4 March 2018: During the month of February 2018, the European Council formally approved the post-2020 reform of the EU emissions trading system (ETS) and Sri Lanka announced it will initiate carbon pricing readiness activities with support from the World Bank’s Partnership for Market Readiness (PMR). A status report by the International Carbon Action Partnership (ICAP) concluded that 2017 saw a number of positive developments in carbon pricing and trading.

In February, ICAP published its annual ‘Emissions Trading Worldwide’ status report, according to which the year 2017 marked “a key step forward for emissions trading,” with confidence in carbon markets increasing. The report highlights, inter alia, that: emissions trading now covers 15% of global emissions; the launch of China’s ETS was a remarkable step; efforts are progressing at national level in Latin America and at sub-national level in North America; and the world’s more established systems have passed major reforms to support the delivery of increasingly ambitious climate targets post-2020. [ICAP 2018 Status Report]

One of those reforms concerns the EU ETS. In February, the European Council, composed of EU Member States’ leaders, formally approved the EU ETS reform for the post-2020 period. The decision followed an approval by the European Parliament earlier the same month. The reform introduces three new elements: an annual reduction of 2.2% in the cap on the total volume of emissions; a temporary doubling of allowances to be placed in the market stability reserve, until the end of 2023; and a new mechanism to limit the validity of allowances in the market stability reserve above a certain level, operational from 2023. The approved regulatory package also contains provisions relating to carbon leakage and the application of a cross-sectoral correction factor. The EU ETS covers approximately 45% of the EU’s greenhouse gas (GHG) emissions. [European Council Press Release]

Commenting on the reform, ICAP stated it “put the EU on track to deliver on the pledges made under the Paris Agreement.” According to news analysis website Euractiv, since the ETS negotiations concluded in November 2017, the price of carbon has increased by 25%, prompting European Commissioner for Climate Action and Energy Miguel Arias Cañete to reportedly declare: “the EU ETS is back.” [ICAP Story] [Euractiv Story]

Also in February, following the completion of all necessary steps, the European Council formally adopted an amendment to the EU ETS Registry Regulation to implement safeguard measures to protect the environmental integrity of the system when EU law ceases to apply in the UK post-Brexit. [European Commission Press Release] [SDG Knowledge Hub January 2018 Carbon Pricing and Markets Update]

In Japan, ICAP reported that emissions from the nearly 1,300 urban facilities covered by the Tokyo Metropolitan Government’s cap-and-trade programme had declined by 26% between the launch of the programme in 2010 and 2016. [ICAP Story]

In market readiness news, the World Bank’s PMR released US$3 million in ‘implementation phase funding’ to Sri Lanka. The funding will be used for activities identified in the country’s ‘Market Readiness Proposal’ document including a pilot measurement, reporting and verification (MRV) registry and a roadmap for the implementation of a new carbon pricing instrument. The PMR provides funding and technical assistance for the “collective innovation and piloting of carbon-pricing instruments that reduce GHG emissions.” Sri Lanka has been an Implementing Country Participant to the PMR since 2016. [PMR Sri Lanka Country Page] [PMR Allocation Decision] [Sri Lanka’s Market Readiness Proposal]

In the area of international aviation, countries participating in the International Civil Aviation Organization’s (ICAO) Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) are gearing up to adopt the Standards and Recommended Practices (SARPs) for implementing the scheme in mid-2018. In March-April 2018, ICAO will hold a series of regional seminars to share information on the SARPs and support the development of national regulatory frameworks and necessary infrastructure. [ICAO Presentation on CORSIA Implementation]

Seeking to provide inputs into the process, the International Coalition for Sustainable Aviation (ICSA) published a report titled ‘Understanding the CORSIA Package,’ intended as a guide to the key provisions of the draft SARPs. The report also identifies areas where ICSA believes the CORSIA SARPs Package should be strengthened and makes recommendations, including: increasing the transparency of reporting; making clear that only CORSIA Emissions Eligible Emissions Units can be used for compliance; and refraining from crediting aviation alternative fuels under CORSIA until the sustainable aviation fuels provisions in the Package are strengthened. [ICSA Report on Carbon Market Watch Website]

Also commenting on CORSIA in a joint briefing to the European Parliament, Carbon Market Watch and Transport and Environment expressed concern over what they described as the scheme’s “weak target and the exclusive reliance on offsetting.” [Carbon Market Watch Briefing]

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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.