Activities pursued by the German government and its partners

The Federal Environment Ministry is actively involved in the technical design of international cooperation approaches under the Paris Agreement and is actively promoting the dynamic development of price-based instruments worldwide. As part of these efforts, the German government has launched many initiatives related to international carbon markets in cooperation with international partners. At the same time, Germany supports research activities and dialogue forums to drive the development of innovative approaches in all areas of the carbon market. Below is an overview of Germany’s diverse portfolio of activities.

Further development of market-based instruments

Luftaufnahme einer Solaranlage
Designing the new global market mechanism of the Paris Agreement

The adoption of the Paris Agreement also established a new global climate action mechanism. This mechanism, enshrined in Article 6.4 of the Agreement, is intended to raise climate action ambition and lead to an overall reduction in global emissions. However, the implementation of these and other requirements gives rise to a range of design-related issues. To support the German government and the Federal Environment Agency (UBA) in international negotiations on these issues, UBA commissioned a research project headed up by the Wuppertal Institute. The project will assess options for implementing the new market mechanism and develop regulatory recommendations.

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Offsetting the emissions for the German government’s official travel

Air travel has a particularly large ecological footprint, not only because vast quantities of carbon dioxide are emitted, but also because the high altitudes make the climate impact of the emissions much greater than if they were released close to the ground. Unfortunately, however, air travel is often unavoidable in our increasingly globalised world. This also true for the official travel of the German government. Consequently, the German government decided to offset the greenhouse gas emissions arising from all official trips, by air or car, taken by employees of ministries and other subordinate federal authorities. To this end, the government makes use of credits from the Clean Development Mechanism (CDM), setting additional criteria in order to support particularly high-quality projects. The German Emissions Trading Authority (DEHSt) helps the German government put this idea into practice. DEHSt calculates the emissions that arise from official travel, selects climate projects and is responsible for acquiring and surrendering the necessary emission reduction credits.

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Further development of new market mechanisms

Negotiations in the area of international carbon markets are particularly challenging. In contrast to other areas, consensus on how exactly the market mechanisms established in the Paris Agreement should function has not yet been reached. Given this background, the Federal Environment Ministry (BMU) commissioned the Wuppertal Institute with an R&D project called “Further Development of New Market Mechanisms”. Under this project, the Wuppertal Institute is examining current policy issues in a series of research papers and regularly holding expert workshops that bring together international climate negotiators with scientists and carbon market practitioners. In a second project component, the Wuppertal Institute is supporting the BMU in disseminating information and networking with the professional public. As part of these efforts, the Wuppertal Institute publishes the journal Carbon Mechanisms Review (CMR). The internet portal, which was developed by the project team, also provides information on German government initiatives and presents the findings of other studies and research supported by the BMU. The public relations work is supplemented with flyers, brochures and posts in social networks.

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Carbon Market Mechanisms Working Group (CMM-WG)

The programme-based approach was successful in the context of the Clean Development Mechanism (CDM) and will also be very important for voluntary cooperation under Article 6 of the Paris Agreement. In this context, the BMU supports the Carbon Market Mechanisms Working Group (CMM-WG), which was established at the Innovate4Climate conference in Singapore in June 2019. The initiative’s focus, which was originally on improving rules for implementing programmes under the CDM, has been broadened to assess the relevance of programme-based and sectoral approaches to results-driven climate financing and crediting under Article 6. The working group, which is coordinated and led by Perspectives GmbH, aims at facilitating continuous dialogue between key stakeholders with practical experience and highly scalable approaches. The CMM-WG provides a platform for dialogue, enabling experiences to be shared and measures to be coordinated to support the role of programme-based and high-level activities. By promoting ambitious approaches, the initiative aims to help entire economic sectors move closer to low-carbon, climate-resilient development.

