During Carbon Expo yesterday, a panel of senior carbon market stakeholders debated the strategies needed to catalyse a globally connected carbon market.
A predictable carbon price is part of the answer to avoiding a 4 degrees warmer world. Although the current system has been successful in demonstrating that pricing carbon can redirect investment flows into low-carbon investments, it is limited in scope and structure to deliver emissions reductions at scale. A global carbon market in the future is more likely to be a linked network of domestic and regional schemes.
In front of a packed auditorium the panellists included;
• Robert Owen-Jones - Assistant Secretary, Global Markets Branch, Department of Climate Change and Energy Efficiency, Australian Government & Co-Chair, Partnership for Market Readiness (PMR)
• Dirk Forrister - President & Chief Executive Officer, International Emissions Trading Association (IETA)
• David Hone - Group C02 Advisor, Shell
• Lars Zetterberg - Senior Scientist and Director, Business Development, IVL Swedish Environmental Research Institute
• David Antonioli - Chief Executive Officer, VCS Association
IETA’s Dirk Forrister opened the proceedings and spoke of the vision for connectivity between major markets whilst developing a suitable mechanism for smaller players. “We have to be smart about what counts where and if we do not engage with governments and put in place the proper architecture at UN level, it will be difficult to create a common market,” said Forrister. “We need a mechanism to bring about connectivity and linkages between markets to ensure that they can talk to one another.”
David Hone from Shell gave his perspective from the energy sector on how Shell manages to offset their varying demands and also talked about their expectations for a globally connected market; “We argue lowest cost abatement as a driver, but clearly the long term gain is that we need to reduce and eliminate CO2 emissions and we need to have a globally connected market in order to do that,” said Hone. “There are many examples in the market today where emissions just shift. Reducing fossil fuel emissions is a global issue but these are hard to reduce because of the global demand for energy.”
The panel went on to discuss that CCS (carbon capture and storage) is key to CO2 emissions reduction; “If carbon capture and storage is not appearing around the world then you are probably not reducing emissions,” said Hone. “We have a long way to go from where we are today; the UNFCCC should focus on getting the carbon price into a global economy and to push CCS as the acid test of its success. This needs to be on the agenda for all of the future COPs,” concluded Hone.
Robert Owen-Jones shared a very interesting graphic on the approximate size of the different carbon markets and talked about how a globally connected market might merge. “When you put in place an Emissions Trading (ET) scheme, it is a huge reform and from a national expectation you need confidence in those units as there is a great sensitivity to double counting,” said Owen-Jones. However, and as the panel discussed, this sensitivity can be a driver to push up the quality of units.
Lars Zetterberg spoke about the EU ETS being a clear example of a linked market given that this scheme spans 30 countries. “For a global market, my hopes are that it would be built bottom up; there are clear economic benefits of linking markets with each other which also leads to harmonisation of carbon price. Moreover it signals political collaboration and creates certainty for investors that this is a policy that is here to stay,” said Zetterberg.
However there are barriers to linking, the main ones being around price pointing. Even if there are economic benefits there will be winners and losers in each system. Linking is also tied to concerns for ‘losing control’. “Linking is not happening much,” said Zetterberg, “ Linking by degrees may be a better model, that is to say we align schemes to drive best practice and common benefits,” concluded Zetterberg.
“There is always the ‘silo mentality’” echoed David Antonioli. “I think that the willingness is there but for some schemes, it is difficult to see. In China for example, they have adopted the Clean Development Mechanism (CDM) methodology where additionality is done on a project by project basis. The California scheme takes additionality up front.”
The panel discussed the need to have an underlying common framework. This is not to say that there is no role for individual systems but there was collective agreement that we need to move to next stage of carbon credit mechanisms. “We should align and have systems and schemes that have common criteria and standardised approaches,” said Antonioli.
With Madlen King, LRQA Global Head of Climate Change and Sustainability in the audience, we asked for her views on strategies for catalysing a global carbon market;
"The Framework for Various Approaches (FVA) that was called for at the last COP in Doha is exactly what our bottom-up and fragmented market needs - a top-level framework of oversight of carbon schemes worldwide to ensure the application of common principles and requirements thereby achieving consistency and transparency while avoiding double-counting. Without such a framework I believe alignment of schemes, let alone linkage, for a global carbon market cannot be achieved,” concluded King.