The Paris Agreement requires all Parties to develop and communicate Nationally Determined Contributions (NDCs). The NDCs are the countries' contributions to climate protection. Since they are not binding climate protection targets, they allow the signatory states more leeway in setting them. However, the NDCs confront developing countries in particular with a variety of challenges: They have to determine which climate protection measures they want to implement and which financing approach should be used for this. The two most important external financing approaches are carbon crediting and climate finance.
In a newly published Carbon Mechanisms Research Paper "Taking the Host Country Perspective", the authors Nicolas Kreibich and Victoria Brandemann, both researchers in the Global Climate Governance Research Unit at the Wuppertal Institute, examine which factors are relevant in this decision from the perspective of a host country. The authors compare the functioning of carbon markets and climate finance and highlight the similarities and differences between them. Differences exist, for example, in the specifications for offsetting emission reductions, the conditions associated with the allocation of funds and the possibilities for mobilising different types of actors for climate protection.
They also identify specific characteristics of mitigation options. Which financing approach is suitable for which mitigation option depends on various factors. Among other things, it is relevant whether this mitigation option is covered by the NDC and its conditional or unconditional elements and whether the reductions will be reflected in the national emissions inventory. In the policy paper, the authors come to the conclusion that developing countries need to develop integrated financing strategies to tap their mitigation potentials. In this way, they can take advantage of the complementarities of carbon markets and climate finance. This requires both, stronger national coordination of processes and more intensive support from the international community.
Further information on the policy paper 02/2021 can be found under the links below.