This article is part of our special report Crunch time for COP21.
SPECIAL REPORT / While the price of carbon remains low, support for pricing schemes is growing. Asia will soon overtake Europe as the home of the world’s biggest carbon markets. EURACTIV France reports.
One of the big achievements of the COP21 so far has been to broaden the appeal of carbon markets beyond Europe’s borders, and deepen their acceptance as a mechanism for the management of CO2 emissions. But a study published by the OECD on 7 December showed that prices will have to rise for the desired effects to be achieved, and for now they remain stubbornly low.
In 90% of cases, the effective price of CO2 across the 41 countries studied, including members of the OECD and the G20, is less than €30 per tonne; the minimum cost of tackling the environmental damage caused by one tonne of CO2.
“The carbon price depends directly on ambition. If the ambition is not there, if the issue is used as a political football, of course we will have problems,” warned Rachel Kyte, the World Bank Group’s Special Envoy for Climate Change.
Today, around 60% of global emissions are not subject to any kind of carbon pricing, whether in the form of a tax or a market. But half of the 195 Parties to the COP21 refer to a carbon price in their national contributions (INDCs), often with a view to implementing a carbon pricing mechanism in the near future.
General approval, despite problems
Despite the restricted coverage of carbon markets, many of their users have showcased their satisfaction with the mechanisms at the COP21. They feel a new dawn for carbon trading is just around the corner, after a long period of dormancy for many markets.
In Europe, the price of carbon quotas has been held down by their overabundance. From a peak of €30 per tonne, the tonnage price of CO2 fell to just a few euros in 2014.
A tonne of CO2 currently costs just €9, which is far too little to have any significant effect on emissions reduction. But despite these setbacks, the European market has been emulated in other regions.
François Hollande and Angela Merkel opened the Paris Climate Conference by calling for a global carbon price, while defending the market created in the European Union a decade ago.
“The carbon market is undermined by the fact that we have different mechanisms, different taxes, and that we did not include all industries. But it exists, even if we are rather lonely in this regard,” the German Chancellor said.
But the loneliness of the European market should soon be a distant memory.
To the East
The European carbon market may be the biggest, but others exist in the United States, Canada, South Korea and China. These markets are expanding rapidly, and by 2017, the most important CO2 trading mechanisms in the world will be in Asia.
China plans to extend its experimental markets across the whole country in 2017, which will take it to the global top spot overnight with a carbon market double the size of Europe’s.
For the Chinese, this is also an investment in the future of the economy.
“The seven carbon market pilot projects are transforming the economy little by little, and creating jobs,” said Dr Qimin Chai, from the Chinese National Climate Change Strategy Research and International Cooperation Centre (NCSC).
The tonnage price of CO2 in China has risen from 60 to 100 yuan (€14) in response to the collapse of the price of coal. Energy producers have been forced to buy large quantities of CO2 quotas as they have increasingly turned to the most carbon intensive fossil fuel.
According to Jeff Swartz, from the International Emissions Trading Association (IETA), the Chinese market was very well conceived and exemplifies “the willingness of the Chinese government to bring about a real market price”. For him, the fact that China was party to the Clean Development Mechanism (CDM) under the Kyoto Protocol facilitated the integration of the carbon market into the Chinese economy.
Grand plans in Taiwan
In Taiwan, where plans to establish a carbon market are being developed, the conditions for a successful and effective market have been the subject of careful consideration. Despite its small size, the island, which imports 98% of its energy, is the world’s 31st biggest emitter of CO2.
In this context, achieving serious emissions reductions is no easy task. The country, which is not a member of the United Nations Framework Convention on Climate Change (UNFCCC) and is therefore not taking part in the COP21, initially plans to reduce its emissions using credits from the CDM.
But its long-term vision is to establish its own carbon market. Taiwan submitted a national contribution ahead of the COP21, although as it has not signed the UNFCCC, it was not obliged to do so. The island state hopes to reduce its CO2 emissions by 50% by 2050, compared to 2005 levels.
“We will concentrate on international cooperation to develop this market,” said the Director of Taiwan’s Environmental Protection Administration, Dr Huichen Chien.
The long-term success of these developing Asian carbon markets will doubtless hinge on their interconnectivity: South Korea stated in its INDC that it wants to open its carbon market to other quota exchange systems, like the Chinese carbon market.