ICAP Side Event at COP20: Working together is key to further development of carbon markets

Positive developments in carbon markets and a growing demand for international cooperation – these were the main conclusions drawn from a COP20 Side Event on 8 December 2014 in Lima, hosted by the International Carbon Action Partnership (ICAP).

For this event, ICAP convened high-ranking government representatives and carbon market experts from five jurisdictions where emissions trading schemes (ETS) are currently in operation or in preparation. In presentations and discussions, participants shared experiences with ETS and emphasized the importance of linking and collaboration.

In North America, the private sector already factors a carbon price into its business decisions

In a keynote, David Heurtel, Minister of Sustainable Development, Environment and the Fight against Climate Change from ICAP’s current Co-Chair Québec, reported on the first joint auction of emission allowances held by California and Québec two weeks ago. The two jurisdictions had linked their carbon markets in January 2014, forming the first international link. Commenting on the auction, Minister Heurtel noted that the fact that the demand for allowances exceeded those up for auction was a promising sign for the viability and strength of the joint carbon market. Addressing companies’ stance on carbon pricing, he stated that there was evidence that the private sector already factored a carbon price into its business decisions and that this could actually encourage investments.

Subsequently, Mary Polak, Environment Minister from British Columbia, shared recent experiences with carbon pricing in her province, where GDP increased while emissions have been declining. One reason behind the success of British Columbia’s carbon tax is its revenue neutrality, which has allowed the government to lower other taxes and increased public support for the policy.

Next, California: Edie Chang, Deputy Executive Officer of the California Air Resources Board, also delivered positive news, stating that California’s cap-and-trade program had brought in more than USD 1 billion in revenue for the nine auctions held so far. She emphasized the importance of international collaboration, referring to the Memoranda of Understanding that California has signed with both China and Mexico to cooperate on ETS and climate change.

In Asia, success of ETS development is due to an intensive capacity building

Talking as a representative of Asia – which is the most dynamic ETS region at the moment – Han Chang Choi, Deputy Director of the Korean Environment Ministry, discussed the importance of early and active stakeholder engagement in the design and early stages of an ETS. As one of many steps taken this year, Korea has just completed allowance allocation to covered entities and is on track to launch its national ETS in January 2015.

Finally, Qian Guoqiang, Strategy Director of Sinocarbon, reported on ETS developments in China. With a combined size of about 1.2 billion tons of carbon dioxide, the seven ETS pilots currently form the second-largest carbon market in the world after the European system. Qian Guoqiang also emphasized that like elsewhere, ETS development in China was an intensive learning process, with training and capacity-building measures at all levels forming a vital part of China’s transition towards a national ETS in 2016.

In the discussion with the audience, all speakers emphasized the importance of linking and collaboration on emissions trading, beginning with information exchange through fora like ICAP. Other questions by the audience touched on the possible role of forests in emissions trading, the prospects for offsets in the domestic systems, and the possible implications of EPA’s Clean Power Act on subnational climate change policies in the United States.

» International Carbon Action Partnership (ICAP)