Industry observers hoping for more to be achieved at the United Nation’s climate change meeting last month in Lima may have been disappointed with the weak, watered down agreement: pledges are not enough to cap warming to 2 degrees celsius, and the issue of how much advanced and developing economies should do remains problematic.
At the same time, UN carbon credits have fallen to a record low before they expire in March, having declined 99 percent from a 2008 peak, causing uncertainty about the financing of current and future environmental projects.
Yet, there are reasons for optimism, some say.
Sub-national and regional efforts to put together a price on carbon have been taking root, said James Fahn, the executive director of the Earth Journalism Network, which covers environmental issues, in the New York Times.
For instance, Canada’s province of British Columbia collected C$1.2 billion in carbon taxes last year, while BC and the US states of California, Oregon and Washington are discussing the setting up of continuous electric-vehicle charging infrastructure along North America’s west coast, he said.
Meanwhile, many countries are also beginning to value carbon, according to the Center for American Progress (CAP), a progressive U.S. think-tank. By the end of 2015, countries including China, Korea, Switzerland and New Zealand will have national or regional prices on carbon for specific sectors like electricity and industry, the CAP said in a report ‘Raising Global Climate Ambition’ last September.
“Soon, most of the world’s economy will have a carbon price of some kind,” Nigel Purvis, the report’s author told Eco-Business in a recent interview. He is also the former deputy chief US climate negotiator and senior US climate diplomat. “Key countries are already moving in this direction [so] it should be feasible for nations to agree that carbon pricing is the future.”
Putting a price on carbon remains the cheapest way to deal with climate change, and he calls for all major economies to do so by 2020.
Multiple, voluntary markets
So the carbon-pricing system is sound. Less clear cut is the nature of this “carbon price”. Should it be a globally-agreed one? Or should different countries be allowed to set their own?
In a commentary published in December, researchers Goh Tian and Jonatan Anderias Lassa from Nanyang Technological University’s S Rajaratnam School of International Studies (RSIS) questioned whether a single global carbon price was appropriate for both developing and developed countries.
Currently, the smaller regional carbon markets that countries and regional blocs have put in place are part of their measures to reach their own voluntary emissions targets. Each has its own carbon prices, and new systems are emerging.
China, for instance, has been developing regional carbon markets since 2011, with a plan to implement a national scheme by 2016, as part of policies to help the world’s largest emitter cut its economy’s carbon intensity by 40 to 45 per cent.
Having these splintered, differentiated carbon markets is not as economically efficient as having a single global one, said Columbia Business School adjunct finance professor Bruce Usher. A larger, global carbon market would be able to reduce emissions more efficiently by finding the lowest-cost places on earth to do so, and having sufficient demand to fund the development of carbon projects. “Markets work will when there’s liquidity, and you get liquidity through scale,” he said.
The fact that carbon markets are actually arising in different forms means that there are still a lot of opportunities out there. In China, for example, there are a lot of businesses starting now around the emerging national carbon market there.
Assaad Razzouk, group chief executive, Sindicatum
The role of business
So where does the current absence of a global carbon market leave carbon credit-based businesses?
The game is far from over, said Assaad Razzouk, group chief executive of clean energy developer Sindicatum, which itself switched from credits to developing renewable energy projects and selling that energy.
In the past, the collapse of the global CDM (Clean Development Mechanism) market meant firms that relied on the UN’s carbon offsets as a source of revenue have had to adaptor perish, he said. There are now alternatives.
“The fact that carbon markets are actually arising in different forms means that there are still a lot of opportunities out there,” Razzouk said. “In China, for example, there are a lot of businesses starting now around the emerging national carbon market there.”
And as regional carbon markets grow, all businesses – not just players in the carbon market - still needed to factor in the cost of carbon in the long term, noted Columbia’s Usher. They will stand to gain from cutting emissions, increasing their energy efficiency and switching to renewable energy, and the resulting cost savings help improve the bottom line.
“Any company that’s thinking for the long term… any well-run business has to factor in limits on greenhouse gas emissions,” he said.
Columbia’s Usher was formerly chief executive of EcoSecurities, which sources, develops and trades carbon credits and at one time had the world’s largest portfolio of emissions reduction projects, till it was acquired by JP Morgan in 2009. Today, it continues to develop and sell voluntary credits rather than the ones used to comply with UN regulations, he added.
Laying the foundation for Paris
Ultimately, the purpose of carbon pricing is to lower emissions efficiently while helping fund the development of emissions-reduction projects. However, as the World Resources Institute, a US think-tank, points out carbon pricing is not the only means of doing so.
Rather, nudging investment in compact urban infrastructure and low-carbon transport can help, as can bonds or new partnership models between governments, NGOs and the private sector.
“Collaboration and compromise will be essential to mobilise more climate finance and galvanise a shift of trillions of dollars from high-carbon to low-carbon economic growth,” they added.
So what was missing from Lima was actually a concrete plan on how to push climate finance to the promised $100 billion a year by 2020, the institute said.
And as CAP’s authors wrote, there are concrete steps that policymakers can take as they start preparing for a comprehensive proposal to present in Paris to cut emissions.
These include valuing carbon, setting a specific year for emissions to peak; committing to measurable goals for shared international emissions cuts and climate financing; and committing to global goals for forest protection and sustainable forest management, including eliminating deforestation from global commodity trade by 2020.
After all, as RSIS’s Goh and Lassa noted, countries’ national climate actions should require difficult and concrete shifts to clean energy production and consumption, but “it should not place a burden that is so great on a country that it jeopardises development, lest the country defaults on its promise.”
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