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Analysis and evaluation of the structure of an offsetting scheme in international aviation

In October 2016, the International Civil Aviation Organization (ICAO) decided to introduce a global compensation mechanism in international aviation called CORSIA (Carbon Offset and Reduction Scheme for International Aviation). As an integral component of a package of measures, CORSIA is designed to help achieve the goal of climate-neutral growth in the sector at the same level as CO2 emissions in 2020. In the project “Analysis and Evaluation of the CORSIA Offsetting Mechanism for use in International Aviation”, which is funded by the Federal Environment Agency (UBA), the Öko-Institut is exploring a number of issues relating to the further development of the scheme in collaboration with the Stockholm Environment Institute and the NewClimate Institute. The project team tasks include analysing the previously defined CORSIA eligibility criteria for offset credits, investigating the potential of the new compensation mechanism and looking at how the use of offset credits could be accounted for under CORSIA and the Paris Agreement. The project aims to support the negotiations on how to design the CORSIA scheme.

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Piloting innovative approaches

Solarenergieanlagen in Madagaskar
Pilot Auction Facility for Methane and Climate Change Mitigation (PAF)

The international carbon market, which to date has been based on the Kyoto Protocol flexible mechanisms, has almost completely collapsed. This situation is seriously jeopardising ongoing projects under the Clean Development Mechanism (CDM) and is preventing new projects from being implemented in the short term, even though considerable potential for mitigation exists. In view of the impending discontinuation of climate projects in some sectors, the World Bank launched the Pilot Auction Facility for Methane and Climate Change Mitigation (PAF) in 2015 with the involvement of the German government. The initiative focuses on projects that are at risk of being suspended due to low carbon credit prices but that only need a small amount of additional revenue to ensure their continued operation. Auctions of sales options determine the amount that would be sufficient for the project operators to invest in climate projects. Since the initiative was established, three successful auctions have been held, a testament to the effectiveness of the approach. Based on the experience gained, the World Bank is currently examining how the approach could be used to help countries implement their climate action contributions under the Paris Agreement.

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Climate Finance Innovators – Linking market mechanisms and climate finance in Africa

In the negotiations on new market mechanisms and results-driven climate finance, it is important to draw on African countries’ previous experience with the carbon market. Africa only benefited from the CDM at a late stage, and the hard-won progress and capacities are now left partly untapped despite their significant potential for use in climate finance. In view of this, the BMU is supporting an initiative of Perspectives together with Climate Focus, AERA, Carbon Africa, Afrique Energie Environnement and South South North under its International Climate Initiative (IKI). In cooperation with the three partner countries Ethiopia, Uganda and Senegal, replicable climate finance models that will contribute to the NDCs of the respective countries are tested in pilot projects. In all partner countries, the project works with governments and the private sector to formulate climate finance proposals that leverage the potential of existing climate change policies and activities in the host countries.

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Achieving ambitious emissions through carbon pricing in developing countries

The wide range of measures supported by the Federal Environment Ministry in the area of market-based approaches is illustrated by the project “Achieving Ambitious Emissions through Carbon Pricing in Developing Countries”. The project, which is being implemented by the NewClimate Institute and Öko-Institut with support from the German Emissions Trading Authority (DEHSt), focuses on Colombia’s social housing sector. It aims to identify activities that can create an incentive for ambitious emission reductions and contribute to sectoral transformation, making part of the reductions available to investors in the form of internationally transferred mitigation outcomes (ITMOs) or other results-driven sources of climate finance. The project shows how sustainable design and energy efficiency can be incorporated into residential building and identifies the potential that exists especially in the social housing segment. The results of the project are intended to show which general conditions would theoretically be necessary to implement the pilot project and to facilitate transformative change in Colombia. The research findings are also meant to help other countries position themselves as host countries for Article 6 measures.

