The Strategist

Emissions trading is growing but it's still not enough to reach the Paris Agreement goals

05/28/2018 - 13:19

Increasingly more countries and regions of the world are introducing various forms of "carbon prices" in the form of a carbon tax or quotas and the markets they are using, according to new research by the World Bank and the International Emissions Trading Association. The future of the sector largely depends on success of introduction of the national system of trade in quotas in China, analysts say. However, even in the case of the planned launch of the Chinese market, only a fifth of the world's emissions will be subject to regulation, and average prices per ton of CO2 emissions reduction are still below those necessary to achieve the objectives of the Paris Agreement.

The World Bank presented its latest report on the state of the world's carbon markets in the framework of the Innovate4Climate forum, held last week in Frankfurt. According to the study, already 45 countries and 25 regions (states, provinces) have introduced the so-called emissions price in the form of a carbon tax or a system of emission quotas and subsequent trade in quotas. Introduction of these mechanisms helped to attract $ 33 billion of green financing last year, which is 50% more than in 2016.

The greatest development of carbon mechanisms in the last two years has been noted in the Americas. For example, Chile and Colombia have introduced carbon taxes, and a number of Canadian and US provinces emission launched emissions trading systems. The greatest hope is connected with the launch of the national system of carbon regulation in China, which was announced in December 2017. If the Chinese system is successfully launched, the carbon price mechanisms will cover a fifth of the global greenhouse gas emissions.

The World Bank also agrees with the International Emissions Trading Association (IETA), which also presented its assessments of the current and future carbon markets in Frankfurt. "If the Chinese system is not successful, the reputation of global carbon markets will suffer significantly. If the mechanism of carbon regulation in the PRC starts successfully, it will be an incentive for an increasing number of countries to develop and introduce similar measures," IETA experts believe.

The positive trend that both organizations are singling out is the rise in prices for carbon credits (trade in them involves purchase of "emission quotas" that arise in companies and countries implementing projects to reduce their own emissions: the higher the price of quotas, the more profitable is implementation of such projects and the greater the supply of quotas in the future). So, now more than half of all emissions subject to "carbon" mechanisms are traded above $ 10 per ton of CO2 equivalent (in 2017 - only a quarter). Experts expect further price increases within the European Trade System (ETS, where the price per ton of CO2 is now around € 15) to € 22 after 2021. This forecast includes implementation of a package of reforms that includes restricting access to new quotas and a gradual withdrawal of excessive quotas from the market. However, as IETA analysts emphasize, in order to achieve the objectives of the Paris climate agreement (curbing the rise in global temperature within 2°C), the average price per ton of CO2 should not be less than € 50, therefore, "it is time for governments to take more realistic action in reducing greenhouse gas emissions gases".