7 November 2017
Carbon Pricing and Markets Update: Private Sector Participation Rises
UN Photo/Kibae Park/Sipa Press
story highlights

The role of the private sector received attention at the Latin American and Caribbean Carbon Forum held in Mexico.

Close to 1,400 multinational companies currently factor a carbon price in their business plans.

At the same time, jurisdictions that have implemented an explicit carbon price currently only cover 25% of global greenhouse gas emissions.

31 October 2017: October carbon pricing and market news included a major national carbon market simulation in Mexico, plans by the Netherlands to set a carbon price floor and additional moves in the EU to safeguard the environmental integrity of its Emissions Trading System (ETS) from a Brexit. Studies and analyses released in October indicated that, while companies are pushing forward with internal carbon pricing, national jurisdictions are still lagging behind, with price levels in most cases not supporting a below 2°C world.

The Latin American and Caribbean Carbon Forum (LACCF) convened in Mexico City, Mexico. The event featured roundtables organized by the UNFCCC on ‘the Clean Development Mechanism (CDM) in the Future Mechanism’ and ‘supporting the adoption of carbon pricing instruments’, as well as plenary sessions on the role for carbon pricing in delivering on the Paris Agreement and carbon pricing in Latin America and the Caribbean, and workshops on carbon taxing, emissions trading, transparency, international aviation emissions, forests, auctioning, bonds and accounting, among others. During discussions at the Forum, the role of the private sector received much attention, with industry participants calling for a “strong and predictable carbon price trajectory,” and government representatives agreed with the need to “pursue carbon pricing now, as an essential element of a multi-faceted strategy.” [LACCF Website] [LACCF 2017 Programme] [SDG Knowledge Hub Story] [UNFCCC Press Release]

The LACCF host country Mexico announced the start of a national carbon market simulation, led by the country’s Secretariat of Environment and Natural Resources (SEMARNAT) in cooperation with the Mexican Stock Exchange and its voluntary carbon platform MéxiCO2. Participating in the simulation, which aims to demonstrate the functioning of an allowance market and build related capacity and dialogue, are 90 enterprises, responsible for two thirds the country’s GHG emissions. [ICAP Press Release] [Grupo BMV Press Release (in Spanish)]

On the role of businesses, a study by the carbon disclosure group CDP found that more than three-quarters of the energy and utilities sectors’ market cap is currently pricing carbon internally, and more than half of the materials and telecommunications sectors intend to use an internal carbon price in the short term. Overall, there has been an eight-fold increase in the number of companies using an internal carbon price over the past four years, with close to 1,400 multinationals currently factoring a carbon price in their business plans. The study titled, ‘Putting a Price on Carbon: Integrating Climate Risk into Business Planning,’ identified a number of trends, including: carbon pricing is “on the rise again”; internal carbon pricing by companies has been growing steadily for the past four years; a large number of companies are expecting to be vulnerable to carbon pricing regulation through a failure to internalize the cost of carbon internally; there is insufficient information regarding companies’ preparedness in the medium and long term; and while North American companies are leading the growth in internal carbon pricing, China’s emissions trading plans are likely to “send a ripple across markets regionally.” [CDP Report] [CPLC Press Release] [Climate Action Press Release]

A broader study on the ‘Landscape of Carbon Pricing’ by the Institute for Climate Economics (I4CE), based on an updated database of carbon pricing policies, identified key trends in implementation at regional and national levels in 2017, including: jurisdictions that have implemented an explicit carbon price currently only cover 25% of global greenhouse gas (GHG) emissions, but the adoption of such policies is accelerating; despite a decrease in 2016, carbon revenues remain an important financing tool for both the environment and economy; and price levels are in most cases too low to support a low-carbon transition and are not aligned with staying below 2°C. The publication also includes tables and graphic elements that contain information on the jurisdictions that have implemented or plan to implement explicit carbon pricing policies, namely taxes or ETSs. [I4CE Study] [CPLC Press Release]

In other analyses, the PMR published the 2017 second quarter edition of its China Carbon Market Monitor. The brief provides an update on China’s ETS pilots secondary market, emission compliance rates, certified emission reduction project registrations and credit issuances (which remained in suspension), and developments in allowance allocation in the power generation, electrolytic aluminium and cement sectors. The PMR also released an update on the process and of its partnership activities. [PMR China Carbon Market Monitor Q2 2017] [PMR Dashboard 30 September 2017]

The Pacific Alliance regional trade agreement, comprising Chile, Colombia, Mexico and Peru, mandated its Environment and Green Growth Group to work on proposals on carbon markets and related measurement, reporting and verification (MRV) initiatives. With the support from the World Bank’s Partnership for Market Readiness (PMR), the group produced an initial scoping study to assess existing MRV initiatives with the objective of moving towards a common or comparable system across the region. [World Bank Blog Story]

On the EU ETS, the EU Commission presented a proposal to amend the EU ETS regulations to ensure the system’s environmental integrity during the period from 2013-2020 through allowing for marking and restricting the use of allowances issues by the United Kingdom as of January 2018 given the country’s indication it intends to leave the EU, which could mean that, as of 30 March 2019, UK installations and aviation operators would no longer be subject to any EU ETS-related obligations. [EU Commission Press Release]

In the Netherlands, the Government has announced plans to establish a $18 carbon price floor in the electricity sector, which would see Dutch companies charged an additional levy based on the price difference between EU allowances and the price floor from 2020 onwards. The plan also envisages the floor to gradually rise to $43 by 2030. [ICAP Press Release]

In other news, the Global Maritime Forum, Carbon War Room, the Carbon Pricing Leadership Coalition (CPLC), and University College London announced the launch of a Task Force on Decarbonizing Shipping, which will work through five working groups and present its proposal at the Global Maritime Forum summit in October 2018. Also in October, the Greenhouse Gas Management Institute and George Washington University launched a graduate certificate programme in GHG management. [ICAP Press Release on Shipping Pathways] [ICAP Press Release on GHG Management Certificate]

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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.

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