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Transformative Carbon Asset Facility (TCAF)

At the Climate Change Conference in Paris, Norway, Germany, Sweden and Switzerland, together with the World Bank, launched another initiative, which has now been joined by the United Kingdom and Canada: the Transformative Carbon Asset Facility (TCAF). This initiative supports developing countries in setting up and implementing market-based climate instruments by providing results-driven payments for verifiable emission reductions at sectoral level. With an initial public funding target of 500 million US dollars, the plan is to mobilise private business investments and leverage a total of more than two billion US dollars in climate investments. The facility will promote mitigation of greenhouse gases using broad-based programmes, moving away from a project-based approach to achieve a transformative effect in partner countries. By integrating the supported measures into the national climate action strategies, the facility aims to boost national climate action efforts and ensure that a lasting contribution is made to climate-friendly, sustainable development. The facility’s activities are closely aligned with the process of international climate policy: it must be possible to transfer the transformative experience to other regions and contribute to the implementation of the Paris Agreement. Following the TCAF’s launch at the Paris Climate Change Conference in 2015, the implementation plans and legal documents were finalised in cooperation with the participating countries. The TCAF was subsequently approved by the World Bank and became operational in March 2017.

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Nitric Acid Climate Action Group (NACAG)

Another initiative started by Germany focusses on reducing nitrous oxide emissions. The Nitric Acid Climate Action Group (NACAG) pursues the ambitious goal of putting an end to nitrous oxide emissions arising from the production of nitric acid worldwide by 2020. Nitric acid is a nitrogen compound used for fertiliser production around the world. The NACAG provides information and advice to bring about sectoral transformation. Partner countries that undertake to pursue this low-cost potential on their own after 2020, for example in the context of their Nationally Determined Contributions (NDC) under the Paris Agreement, are also eligible for financial assistance.

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Promoting carbon pricing through capacity building

Illustration des Zertifikatehandels
Partnership for Market Readiness (PMR)

In addition to bilateral cooperation with individual countries, the German government participates in multiple international initiatives for the development of market-based policy instruments, including the World Bank’s Partnership for Market Readiness (PMR). As a multilateral trust fund, the PMR has been supporting 23 developing countries and emerging economies in the introduction of innovative carbon market instruments (e.g. ETS, carbon taxes, sector-specific compensation mechanisms) since 2010. China, Chile, Colombia, South Africa and Mexico, for example, implemented carbon pricing mechanisms with the PMR’s help. Other countries have used the PMR’s offer of support to carry out measures specifically designed to lay the groundwork for the introduction of price-based climate instruments. The PMR will end in 2020. The Partnership for Market Implementation (PMI), the follow-up programme to the PMR, was launched at COP25. In order to implement the Nationally Determined Contributions under the Paris Agreement, many countries will step up their efforts to develop implementation instruments and align them with their long-term goals. Countries that plan to use pricing mechanisms are welcome to join the PMI. Germany will also support the follow-up programme Partnership for Market Implementation with a contribution of 10 million euros.

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Collaborative Instruments for Ambitious Climate Action (CI-ACA)

Collaborative Instruments for Ambitious Climate Action (CI-ACA) is a UNFCCC initiative being implemented by the Regional Collaboration Centres (RCCs). The initiative is supported by voluntary contributions from the governments of many countries, including the German government through the BMU. The initiative aims to help countries establish their national climate policy instruments, in particular carbon markets, carbon taxes and other greenhouse gas reduction policies that rely heavily on monitoring, reporting and verification. The support measures available from the CI-ACA span the entire process, starting with the identification of suitable policy options to the implementation of concrete proposals for the development and design of the instruments and their introduction on the ground.

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West African Alliance on Carbon Markets and Climate Finance

West African states have signalled an increased need to actively shape the negotiations on future market mechanisms under the Paris Agreement. The goal is to ensure that these countries can actually use the instruments and contribute the capacities they developed in the past. Against this background, the Federal Environment Ministry, together with the West African Development Bank, and in cooperation with the UNFCCC Regional Collaboration Centre Lomé and technical partners such as ENDA Energy, is promoting an initiative aimed at strengthening opportunities for West African countries to participate in future carbon markets: the West African Alliance on Carbon Markets and Climate Finance. The initiative was launched at COP22 in Marrakesh (November 2016). By establishing a permanent regional structure based in Dakar, the Alliance aims to enhance the participation of West African countries in international carbon markets, increase transparency as required under the Paris Agreement and facilitate access to climate finance. The Alliance currently comprises over ten West African nations.

