ICAP Status Report 2015 finds emissions trading spreading worldwide

Last week, the International Carbon Action Partnership (ICAP) published its 2015 Status Report on emissions trading around the world. The report showcases the proliferation and diversity of emissions trading systems (ETS) around the world. As of 2015, there are 17 systems in place on four continents, covering for 40% of global GDP. With the recent announcement of a Chinese national system in 2016, this number is expected to jump to almost 50%.

As each system offers a unique take on emissions trading, the report takes stock of this variety and provides policymakers and stakeholders with a compact overview summarizing key ETS trends, while detailed ETS factsheets provide an in-depth comparison of individual systems and their design features. Contributions from international experts also offer insights into the latest developments in emissions trading.

As the report shows, Asia is establishing itself as the new hub for emissions trading: nine new systems have been launched in the past three years. Korea’s emissions trading system went into effect in January 2015; the world’s biggest after the European Union Emissions Trading System (EU ETS).

China’s seven pilot ETS will also transition into a nation-wide system as early as 2016. As contributing authors Qian Guoqiang and Yu Siyang of Sinocarbon highlight, ‘substantial progress has been made on the legislation, MRV, the national registry, and the establishment of a domestic offset program’ for a national Chinese system. Even though the exact details of the system are still unclear, ‘ETS will become a flagship instrument in China’s climate policy mix.’

The ICAP Status Report demonstrates that one reason behind the success of emissions trading is its flexibility:

Emissions trading has considerable flexibility in terms of size, gas and sector coverage. Programs can be adapted to suit rapidly developing economies with large industrial sectors, as well as stable and diversifying economies with significant residential and commercial sectors.’

Not only are new systems emerging, but current ETS are maturing and expanding. In a world first, California and Québec linked their carbon markets in January 2014. Allowances from both systems are now fully fungible and can be used for compliance anywhere in the joint carbon market. As the Québec Ministry of Sustainable Development, Environment and the fight against climate change outlines, the link is ‘an excellent example of North American regional cooperation that is economically and environmentally beneficial for both partners.’

In the United States, carbon pricing is also on the rise with systems like the joint Californian-Québec carbon market and the Regional Greenhouse Gas Initiative (RGGI), a multi-state ETS consisting of nine Northeastern and Mid-Atlantic States. Momentum continues to grow as states debate how they will comply with the proposed federal Clean Power Plan, which aims to reduce national emissions from the electricity sector by 30% below 2005 levels by 2030. As RGGI Member States, New York and Vermont, point out, emissions trading ‘represents a viable model for other states, which need to develop plans in order to meet the new federal requirements.’

Europe is presently also debating reform proposals for the world’s oldest carbon trading system, the EU ETS. The proposed market stability reserve would establish a rules-based mechanism, which would automatically adjust the supply of allowances in the system. In the short-term, the mechanism is supposed to address the current surplus of allowances in the European carbon market and, in the long term, improve the system’s resilience to sudden market shocks. The German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMUB) offers a German perspective on the market stability reserve and other proposed changes currently being debated within the EU.

As carbon markets grow and spread around the world, it is clear that this policy instrument will continue to play a key role in reducing greenhouse gas emissions worldwide. Forums like ICAP, which brings together 30 national and regional governments to share their experiences with emissions trading and the way forward to a global carbon market, are key to this endeavor.

The ICAP Status Report can be downloaded here.

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