Governments pledging to boost carbon pricing must follow up with ambitious action

In the days of Trump, Irma, Harvey, Talim and Doksuri, it is important to have positive signs that people can also work together, especially on climate change. The tenth anniversary of the International Carbon Action Partnership (ICAP) on 1 September 2017 was one such occasion. One must hope that the gathering gave policymakers renewed ambition and courage to reform and improve their carbon pricing systems.

Founded in 2007, ICAP brings together policy makers from regional, national and sub-national levels from around the world. It works to help policy makers share best practices and lessons from running their emissions trading systems, “facilitate” future linking, and promote emissions trading in general as a tool to address climate change. The anniversary conference was marked by a good number of representatives from the original partner countries.

Emissions trading developments from California to China

The ICAP anniversary came at an important time for emissions trading around the world.

In the United States, California recently passed legislation to extend its cap and trade program until 2030 and the Regional Greenhouse Gas Initiative (RGGI), an electricity sector trading system on the US East Coast, agreed on reforms following a long program review. The European Union is in the middle of final negotiations on the reform of its emissions trading scheme (the EU ETS) and is set to link its system with that of Switzerland soon. China is expected to launch a national scheme soon and New Zealand is holding elections that will likely have important repercussions for its volatile emissions trading policy.

Polluter pays’ initiatives spread, but prices remain too low

Carbon pricing more broadly is on the global political agenda with the recent report of the High Level Commission on Carbon Prices, calling for prices of $40-$80 per tonne of CO2 by 2020 and $50-100 per tonne by 2030 to reach the Paris temperature goals. This is far higher than most current price levels, which underlines the need for careful design and implementation of different carbon pricing measures to ensure a robust price.

Those gathered in Lisbon signed a joint statement highlighting the need for climate action, the importance of implementing the Paris Agreement, and the role of subnational action (presumably especially with respect to the US). They pledged to strengthen existing carbon markets and to further cooperation between different jurisdictions.

A lot has been learned in the past ten years and there are some important trends. There was much talk about the role of carbon pricing, and the Portuguese environment minister also highlighted the importance of his country’s complementary carbon tax and the environmental measures it financed. This was echoed by another representative who emphasised the “cap and invest” side of carbon pricing, pointing out what could be done with auctioning revenues.

Beyond offsetting

Though not mentioned in Lisbon, it is also important to point out that in several systems there is a trend away from offsetting – a policy that allows companies to pollute as long as they “offset” their emissions by financing climate projects elsewhere in the world. The practice has contributed to huge oversupply in markets depressing prices and, has been criticised for failing to deliver real emissions reductions. The EU will not allow international offsets after 2020 and California slashed the offset quotas for installations by half (offsets never played much of a role in RGGI).

There is still much room for debate on issues such as linking, further necessary reforms, and the overall role of emissions trading, but it is good to see decision makers coming together to talk about moving forward on climate action. Given recent headlines, they will need more courage and ambition. Fast.

Aki Kachi