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Climate Change

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.

Going, going, gone – timeline of an innovative auction that aims to reduce methane emissions

Scott Cantor's picture
Pilot Auction Facility for Methane and Climate Change Mitigation (PAF)








Private investors bought price guarantees for 8.7 million tons of methane emission reduction in an innovative auction, attracting bidders from across the globe.
 
The Pilot Auction Facility for Methane and Climate Change Mitigation (PAF) provides support to businesses that invest in climate friendly projects.  The first pilot auction was held online on July 15, 2015, auctioning off price guarantees, or put options, targeting methane reducing projects. 
 
By providing a floor price for captured methane, the PAF offers private investors a financial incentive to fund carbon capture. Using an auction maximizes the impact of public funds dedicated to slowing climate change.
 
Here’s my journal entry from the day – July 15 – auction day (at last!)

From the Aspen Ideas Festival: Rachel Kyte on Climate Resilience & Opportunity

Rachel Kyte's picture
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At the Aspen Ideas Festival, World Bank Vice President and Special Envoy for Climate Change Rachel Kyte talks about climate resilience and how it can create opportunities for all people while protecting all people. Women and children make up a large number of the extreme poor, who are among those most at risk from the impacts of climate change.
 

G7 recognizes need for deep emissions cuts. Now for action

Rachel Kyte's picture
Also available in: Español | Français

G7 meeting in Germany. Bundesregierung/Gottschalk


This weekend, the leaders of the G7 committed to a series of actions that mark their first serious recognition of the economic transformation that is ahead of us.
 
Collectively, they recognized the need to decarbonize the global economy, enshrining in economic cooperation what the scientists in the IPCC told us last year in their Fifth Assessment Report. They called for ambition at the Paris climate talks this year – not new, but they recognized that they, individually and collectively, need to be in the upper part of the ambition bracket and that that means at least a “transformation of the energy sector by 2050.”
 
They talked about the mobilization of capital for this transformation, as well as ending the increasingly profligate use of harmful fossil fuel subsidies. Recognizing the need for an orderly transition to low-carbon growth as quickly and as smoothly as possible, they took on some degree of leadership around the pledge to provide $100 billion in climate finance for developing countries from public and private sources before 2020. More on that in a moment.

Statoil CEO: We know carbon pricing actually works

Eldar Sætre's picture
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Eldar Sætre is president and CEO of Statoil. He was one of six oil and gas company CEOs who issued a joint call to governments around the world on June 1 to put a price on carbon.      

"Statoil has for some years called for a price on carbon because we know that carbon pricing actually works. If more governments put a price on carbon, other businesses will follow suit and quickly.

Carbon pricing is achieving critical mass as governments learn from one another

Thomas Kerr's picture
 
 Mary Nichols, chair of the California Air Resources Board, speaks on a panel with the president of Japan's New Energy & Industrial Technology Development Organization and the CEO Peugeot Brand. Business & Climate Summit 2015
Mary Nichols, chair of the California Air Resources Board, speaks on a panel at the Business & Climate Summit with the president of Japan's New Energy & Industrial Technology Development Organization (NEDO) and the CEO of Peugeot Brand. 


Over the past two weeks, hundreds of global business and government leaders meeting in Paris and Barcelona demonstrated the growing support for ambitious climate policies.

At the Business & Climate Summit in Paris, François Hollande, the president of France, echoed a key message from the private sector in his keynote address, saying, “Carbon pricing is essential to move to a low-carbon economy.” Business leaders repeatedly asked governments to put a price on carbon to enable them to scale up investment in low-carbon solutions. Eldar Saetre, chief executive of Norway’s Statoil described a carbon price as “the single most efficient measure.”

The messages carried into Barcelona and Carbon Expo the following week, as market traders and officials from from multinational companies and governments discussed carbon pricing tools and options to finance a transition to sustainable economic growth. The Expo saw a 30 percent uptick in attendance this year, due in part to the growing interest in carbon pricing and the upcoming climate negotiations. The World Bank Group released its Carbon Pricing Watch, reporting that about 40 national and over 20 sub-national jurisdictions, representing almost a quarter of global greenhouse gas emissions, are now putting a price on carbon. Carbon pricing instruments have increased their coverage threefold in the past decade and now represent 7 gigatons of CO2. 

A learning journey
 
With the growth of carbon pricing instruments and rising interest from the private sector, governments are increasingly learning from one another and experimenting with different carbon pricing solutions. Whether they use taxes or emissions trading systems, there is now an emerging evidence base of how to successfully price carbon. Three jurisdictions are leading the way: the European Union, California and China.

How one climate-conscious investor engages with fossil fuel companies

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Peter Damgaard Jensen is the CEO of Pensionskassernes Administration A/S, a Danish investment manager with a portfolio that includes pension funds. He spoke at the World Bank Group about carbon pricing and engaging with fossil fuel companies to reduce climate risks.

"We are supporting the price on carbon because we think it is the most cost effective way of having influence on the way companies use carbon and have carbon emissions.
 
In PK (Pensionskassernes Administration A/S), we have just started a policy especially targeting companies that are very dependent on coal. We do that because we think coal is the first fossil, not fuel, but fossil product that will get out of the market because it is the product with the highest CO2 emissions.

Step-by-step: How to construct an emissions reporting system

Pauline Kennedy's picture
Oil and gas field. Asian Development Bank/Creative Commons


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.

Pricing carbon: No longer a question of if, but how for growing number of leaders

Rachel Kyte's picture
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Carbon pricing was the center of discussion as Carbon Expo got underway in Barcelona on May 26. World Bank Group Vice President and Special Envoy for Climate Change Rachel Kyte was asked by RTCC about the changing views toward carbon pricing as a policy tool in the fight against climate change and how business leaders responded to carbon pricing during Climate Week Paris the previous week.

Sweden: Decoupling GDP growth from CO2 emissions is possible

Magdalena Andersson and Isabella Lövin's picture
 Decoupling growth from emissions in Sweden


By Magdalena Andersson, Minister for Finance, Sweden
and Isabella Lövin, Minister for International Development Cooperation, Sweden


Sweden is proud to join forces with Sustainable Energy for All (SE4All), convening in New York this week. Energy is one of the most decisive issues of our age. Without secure access to energy, we won’t achieve real and lasting poverty reduction. Without the expansion of clean energy, we won’t be able to stop climate change.  

With business as usual and no significant carbon emission cuts, we have only 15 years left before we have emitted enough CO2 to make this planet more than 2 degrees warmer. Then we will see a dramatic increase in droughts, floods, storms and species extinction – and we will have changed the conditions for every generation to come. And we know that it is the poorest who will be hit the hardest by the effects of climate change.

This is not a political statement but a scientific one. Fifteen years left.

So we must start changing our energy systems, going from fossil to renewable, now.

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