Global carbon markets have been revived from the brink of collapse as recent developments, including countries looking out to cut carbon and meet their Paris climate targets and the opening of new markets in China, have provided a much-needed boost, according to a new report from the World Bank.
The report launched Tuesday, May 22, 2018, indicates that if taxes on carbon are also included, the value of the world’s carbon markets and carbon taxes is likely to be about $82 billion this year, compared with $52 billion in 2017, an increase of about 57 percent.
The carbon trade originated with the 1997 Kyoto Protocol, with the objective of reducing carbon emissions and mitigating climate change and future global warming. At the time, the measure devised was intended to reduce overall carbon dioxide emissions to roughly 5 percent below 1990 levels by between 2008 and 2012.
Basically, each country has a cap on the amount of carbon they are allowed to release. Carbon emissions trading then allows countries that have higher carbon emissions to purchase the right to release more carbon dioxide into the atmosphere from countries that have lower carbon emissions.
The report specifically indicated that there are currently 51 carbon pricing initiatives around the world, consisting of 25 emissions trading schemes and 26 carbon taxes. These initiatives cover 20 percent of all global greenhouse gas emissions, or 11 gigatonnes of carbon dioxide equivalent.
The schemes have been put in place across 71 jurisdictions, 45 of which are on the national level as governments increasingly see the economic benefits of curbing emissions.
The World Bank estimates that receipts from carbon pricing now amount to $33 billion, also a 50 percent increase on the previous year.
Along with China’s planned regulation of its power sector, new carbon programmes were rolled-out in Chile, Colombia, and the Canadian provinces of Alberta and Ontario.
The European Union also took steps to fix its dysfunctional trading scheme by increasing the price from 5 euros per tonne of CO2 equivalent to 13 euros ($7 to $16).
However, analysts from the World Bank point out that this remains below the accepted range of $40-$80 per tonne needed to reach the goals of the Paris climate agreement.
“Governments at all levels are starting to see the effectiveness of carbon pricing in their efforts to cut harmful carbon pollution while also raising revenues for climate and other policies, including environmental action,” said John Roome, World Bank Senior Director for Climate Change.
“As countries take stock of their Paris Agreement commitments and set a path towards increased ambition, carbon pricing mechanisms with robust pricing levels are proving to be essential elements of the toolkit.”
Dirk Forrister, chief executive of the International Emissions Trading Association, told the Guardian the report showed “widespread interest in using pricing systems to meet the Paris goals”.
He said: “The market is beginning to accelerate. We anticipate a major role for China and the market for international aviation [which when operational from 2020 will] more than double the amount of carbon subject to market pricing.”
In addition to the national carbon markets across the world, there are more than 20 that have been set up at a regional level.
Carbon pricing has long been considered a key way of reducing greenhouse gas emissions, and numerous efforts have been made to develop markets where organisations can trade “rights” to produce carbon, with an overall cap on the allocation of rights ensuring emissions are limited.
Carbon markets are also supposed to benefit developing countries, as under UN systems rich countries can buy credits from poor countries that have instituted protections for their forests, or other ways to reduce greenhouse gases.