3 October 2017
Carbon Pricing and Markets Update: EU Discusses ETS Reform, Aviation, Brexit
UN Photo/R Marklin
story highlights

Twenty-six national and subnational governments announced their commitment to strengthening both existing and new carbon markets.

Discussions on the reform of the EU emissions trading system (ETS) continued, with industries and experts sharing their views.

Ontario, Québec and California signed an agreement to link their respective carbon markets.

30 September 2017: The International Carbon Action Partnership (ICAP) celebrated its tenth anniversary in September, which is both a cause for celebration and renewed discussions on how to strengthen existing and new carbon markets. Over the past weeks, several events provided opportunities to do so, including meetings of the EU Parliament, the European Commission, a meeting of members of the Clean Development Mechanism (CDM) Designated National Authorities (DNAs), and consultations between EU institutions and the private sector.

In early September, ICAP, a leading international forum focused on emissions trading systems (ETSs), celebrated its ten-year anniversary with an event co-hosted by the Portuguese Ministry of Environment in Lisbon, Portugal. At the event, high-level officials from 26 national and subnational governments from three continents endorsed a joint statement pledging to: strengthen existing ETSs; leverage the ICAP for dialogue and engagement of new jurisdictions; and strengthen cooperation on joint actions among the signatories’ carbon markets. [ICAP Press Release] [ICAP Joint Statement] [CPLC Press Release]

Also in September, the European Commission and European University Institute organized a carbon market workshop in Florence, Italy, attended by senior policy makers and non-governmental stakeholders from California, Canada, China, EU and New Zealand. At the event, participants shared experiences from the design and implementation of emissions trading systems, with an eye on their relevance for the implementation of the Paris Agreement. [European Commission Press Release]

Participants from 80 Clean Development Mechanism (CDM) Designated National Authorities (DNAs) met in Bonn, Germany, for the 2017 Global DNA Forum. According to the UNFCCC, the Forum “called on the Convention and Kyoto Protocol Bodies to provide clear guidance, as a matter of urgency, about CDM’s continued operation beyond the end of the second commitment period of the Kyoto Protocol.” Participants discussed, inter alia, the role of CDM projects in supporting nationally determined contributions (NDCs) and support needs of national and regional DNAs, and heard updates on the Global Climate Action Agenda and UNFCCC negotiations. [UNFCCC Press Release] [2017 Global DNA Forum Agenda and Presentations]

In North American ETS news, the Canadian provinces of Ontario and Québec and the US state of California signed linking agreements that will allow Ontario to join the Québec-California carbon market. According to ICAP, the three programmes belong to the Western Climate Initiative (WCI) and were designed based the same template. Starting from 1 January 2018, allowances from any of the three jurisdictions can be used interchangeably for compliance. [ICAP Story] [Québec Government Press Release]

In EU ETS news, the European Parliament adopted a position on the role of aviation in the EU ETS and agreed on provisions relating to Brexit. On aviation, the Parliament supported extending the exemption of intercontinental flights from the scheme until December 2020, pending the introduction of the International Civil Aviation Organization’s (ICAO) worldwide scheme to offset carbon dioxide emissions from international aviation. On Brexit, a proposed amendment addresses a so-called “hard Brexit” scenario (in which a transitional deal is not found) and recommends making void any allowances auctioned by the UK Government from 2018 if it were not to remain in the EU ETS. [ICAP Story on EU ETS]

Industry organizations and think tanks voiced their views on the ongoing EU ETS reform discussions. The International Emissions Trading Association (IETA) lauded a conditional agreement among the EU institutions on doubling the rate of removal for surplus emissions allowances from the market and on provisional agreement on voluntary cancellations of allowances. The proposed reforms involve discussions around reducing the long-term surplus, raising ambition, creating funds for energy innovation and modernization, and protecting trade-exposed sectors. According to a news release by energy analytics company Platts, the French Institute for Climate Economics, however, argued that the these reforms “are not enough to position the system as a main driver of decarbonization of Europe’s economy” post-2020. The reform discussions are expected to continue in mid-October. [IETA Press Release] [Platts Story]

A study published by the US Center for Climate and Energy Solutions (C2ES) explores how companies are pricing carbon through placing an internal carbon price. It notes that a company-wide carbon price can help internalize the cost of greenhouse gas (GHG) emissions. The study examines different practices in this regard and presents key lessons learned, which include that: internal carbon pricing can have multiple business benefits; the choice of the approach should be aligned with the company’s objectives and business strategy; and corporate carbon pricing must be complemented with other corporate GHG reduction strategies to ensure a transition to a global low-carbon economy. [C2ES Study] [UNFCCC Press Release]

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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 climate finance updates can be found under the tags: Finance Update: Climate Change; and Finance Update: Sustainable Energy.

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