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Costa Rica Market Readiness Proposal (MRP) Partnership for Market Readiness Final Report

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Costa Rica Market Readiness Proposal (MRP) Partnership for Market Readiness Final Report Costa Rica Market Readiness Proposal (MRP) Partnership for Market Readiness Final Report Ministry of Environment and Energy February 2013 Costa Rica Market Readiness Proposal Contents ACRONYMS ...................................................................................................................................... 6 1 EXECUTIVE SUMMARY ........................................................................................................ 8 2 GENERAL CONTEXT ........................................................................................................... 18 2.1 Costa Rica’s low emissions development goal .................................................................................... 18 2.2 International context: Costa Rica’s pledge on voluntary mitigation action and underlying considerations .................................................................................................................................................. 19 2.3 Overview: composition of Costa Rica’s GHG emissions and projected emissions trends ................... 20 2.3.1 Greenhouse gas (GHG) emissions ................................................................................................... 20 2.3.2 Emissions scenarios ......................................................................................................................... 21 2.4 Review of policy and institutional framework to advance low emissions development .................... 22 2.4.1 National Climate Change Strategy (NCCS) ...................................................................................... 22 2.5 Experience with GHG market instruments .......................................................................................... 24 2.5.1 The Certifiable Tradable Offset (CTO) ............................................................................................. 25 2.6 Carbon Neutrality target and strategy to achieve it ............................................................................ 26 2.6.1 Rationale ......................................................................................................................................... 27 2.6.2 Strategy to achieve Carbon Neutrality ............................................................................................ 27 3 THE COSTA RICAN DOMESTIC CARBON MARKET................................................... 28 3.1 Market framework .............................................................................................................................. 28 3.1.1 Rationale ......................................................................................................................................... 28 3.1.2 General criteria for the Domestic Carbon Market ........................................................................... 28 3.1.3 Convergence between demand and supply in the Domestic Carbon Market ................................. 31 3.1.4 Rationale ......................................................................................................................................... 32 3.1.5 Criteria to guide Regulatory and Institutional Framework considerations ..................................... 32 3.1.6 Regulation and oversight ................................................................................................................ 32 3.1.7 Institutional roles and functions ..................................................................................................... 33 3.1.8 Governance: Importance of Ensuring Independence of the Carbon Board. .................................... 35 3.1.9 Participants ..................................................................................................................................... 36 3.1.10 Supply and demand infrastructure ............................................................................................. 36 3.1.11 The Supply Schemes – A Sectoral Approach ............................................................................... 37 3.2 Policy options for demand stimulus .................................................................................................... 39 3.2.1 Benefits and incentives of the UCC ................................................................................................. 40 3.3 Creation of a market instrument ......................................................................................................... 41 3.3.1 Rationale ......................................................................................................................................... 41 3.3.2 Generation of UCCs ......................................................................................................................... 42 3.3.3 UCC project cycle ............................................................................................................................. 42 3.3.4 Introducing the UCC Standard and the domestic voluntary carbon market ................................... 44 3.3.5 UCC versus the CER – Rationale for Creating a new Asset Class ..................................................... 45 3.3.6 Wholesale sellers............................................................................................................................. 47 3.3.7 Analysis of Marginal Abatement Costs in the Covered Sectors ....................................................... 47 3.4 MRV for the Carbon Neutrality Standard ............................................................................................ 48 3.5 Data and reporting .............................................................................................................................. 49 3.5.1 Rationale ......................................................................................................................................... 49 3.5.2 General criteria to guide data and reporting considerations .......................................................... 49 3.5.3 Data and reporting against the Carbon Neutrality Standard ......................................................... 50 3.5.4 Data and reporting in the domestic market .................................................................................... 50 2 Costa Rica Market Readiness Proposal 3.6 Development of methodologies and protocols................................................................................... 51 3.6.1 Rationale ......................................................................................................................................... 51 3.6.2 General criteria to guide MRV considerations ................................................................................ 51 3.6.3 Recognition of international best practice ...................................................................................... 52 3.7 Registry and data tracking system ...................................................................................................... 53 3.7.1 Rationale ......................................................................................................................................... 53 3.7.2 General criteria to guide registry considerations ............................................................................ 53 3.7.3 Registry features ............................................................................................................................. 53 3.7.4 Registry components ....................................................................................................................... 54 3.7.5 Options for the Registration Project Management and Transactions ............................................ 55 3.7.6 Administration ................................................................................................................................ 55 3.8 International alignment – international third party audit process ..................................................... 56 3.8.1 Rationale ......................................................................................................................................... 56 3.8.2 General criteria to guide the International Third Party Audit Process ............................................ 56 3.8.3 International Third Party Audit Process .......................................................................................... 57 3.8.4 Linking with International Markets and Crediting and Supported NAMAs. .................................... 57 3.9 Next steps requiring PMR support ...................................................................................................... 58 4 MITIGATION POTENTIAL BY SECTORS AND MARKET SUITABILITY ............... 59 4.1 General criteria to guide coverage considerations ............................................................................. 59 4.2 Power generation sector ..................................................................................................................... 60 Considerations for further analysis about market participation .................................................................. 60 4.2.1 Rationale for focusing on the power generation sector .................................................................. 62 4.2.2 Historic and projected emission levels ............................................................................................ 62 4.2.3 Policy context pertaining the use of market instruments to reach low emissions
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