009, the CDM pipeline included 4,733 projects, with China and India hosting 64 per cent of these. However, the mechanism faces criticism regarding its environmental integrity and whether it reflects real GHG reductions or serves as a "forum for wealth transfer."
• International Emissions Trading (IET) allows Annex B Parties to trade Assigned Amount Units (AAUs). While the market has large potential, its growth was hindered by the non-ratification of the U.S. and concerns over "hot air"—excess emissions rights from Russia and Eastern European countries resulting from economic collapse in the 1990s rather than clean energy investment.
• Proposed post-2012 mechanisms include an allocation-based Market Mechanism for Sustainable Development (MMSD), which would grant allocations to sectors and allow the sale of reductions beyond those allocations. This approach aims to move away from project-based credits and the controversial requirement to demonstrate additionality.
• Expanding the CDM to include land-use, agriculture, and forestry faces significant barriers, primarily the temporary nature of credits (tCERs and lCERs) due to non-permanence of sequestered carbon. This makes forestry projects less attractive investments and led the EU-ETS to exclude forestry CDM credits.
• Carbon Capture and Storage (CCS) requires a long-term carbon price for widespread implementation. While the CDM could support the deployment phase of CCS after 2020, it is not considered a sufficient incentive for financing demonstration plants before 2020.
• Sectoral CDM is being considered as a way to reward governments for implementing climate policies without fearing that such policies make future projects non-additional. This could involve policy-based CDM (rewarding governments) or clustered CDM (private actors implementing projects within a sector baseline).
• A critical challenge for any expanded post-2012 market mechanism is ensuring sufficient demand to prevent the carbon market from being flooded. This requires ambitious targets for developed countries and a willingness to purchase credits, as some jurisdictions (e.g., EU-ETS, Canada) have already placed limits on the use of international offsets.

APA

Murphy, D., Drexhage, J., & Wooders, P. (2009). International Carbon Market Mechanisms in a Post-2012 Climate Change Agreement. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/international_carbon_market_mechanisms.pdf

Chicago

Murphy, Deborah, John Drexhage, and Peter Wooders. International Carbon Market Mechanisms in a Post-2012 Climate Change Agreement. International Institute for Sustainable Development, 2009. https://www.iisd.org/system/files/publications/international_carbon_market_mechanisms.pdf.

Wikipedia

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BibTeX

@techreport{murphy2009international, author = {Murphy, Deborah and Drexhage, John and Wooders, Peter}, title = {{International Carbon Market Mechanisms in a Post-2012 Climate Change Agreement}}, institution = {International Institute for Sustainable Development}, year = {2009}, month = may, url = {https://www.iisd.org/system/files/publications/international_carbon_market_mechanisms.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }