Carbon markets have become a vital piece of common ground for defenders of the climate. The tool is gradually extending around the world, bringing with it higher revenues. EURACTIV France reports.
The EU may have made a start with its own carbon market, the EU Emissions Trading System (ETS), but now it is time to harvest the benefits of the idea on a wider scale.
At the COP23 in Bonn, China’s special representative for climate change, Zhenhua Xie, tipped his hat to the EU, acknowledging that the world’s most populous country had designed its own carbon market – to be established soon – with Europe’s example in mind.
China’s single national carbon market, due to come online in 2017, is still being refined from the seven regional markets currently in operation.
This small diplomatic victory for Europe, which sees itself as a global frontrunner in climate action, shows the merits of leading by example.
“The carbon market is the spine of the EU’s climate policy and now involves 32 countries,” said Jos Delbeke, director-general of the European Commission’s climate change department.
Switzerland, as well as Liechtenstein, Norway and Iceland, have joined the EU-28 in the emissions trading platform. And after hundreds of hours of negotiations, the European Council, Parliament and Commission reached a deal on ETS reform after 2020.
This reform will aim to address the major criticisms levelled at the carbon market since its inception: cut quotas at a faster rate (2.2% per year, up from 1.7%) and set aside excess quotas to encourage the price to rise.
“The important thing is to ensure cuts to the maximum emissions allowed for industry: they stood at 2.2 million tonnes of CO2 per year in 2005 and we are aiming for 1.3 million tonnes by 2029. This reduction is more important than the price,” said Delbeke.
The subject has revealed common ground between the EU, China and California, who celebrated their cooperation at a joint event at the COP23; another attempt to highlight the countries leading the battle against climate change, as Emmanuel Macron did by deciding not to invite Donald Trump to his post-COP summit in Paris on 12 December.
China’s unified system has hit a snag around perceptions of inequality between the existing carbon markets. Europe’s answer to this problem has been to hand out free quotas to businesses that would otherwise suffer from international competition.
But a more efficient system would see all businesses operating under one carbon market, thus rendering free quota allocations useless. So speeding up cooperation is a political priority for the EU.
By enlarging and unifying its carbon market, Beijing will take the proportion of the world’s population covered by an emissions trading system from 15% to 25%.
In California, the carbon market launched in 2011 is progressing rapidly. “We are aiming for a 40% cut in emissions by 2030. We are the sixth biggest global economy, with just 60 million inhabitants, but we are showing that you can build an energy transition on a carbon market,” said Matt Rodriquez, secretary of California’s Environmental Protection Agency (EPA).
However, for most NGOs, these carbon markets are failing to fulfil their promise due to low prices. In Europe, the carbon price of €7 per tonne is not enough to spur a transition from coal to gas, for example.
Carbon markets: cash generators
Nonetheless, emissions trading systems are becoming more accepted for their potential to fund the clean energy transition.
In Europe, the ETS brought in €26billion in 2015 and €22bn in 2016, much of which was reinvested in clean energy. Dramatic increases in revenue are expected from 2020, when the carbon tonnage price will be set between €20 and €30.