6 March 2013: A report commissioned by the Nordic Working Group for Global Climate Negotiations (NOAK) analyses the status and outlook for the increasingly fragmented global carbon market, and identifies measures that could be taken to boost demand for carbon credits in the absence of an ambitious global climate policy.
The report, titled “Demand in a Fragmented Global Carbon Market: Outlook and Policy Options,” was prepared by GreenStream in partnership with Climate Focus. It underlines that the global carbon market faces a deep crisis, where plummeting prices weaken incentives for the private sector to seek low-cost mitigation and increase the risk of locking-in carbon intensive infrastructure for decades to come. The report further observes the different standards adopted in emerging national and regional carbon markets risk creating a fragmented market landscape.
The report concludes that demand for international credits will come mainly from voluntary pledges through 2020, marking a shift from demand by commitments under the Kyoto Protocol between 2008 and 2012. By 2020, the international supply of credits is predicted to exceed demand by 0.7-1.7 gigatons, exacerbating a market imbalance that has already led their price to fall from a high of 30 euros per ton in 2008 to under one euro in 2012.
Given this dual challenge of low-demand and market-fragmentation, the report calls for countries to spur demand with more ambitious pledges, while linking national and regional markets in Australia, New Zealand, California, Japan and elsewhere through the widespread use of international credits. The findings also encourage public and public-private credit purchase vehicles, and voluntary initiatives to augment demand in the short term.
In regard to the fungibility of credits and linking of emission trading schemes, the report notes that links are most likely to succeed among countries with similar levels of economic development. It also underscores that comparable and compatible registries and monitoring, reporting, and verification systems are crucial but difficult for countries with poor governance and infrastructure. The report concludes with a set of options for how Nordic countries can increase the demand for international credits both within and outside of UN negotiations.
A working group of the Nordic Council of Ministers (NORDEN), NOAK aims to contribute to a global climate agreement with ambitious emission reduction commitments through publications, policy reports, meetings and other efforts. [NORDEN Press Release] [Publication: Demand in a Fragmented Global Carbon Market]