Networking Carbon Markets | Key Elements of the Process

The World Bank’s Networked Carbon Markets (NCM) initiative is collaboratively exploring the post-2020tools, services and institutions needed to enhance the transparency, comparability, and fungibility of heterogeneous climate actions, for a connectedinternational carbon market. The cost and efficiency benefits of linking will be important for engendering more climate action and supporting the global developmentalgoal to limit global warming to 2°C and aim to limit it to 1.5°C. The NCM initiative aims to enable comparison of different mitigation actions and trade across differentmitigation outcomes in a way that is: inclusive; transparent; efficient; and has environmental integrity. It is founded on the assumptions that firstly, the linking ofdiverse and heterogeneous mitigation actions is desirable;secondly, that governments and market participants needinformation about the schemes with which they enter transactions and the assets they acquire through those transactions; and thirdly, that governments should retainthe sovereignty to act on the information about those other mitigation actions and assets as they see fit. Generally, the form of any linking arrangement will rangefrom a very loose alignment (soft link) to a very tight alignment of key elements (a hard link). Hard linking requires aligning the design featuresof mitigation actions—some of these design features may be easily reconcilable among the linking partners,while others may not. Recognizing that aligning mitigation actions can be a lengthy and costly process, especially once a mitigation action has already been implemented,“networking” is one form of ‘soft’ linking that can offer an alternative solution. Rather than seeking to align mitigation actions, networking is about facilitating trade of the outcomes of those actions by recognizing differences and placing a value on these differences. The services and institutions developed through the NCM initiative might be introduced in a phased manner, initially supporting countries to design robust mitigation actions and facilitating comparability and linkage within countries.It is intended that these services and institutions could help to facilitate linkage bilaterally, before being extended to markets on a regional basis—perhaps through ‘carbonclubs’—and in the long term helping markets to link on a global basis.