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Eastern Africa Alliance on Carbon Markets and Climate Finance

Many East African countries, having registered a significant number of CDM activities, are keen to build on this experience and thus gain access to Article 6 of the Paris Agreement. As a result, several countries in East Africa are striving to use market-based instruments to implement their Nationally Determined Contributions (NDCs). In recognition of the opportunities presented by Article 6 and the awareness of the socio-economic impacts of climate change on the region as a whole, East African countries see sub-regional cooperation as a potential way to leverage each other’s strengths in carbon mechanisms and climate finance. Against this background, Ethiopia, Burundi, Kenya, Rwanda, Tanzania and Uganda formed the East African Alliance for Carbon Markets and Climate Finance in June 2019. The Alliance was founded with the support of the Global Carbon Market Project (Deutsche Gesellschaft für Internationale Zusammenarbeit - GIZ) in East Africa, which is being carried out on behalf of the BMU and in close cooperation with the UNFCCC Regional Collaboration Centre Kampala.

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“Future of the Carbon Market” foundation

The “Future of the Carbon Market” foundation was established with the goal of promoting programme-based climate measures - programmes of activities, POAs - under the Clean Development Mechanism (CDM). The programme-based approach of the CDM is promising because it is suitable for combining small-scale climate projects that contribute, in particular, to sustainable development. One of the major hurdles that PoAs face is a lack of adequate start-up capital. Payments for emission reductions under the CDM cannot be used as seed capital because these payments are only made after the activities have been successfully completed. The foundation provides the start-up capital they need, having been equipped with funds of ten million euros by the BMU. Once the funded PoAs have been successfully implemented, the pre­payments are reimbursed from the sale of emission reduction credits and the foundation’s capital is replenished. Given the no longer existing market opportunities, the foundation decided in 2017 to announce a moratorium on funding for CDM PoAs, making them ineligible to receive start-up funds. The foundation, however, continues to promote the PoA concept as such and funds conceptual and methodological work in this field.

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Global Carbon Market

The Global Carbon Market project commissioned by the BMU and carried out by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) supports partner governments in developing new market-based climate instruments and in taking advantage of the opportunities expected to arise from Article 6 of the Paris Agreement. The project partners are supported by individually tailored capacity building and innovative formats for dialogue and networking. The project also helps private sector stakeholders to use market-based approaches for their mitigation activities and set an internal price for greenhouse gas emissions. The project also supports the BMU in the UNFCCC negotiations on Article 6 and in international public relations on carbon pricing and market-based mechanisms. Partner countries include India, Uganda (including other East African countries), Chile and Tunisia.

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Capacity building for the establishment of emissions trading systems in emerging economies

The German government also pursues bilateral measures to advance the spread of knowledge on emissions trading worldwide and to support partner countries in developing national emissions trading systems. The project “Capacity building for the establishment of emissions trading systems in emerging economies” is being implemented by a consortium headed up by adelphi. It works with partner countries to conduct technical workshops and delegation visits. Country-specific consulting services are also provided to countries that have decided to introduce an emissions trading system. Past and present cooperation partners include Brazil, China, Chile, Kazakhstan, Mexico, South Korea, Thailand, Turkey and Ukraine.

