The Latin America and the Caribbean region is moving quickly to introduce market incentives as a component of their climate change mitigation policy, for example, 24 countries have identified fiscal measures as a tool to implement their Nationally Determined Contributions (NDCs). However, without a doubt, the Pacific Alliance countries are leading the region.
Carbon pricing is increasingly being used by governments and companies around the world as a key strategy to drive climate action while maintaining competitiveness, creating jobs and encouraging innovation. The importance of carbon pricing was amplified in the run up to the global climate change agreement in Paris last December.
As countries move towards the implementation of the Agreement, it is the focus of a World Bank conference in Zurich this week which brings together over 30 developed and developing countries to discuss opportunities and challenges related to the role of carbon pricing in meeting their mitigation ambitions.
Last Saturday, UN climate negotiators from 195 countries agreed on a historic climate change accord in Paris after two weeks of intense negotiations. While many of us were hoping for a hook that would support the use of markets, we were happily surprised to see the extent and detail on carbon markets that was ultimately included in the Paris Agreement.
In preparing for a climate agreement in Paris, countries all over the world are planning their domestic strategies for cutting emissions. This often requires new policies to create incentives for low-carbon development, and for that, governments need accurate and comprehensive emissions data.
One important building block is a greenhouse gas reporting program, which a growing number of countries are working on. Mexico, for example, is gathering information from its newly established emissions reporting program to support its mitigation policies. The European Union’s and California’s reporting programs are essential to their emissions trading systems, and China’s reporting program will underpin its national trading system, planned for launch in late 2016.
At Carbon Expo today in Barcelona, the World Bank Group’s Partnership for Market Readiness with the World Resources Institute released the Guide for Designing Mandatory GHG Reporting Programs. Drawing on 13 existing and proposed greenhouse gas emissions reporting programs, the report looks at successful ways to build a strong data collection system and showcases best practices. It provides step-by-step guidance on developing and implementing these reporting programs.
Five months after the UN Climate Leadership Summit, with its unprecedented call to action for putting a price on carbon, low oil prices have provoked governments to look again at whether they have prices right and to consider how to exploit a golden opportunity to reset signals within their economies for lower-carbon growth.
Business leaders in closed-door and public sessions in Davos last month talked of the inevitability of effective prices on carbon and the need for an orderly transition to lower-carbon growth. There was a sense that business, not normally reticent when pointing out how policy can negatively affect operations, needs to use its voice to urge smart, early policy action on carbon pricing. The bottom line was that this price signal will be essential, if insufficient on its own, to steer economies closer to a pathway that can keep warming below 2 degrees Celsius.
The voices were CEOs, from all sectors of the economy and all regions of the world. They recognize the risks climate change poses to their supply chains and businesses.
Last week, we heard those arguments again as organizations that have come together since the summit into a Carbon Pricing Leadership Coalition (CPLC) met to assess progress and plan for 2015.
Last week Barcelona brilliantly beat Manchester United to become the soccer Champions of Europe. This week Barcelona hosted delegates at Carbon Expo, the annual jamboree for carbon marketers organized by the World Bank and others. But sadly, the style, strength, efficiency and confidence shown by Messi, Villa, and Pedro are not much in evidence in global carbon markets today. More like my old fourth division club, Bexley United, which I believe has now ceased to exist.
- There’s certainly a lot to be gloomy about in the world of carbon trading over the past year:
- The overall size of the market worldwide shrank for the first time ever in 2010
- The primary CDM market (Clean Development Mechanism) – the principal window of carbon markets to the developing world – fell another 46% to $1.5 billion, down from $7.4 billion in 2005, and the lowest since trading began in 2005.
- Legislative disappointments in the USA, Australia and Japan, and the market have now become even more concentrated, with well over 90% of trades originating in Europe.
- Serious irregularities and fraud in the European Trading System (ETS), and suspicions of monkey business in some CDM HFC (Hydrofluorocarbon) transactions.
Above all, confidence in the post 2012 market, when the first Kyoto Protocol Commitment period comes to an end, is on the floor, and thus demand for post-2012 deliveries is close to zero.
These points are all documented in the Bank’s new State of Carbon Markets Report, 2011 launched this week. And yet 3,000 people turned up at the Carbon Expo this week, and seemed to doing deals and having a good time. Is there anything positive out there? Yes, actually.
First, the overall size of the market was still $142 billion, no small change, although overwhelmingly concentrated within the European Trading System.