The World Bank’s annual state of carbon pricing report found that, while the value of global carbon pricing initiatives increased by 7% in 2016, 85% of global emissions remain uncovered by carbon pricing.
The UN Climate Change Conference in Bonn included formal discussions and side events on carbon markets, including their role under the Paris Agreement, environmental integrity, the role of international shipping and aviation; and REDD+.
The EU reached agreement on the reform of its emissions trading scheme (ETS) for the post-2020 era and formally linking is scheme with the Swiss ETS.
6 December 2017: November carbon pricing and market news included the World Bank’s annual state of carbon pricing report, which brought both positive and less positive news. The UN Climate Change Conference in Bonn, Germany, also known as COP 23, included discussions on carbon markets on both the intergovernmental negotiating agenda and at several side and special events. Also, the EU reached agreement on the reform of its emissions trading scheme (ETS) for the post-2020 era.
Launched in the run-up to COP 23, the World Bank’s ‘State and Trends of Carbon Pricing 2017’ report found that the value of carbon pricing initiatives worldwide increased by 7% since early 2016, reaching US$52 billion. A total of 42 national and 25 sub-national jurisdictions are currently pricing carbon dioxide emissions, raising revenues of more than US$20 billion. Key areas of progress according to the report over the past year were: new carbon taxes in Chile and Colombia; new or enhanced carbon pricing schemes introduced by three Canadian provinces and one US state; a one-year ETS simulation launched by Mexico ahead of the launch of an ETS pilot in 2018; and China gearing up for the roll-out of its national ETS. On the downside, the report found that 85% of emissions are still not covered by carbon pricing and most current prices are at levels that are inconsistent with the temperature goal of the Paris Agreement. [World Bank Press Release] [World Bank Report]
At COP 23, from 6-17 November, carbon markets were discussed under the Subsidiary Body for Technological and Scientific Advice (SBSTA), under discussions on Paris Agreement Article 6.2 (internationally transferred outcomes) and Article 6.4 (the mechanism). In the final conclusions on both sub-items, the SBSTA took note of the third iteration of the co-chairs’ informal note on cooperative approaches under Article 6.2 and requested the SBSTA Chair to prepare an informal document containing the draft elements of guidance on cooperative approaches based on prior submissions and the third iteration of the informal note, with an eye on continuing work at the next SBSTA session in April-May 2018. Discussions also took place on matters relating to the Clean Development Mechanism (CDM) and joint implementation (JI). [IISD RS Summary on COP 23]
Outside the intergovernmental negotiations, several events related to carbon markets and pricing took place at COP 23. Official side events covered topics, including: the role of carbon markets under the Paris Agreement; ensuring environmental integrity in the use of carbon markets; the role of international shipping and aviation; and a public-private regime for reducing emissions from deforestation and forest degradation in developing countries (REDD+) in Brazil and its synergies with carbon markets. A side event by the Partnership for Market Readiness (PMR) and the government of Turkey drew attention to carbon pricing at the level of cities, companies and universities. [UNFCCC COP 23 Side Events List] [PMR Side Event Description] [IISD RS COP 23 Side Events Coverage]
The International Emissions Trading Association (IETA) and the Climate Markets & Investment Association (CMIA) presented a ‘Carbon Pricing Champion Award’ to the governments of New Zealand and the Pacific Alliance regional trade agreement (Chile, Colombia, Mexico and Peru). New Zealand received the award for its ETS reforms and the Pacific Alliance for the Cali Declaration, in which the four participating governments announced their intention to “increase efforts to measure and report emissions and to look at establishing a voluntary regional emissions trading market.” [IETA Press Release on New Zealand] [IETA Press Release on Pacific Alliance]
Taking place shortly after the Bonn Conference, a Global Maritime Forum round table, organized by the Carbon Pricing Leadership Coalition (CPLC) and the non-governmental organization Carbon War Room, in London, UK, brought together the finance working group of the industry-led initiative Task Force on Decarbonizing Shipping to discuss the challenges of decarbonization for ship financing. The group is working on developing principles for integrating climate risk into lending decisions in the sector. [CPLC Press Release]
In parallel with COP 23, the Estonian presidency of the European Council and the European Parliament reached provisional agreement on the reform of the EU ETS for 2021-2030. At the end of November, the EU Council endorsed the agreement, which will still be submitted to the Parliament for approval. According to the European Parliament, the Directive “introduces a new limit on greenhouse gas (GHG) emissions in the ETS sector to achieve the EU climate targets for 2030, new rules for addressing carbon leakage, and provisions for funding innovation and modernization in the energy sector.” According to the Council, the reform will: help the EU deliver on its 40% emissions reduction target by 2030; contribute to cost-efficient emission reductions; encourage innovation; promote the use of low-carbon technologies; and create new opportunities for jobs and growth. Commenting on the deal, the International Carbon Action Partnership (ICAP)’s Dutch Co-Chair said the agreement on the reform sent a “strong signal that Europe is committed to fulfilling [its] obligations under the Paris Agreement.” The EU ETS covers nearly half of the EU’s total emissions. [EU Parliament Press Release] [EU Council Press Release] [ICAP Carbon Press Release]
Also, after seven years of negotiations and two years of discussions on hold, the EU and Switzerland signed an agreement linking their respective ETSs. The European Parliament is expected to approve the decision in early 2018, which would then be adopted by the European Council. According to the European Council, the linking “will help strengthen the functioning of the respective systems, enhance carbon pricing and ultimately create a solid international carbon market.” [ICAP Carbon Story] [European Council Press Release]
In the US state of Virginia, the local Department of Environmental Quality approved a regulation for emissions trading aimed at limiting carbon dioxide emissions from the power sector. The regulation could pave the way for a link with the Regional Greenhouse Gas Initiative of nine North-eastern and Mid-Atlantic US states by 2020. [ICAP Carbon Story]
In experiences and lessons from carbon pricing, the CPLC reported on how researchers from the Massachusetts Institute of Technology are exploring carbon pricing options with the Mexican government and how Yale, the first university to launch a campus-wide carbon pricing programme, saw buildings that faced carbon-related charges use less energy than other buildings. [CPLC Press Release on Mexico] [CPLC Press Release on Yale]
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The SDG Knowledge Hub publishes monthly climate finance updates, which largely focus on multilateral financing and cover, inter alia, mitigation and adaptation project financing news and lessons, institutional events and news, and latest developments in carbon markets and pricing. Past IISD climate finance updates can be found under the tags: Finance Update: Climate Change; and Finance Update: Sustainable Energy.