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Networking and exchanging information

Publikum bei einer Tagung, einige heben die Hände
Carbon Market Platform

More and more countries are introducing market instruments such as carbon taxes or emissions trading systems at national level. The spread of national pricing systems is a positive development, but it has not been coordinated to date. There are still many regions and economic sectors where emitters of greenhouse gases do not have to pay the price for the damage they cause. Against this background, Germany proposed establishing a platform for a strategic dialogue on the carbon market during its G7 presidency in 2015. This dialogue platform is designed to help identify key principles for developing rules and guidelines on carbon markets and to support the harmonisation of national instruments. By facilitating dialogue between interested countries, the platform contributes to promoting new forms of cooperation and common strategies for carbon markets.

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Carbon Pricing Leadership Coalition (CPLC)

The aim of the Carbon Pricing Leadership Coalition (CPLC) is to promote pricing mechanisms for CO2 and other greenhouse gases worldwide. It was established by the World Bank and introduced in November 2015 on the sidelines of the Paris Climate Change Conference. Germany is a partner to the coalition, which brings together national and subnational governments, the private sector and civil society to support the implementation of existing carbon pricing policies and advance the introduction of new carbon pricing mechanisms. The CPLC is a platform for dialogue, enabling participants to share their experiences with carbon pricing policies. The knowledge gained in the design and implementation of carbon pricing policies is compiled by the CPLC. Political and scientific guidance provided by bodies set up specifically for this purpose supports the CPLC’s work. In early 2019, the CPLC and the World Bank jointly organised the world’s first International Carbon Pricing Research Conference to further advance research on carbon pricing. With the aim of further improving the scientific basis for the introduction of carbon pricing, the CPLC also sets up high-level commissions to compile the current state of research on a specific issue. The regular reports, including the carbon pricing report published in 2017, are available to the public on the CPLC website and are intended to stimulate the debate on carbon pricing.

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International Carbon Action Partnership (ICAP)

While efforts have been underway at international level to establish a global carbon market, separate carbon markets have been successfully established at regional, national and subnational level in recent years. Drawing on its experience in the introduction and implementation of the EU ETS, the German government supports interested partner countries in planning and setting up emissions trading systems. The International Carbon Action Partnership (ICAP) is a forum for technical dialogue to support these processes. The partnership was launched by 15 governments, including the German government, in 2007. ICAP is made up of countries, federal states and cities that have introduced emissions trading schemes. It also holds training sessions on emissions trading every year for participants from developing countries and emerging economies from various regions. It is also an important source for reliable and up-to-date information on emissions trading worldwide. The ICAP secretariat is headquartered in Berlin and funded by the Federal Environment Ministry. The partnership now includes over 30 members.

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Regional Climate Weeks

The BMU supports a range of formats for networking and dialogue related to carbon markets and raising climate change mitigation ambition worldwide. These include the Regional Climate Weeks, which are held annually in Africa, Latin America and the Caribbean and in the Asia-Pacific region. The event series serves as a shared platform for governments and various stakeholders to discuss climate-related issues under one roof, including measures related to the Sustainable Development Goals (SDGs), the implementation of Nationally Determined Contributions (NDCs) under the Paris Agreement and global climate action in general. Organised by the Nairobi Framework Partnership together with a large group of global partners, the Regional Climate Weeks combine high-level events at ministry level with technical discussions in forums such as the NDC Dialogue or dedicated discussion formats involving topics such as social and political drivers of climate change or energy and industry transition. Special sessions are held at each Climate Week to promote carbon pricing, economic instruments and climate-aligned finance to drive investment in climate action.

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Innovate4Climate (I4C) is an important conference on climate, climate investment and carbon markets. The conference, which is supported by Germany, Spain and most recently Singapore, was held for the third time in 2019. Around 1,200 participants from 82 countries discussed issues such as finance, technology, markets and resilience in over 50 workshops. These workshops were accompanied by a high-level round of discussions on the priority issues of battery storage, clean cooling and climate-smart urban development, as well as a marketplace for exhibitors. Innovate4Climate enables representatives from politics, industry and research to exchange views on current challenges related to the financing and implementation of climate action and to develop joint solutions.

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