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carbon markets

Making the links between carbon markets in a post-Paris world

Thomas Kansy's picture



We are witnessing a pivotal moment in a decades-long effort to combat climate change. Last year in Paris, world leaders came together for the first time to commit to keeping global warming below 2°C. With the Paris Agreement in force and negotiators at COP22 in Marrakesh teasing out the details of implementing the Agreement, countries are developing their action plans (or Nationally Determined Contributions, NDCs) to reduce global greenhouse gas emissions. Part of this is looking at how carbon assets could be traded across borders.

Québec earmarks carbon-market revenues to stir innovation

David Heurtel's picture
Electric school bus. Photo credit: Autobus Lion

By advancing towards our ambitious GHG reduction target – 37,5 % of 1990 levels in 2030 – Québec demonstrates that proactive States and Regions are part of the solution to fight climate change. To address this challenge, we have decided to set up a carbon market linked with California through the Western Climate Initiative in 2014. In 2017, our carbon market will also be linked with Ontario. Last August, Québec and Mexico signed a joint statement to affirm their desire to widen their collaboration on cap-and-trade. Jurisdictions have many options when it comes to earmark their carbon-pricing revenues; Quebec’s choice, to entirely reinvest the revenues of its carbon market in climate actions, shows that we really understand the urgency of acting immediately and boldly. Thanks to CPLC’s leadership and knowledge-sharing initiatives, we now have an additional opportunity to share our stories and learn from each-other’s experiences with carbon pricing.

As the Paris Agreement becomes reality: How to transform economies through carbon pricing

Laura Tuck's picture


The remarkable pace at which nations of the world have ratified the Paris Agreement on climate change gives us all hope. It signals the world is ready to take the actions we need to keep global warming below 1.5 degrees Celsius. We know, however, that delivering on Paris comes with a high price tag, and that we need to help countries not just transition toward renewable energy but unlock the finance needed to get there.

Amid the enormous challenge ahead, I want to emphasize the transformative economic opportunity that putting a price on carbon pollution presents.

PAF first auction named carbon deal of the year

Scott Cantor's picture
Results of the first auction of the Pilot Auction Facility. Photo: PAF


When you think of online auctions, what products come to mind? Perhaps electronics, collectibles or concert tickets, but it’s unlikely that you think of climate finance. However, the Pilot Auction Facility for Methane and Climate Change Mitigation (PAF) recently combined the two, and for this, we are thrilled to be awarded Environmental Finance’s Carbon Deal of the Year 2016.

10 practical steps to create an Emissions Trading System

Pierre Guigon's picture
 
10 steps to create an Emissions Trading System. Photo: ICAP

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.

Carbon markets in the Paris Agreement - an early holiday gift

Vikram Widge's picture
 Max Edkins / World Bank
COP21 conference center at Le Bourget, near Paris. Photo: Max Edkins / World Bank


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.

Emissions trading in China: Early lessons from low-carbon pilots

Lasse Ringius's picture

 

A local emissions exchange in China. Lasse Ringius/IFC
A local emissions exchange in China. Photo: Lasse Ringius/IFC

 

China, the biggest source of CO2 emissions globally, accounts for more than 27 percent of the world's emissions. China is the first developing country to control CO2 emissions through a cap-and-trade system. Once a national carbon market is established, which could be as early as 2017, China will overtake the European Union (EU) to become the biggest carbon market in the world. The Chinese market will significantly alter the balance of power in global carbon markets in the mid-term. Significant challenges remain, and the IFC, a member of the World Bank Group, is helping China to overcome them with a project in Shenzhen that addresses key barriers to carbon trading.

Fundamentals of Emissions Markets

Once a liquid carbon market has been created, trading will mostly happen via forward and futures contracts. These instruments help companies to protect themselves against volatile prices and to hedge their carbon position. In the EU, exchange platforms emerged as one of the main mechanisms aimed at simplifying transactions, reducing risk and facilitating transparent pricing. As trading platforms, exchanges can facilitate price discovery and offer hedging products.

The financial sector and financial institutions (FI) play a fundamentally important role in an emissions trading system. It is to be expected that most companies in China will trade with the help of intermediaries; only large emitters will trade directly at an exchange. Thus, FIs will be in a position to offer trading-related services, as well as advisory products, to clients subject to mandatory CO2 regulation.

Preparing for a price on carbon: Lessons from 3 companies

Xueman Wang's picture
 
Oil platform. Glenn Beltz/Flickr Creative Commons CC-BY-2.0


New carbon pricing systems are being developed in China, Chile and other countries to help reduce greenhouse gas emissions and encourage clean energy and sustainable development. This will mean new reporting requirements and regulations for an increasing number of national and multi-national companies.
 
To help corporate leaders prepare, we studied the experiences of three companies that are already operating within one or more carbon pricing systems and the steps they took to prepare for a world where greenhouse gas emissions have a price.
 
Our report released today by the Partnership for Market Readiness describes the impacts of a changing climate on business strategies, analyzes risks and opportunities as new climate policies are implemented, and distills lessons learned by Pacific Gas and Electric Company, Rio Tinto, and Royal Dutch Shell. The three companies represent a variety of energy-intense industries, including oil, gas, metals, mining and energy generation, transmission and distribution. Two operate in more than one jurisdiction with emissions trading.

Networking climate actions for stronger, international carbon markets

Vikram Widge's picture
 
Map of existing and emerging carbon markets and taxes, from State and Trends of Carbon Pricing



Around the world, countries are developing ways to put a price on carbon to fight climate change. They are choosing different approaches depending on their national circumstances. China has pilot emissions trading systems (ETS) in seven provinces and cities and is planning a national ETS in 2016. Chile recently approved a carbon tax to start in 2018. Mexico and Colombia are implementing sector-wide crediting mechanisms that reward low emission programs with carbon credits, for example in the transport sector by substituting conventional vehicles with electric cars. Many countries have renewable energy portfolio standards and feed-in tariffs.

These domestic initiatives are crucial to lowering greenhouse gas emissions. Each is being designed individually, though, creating a patchwork of regulations and missing the economy of scale that a connected system could bring.

The World Bank Group has been working on ways to network these initiatives and facilitate an integrated international carbon market.

Testing carbon pricing in Brazil: 20 companies join an innovative simulation

Nicolette Bartlett's picture
Bidding platform for ETS simulation. BVRio


By Nicolette Bartlett, Prince of Wales’s Corporate Leaders Group and CISL

Developing effective carbon pricing mechanisms can and will play a key part in tackling climate change, facilitating the much needed investment cost-effectively and at scale. Specifically, “cap and trade” policies or emissions trading schemes (ETS) have been widely adopted in recent years because of their potential to foster greenhouse gas emissions reductions.

Over the past few years, carbon pricing has risen on the corporate agenda – from the Prince of Wales’s Corporate Leaders Group’s (CLG) Carbon Price Communiqué to the UN Climate Leadership Summit in September, where 73 countries and over 1,000 companies came together to publically lend their support for carbon pricing. Here at COP20 in Lima, many businesses and civil society organisations are asking what role carbon pricing will have in the Paris 2015 Climate Agreement.

One Brazilian business group that CLG has been partnering with is taking a novel approach. Empresas Pelo Clima (EPC) implemented an ETS Simulation using live corporate data to engage Brazilian companies in discussions around what a robust cap and trade market might entail and how it could be designed and implemented. The ETS Simulation is delivered in partnership between the Rio de Janeiro Green Stock Exchange (BVRio – Bolsa Verde do Rio de Janeiro) and EPC through the Center for Sustainability Studies of the Business Management School at the Getulio Vargas Foundation (FGV-EASP).

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