10th Strategic Dialogue of the Carbon Market Platform - Lena Wiest and Klas Wetterberg

10th Strategic Dialogue of the Carbon Market Platform - Lena Wiest and Klas Wetterberg

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  INSIGHTS FROM CMP ANALYTICALWORK 2025 10th Strategic Dialogue Carbon Market Platform 22 October 2025 Lena Wiest and Klas Wetterberg, CMP Secretariat OECD Environment Directorate Paying for performance? Scaled-up crediting approaches to deliver climate change mitigation results
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  2 Overview Strategic questions for environmentalintegrity in jurisdictional and sectoral crediting approaches Considerations for the future of scaled-up crediting Rationale for scaled-up crediting approaches Current state of scaled-up crediting approaches 3 4 1 2
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  Highlighting strategic aspectsof the OECD background document
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  RATIONALES FOR SCALED-UP CREDITINGAPPROACHES 4
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  How does scaled-upcrediting work? A simplified sequence 5 Host government* is offered incentive to reduce GHG emissions in a sector or policy area Government enhances frameworks, policies and implementation to deliver mitigation outcomes Mitigation outcomes are monetised, through results-based payments or market transactions 1. 3. Mitigation outcomes are verified and credits issued, as per the standard’s requirements 4. 5. 2. It registers its jurisdictional / sectoral / policy-related mitigation efforts with a crediting standard * The ‘government’can be a government body at the national or subnational level, or an independent entity entrusted by the government. Mitigation outcomes are counted towards the host country’s NDC, another country’s NDC or other international mitigation purposes 6.
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  6 Scaled-up crediting hasadvanced most in the Photo by Matthew Henry on Unsplash Land use sector (Forests, Agriculture) Energy sector (Power generation, subsidy reform) Photo by Rutuja Jadhav on Unsplash
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  7 … holding thepotential to: Photo by Matthew Henry on Unsplash Photo by Rutuja Jadhav on Unsplash Put governments in the driver’s seat Address some shortcomings of project-based crediting Incentivize structural mitigation efforts
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  8 … but: Requires acredible incentive (i.e. demand / finance) to drive additional mitigation efforts by host governments Host governments may lack institutional co-ordination and strength to respond to the crediting incentive Targeting incentives is difficult Focus of this presentation
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  9 Strategic importance ofscaled-up crediting 100% of authorised CORSIA-eligible supply is from scaled-up crediting approaches USD >1 billion per year; potential CORSIA market value before 2030 USD 700 million; value of scaled-up crediting contracts supported by sovereign donors in 2020- 2024, representing over 130 Mt CO2-eq in potential GHG impacts Present / short-term: Development co-operation Short- to medium-term: CORSIA implementation Medium- to long-term: Incentivise GHG mitigation at scale? If well-resourced and robustly implemented, scaled-up crediting approaches could complement the bottom-up nature of the Paris Agreement with payments for performance
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  CURRENT STATE OFSCALED-UP CREDITING APPROACHES 10
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  11 Unpacking carbon creditinglevels Approach Credits since 2020 Examples Project-based ~85% Programmatic ~10% Policy-based <0.1% • TCAF (World Bank) with one registered activity in Uzbekistan • Further activities (GGGI) under development Jurisdictional/ Sectoral ~5% • Land use sectors only (ART TREES, BioCF, FCPF and VCS JNR) • Sectoral electric power crediting approaches are under development (STEPS and SCALE) ‘Scaled-up’ crediting approaches
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  12 Participation in scaled-upcrediting initiatives between 2008-2024 (incl. early-stage initiatives) Note: This includes scaled-up crediting approaches that are at an early stage (before issuance or purchase agreement), or capacity building programmes with a view to support results-based payments and/or scaled-up crediting. It also includes initiatives for which scaled-up crediting approaches are under consideration, alongside project-level crediting approaches. An interactive version of the diagram is available online. Information was last updated on 5 March 2025. Source: Authors’ own analysis based on publicly available information on scaled-up crediting initiatives.
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  13 Scaled-up crediting approachesinvolve over 80 jurisdictions Note: This includes scaled-up crediting approaches that are at an early stage (before issuance or purchase agreement), or capacity building programmes with a view to support results-based payments and/or scaled-up crediting. It also includes initiatives for which scaled-up crediting approaches are under consideration, alongside project-level crediting approaches. An interactive version of the diagram is available online. Information was last updated on 5 March 2025. Source: Authors’ own analysis based on publicly available information on scaled-up crediting initiatives. 65 9 16 Sovereign donors Initiatives Recipient jurisdictions
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  STRATEGIC QUESTIONS FOR ENVIRONMENTALINTEGRITY IN JURISDICTIONAL AND SECTORAL CREDITING APPROACHES 14
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  15 Historical emissions: Afair starting point for baselines? Time GHG emissions Conservative, below- business-as-usual baseline Crediting approach begins Carbon credits are issued Business-as-usual baseline General approach: historical emissions as starting point Risk: past emissions are a bad indication of the future Future consideration: model-based approach? Time GHG emissions Crediting approach begins Carbon credits are issued Time GHG emissions Crediting approach begins Carbon credits are issued !
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  16 Additionality: How toassess whether credits reflect additional government mitigation efforts? Time GHG emissions Crediting approach begins Carbon credits are issued General approach: baseline + light additionality criteria Risk: additional efforts not required to beat baseline Future consideration: incentives + assessments Time GHG emissions Time GHG emissions Start closer to registration? End Mitigation performance below the baseline reflects additional efforts by the host government (?) ! Start A End A: → no credits issued Baseline A Start B End B → credits issued Baseline B Less timing flexibility? Stronger additionality assessments? Stronger price signal?
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  17 Adjustments: Account forfactors outside government control? Time GHG emissions Crediting approach begins Carbon credits are issued Crediting levels are adjusted to account for, e.g. leakage and non-permanence risks Credits issued Adjustment General approach: risk assessment → adjustments Risk: exogenous emission drivers not accounted for Future consideration: ex-post adjustments? Time GHG emissions Crediting approach begins Carbon credits are issued Reduced demand for forest-risk commodities Time GHG emissions Crediting approach begins Adjustments informed by decomposition analysis? Model-based baselines? !
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  CONSIDERATIONS FOR THEFUTURE OF SCALED-UP CREDITING 18
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  Governments can influencethe future of scaled-up crediting through standards and implementation Standards CORSIA •Criteria negotiations •Domestic implementation UNFCCC •PACM concept note •A6.2 review Independent crediting mechanisms •Public consultations ICVCM •Continuous improvement work programmes Implementation Support packages Complement crediting with technical assistance Available finance Address supply- demand balance Demand-side integrity Require buyers to prioritise direct mitigation Leveraging research Build on existing research & explore priority areas further 19
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  Summary reflections 20 • Paris-alignedGHG mitigation = structural transformation. Scaled-up crediting incentivises governments. • Scaled-up crediting already channel hundreds of millions ($) per annum. CORSIA could drive further growth. • Targeting resources is difficult, due to e.g. baselines, additionality, exogenous drivers. • Environmental integrity could improve, but methodologies need to balance rigour and feasibility. • Governments can support integrity enhancements through stronger standards and implementation. • Long-term reflections: – Performance-based payments hold strategic potential for future climate co-operation. – Methodologies today are not perfect, but calibrated to current market circumstances. – As the market evolves and becomes more sophisticated, so could scaled-up crediting. – Better targeting of payments will be required for scaled-up crediting to fulfil their strategic potential.
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  Thank you foryour attention. Contact: [email protected] [email protected] [email protected] 21 Contact details