Carbon markets to stay fragmented for awhile

Carbon industry experts seem to think the likelihood of a unified global carbon trading system is non-existent – at least in the near future.

This was a hot topic at this year’s Carbon Forum Asia, which kicked off today.

Several speakers said that in the absence of a global system, the focus should be on how to link the different regional systems. In particular, the focus should be how to remove the barriers to such linkages.

Bruce Schulberg, a partner at Clifford Chance’s Beijing Office, has been particularly active in developing carbon exchanges and comes from a project finance background. He believes that multiple exchanges are not only a fall-back solution but also a reality of life.

He believes: “While linking regional systems is not impossible, the establishment of linkages requires very difficult compromises on methodologies, targets, penalties, safety valves and allocation of allowances.”

Another obstacle to linking regional markets is the competitiveness amongst countries according to Yariv Cohen, Chief Carbon Officer at Camco. His organisation is a global developer of emission reduction and clean energy projects with experience spanning 20 years and more than 20 countries.

Cohen said that there is often a perceived disincentive for nations that move first, and this will prove to be the biggest barrier to linkages amongst different carbon market mechanisms.

Suzanne Chew, Regional Manager of Carbon Markets at TFS Green, feels that an absence of trust is the key barrier to linkage.

She forecasts that a lack of trust will potentially lead to increased border tax actions initiated by differences in carbon costs imposed on competing products.

But how can the World Trade Organisation (WTO) respond? Contrary to popular views, Schulberg believes that the WTO has positive role to play. He hopes that the WTO can add to the compatibility of the various systems.

“By facilitating debate, the WTO can progress issues from the theoretical to the practical, leading to the certainty that markets need. The WTO’s possible strength is that it can help keep the focus on achieving carbon reduction outcomes and keep trade rules from clouding the results”.

Let’s hope he is correct.

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