International agencies recommend the establishment of a global carbon market

Trend and Prospect of Global carbon pricing Mechanism

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Trend of carbon pricing mechanism

Through the National Independent contribution Plan (INDCs), 189 countries in the world have pledged to reduce their greenhouse gas emissions and adapt to the changing climate. The realization of INDCs depends on a series of policies and plans, in which carbon pricing mechanism will play a more and more important role.

At present, carbon pricing has been carried out in about 40 national jurisdictions and more than 20 cities, states and regions in the world, covering greenhouse gas emissions of 7 billion tons of CO2e, accounting for about 13% of global greenhouse gas emissions. Global emissions covered by carbon pricing mechanisms have tripled in the past decade. Two new carbon pricing plans were introduced in 2016: British Columbia, Canada, priced emissions from liquefied natural gas plants, and Australia introduced a safeguard mechanism for the emissions reduction Fund (Emissions Reduction Fund), requiring large emission facilities that exceed the emission ceiling to offset additional emissions.

Within the existing mechanism, the price of carbon still varies widely. In 2016, prices per tonne of CO2e ranged from less than US $1 to US $131, with about 3 per tonne of emissions priced at less than US $10 / t CO2e.

In addition to the increase in the number of mandatory carbon pricing mechanisms, the number of companies that achieved internal carbon pricing also increased in 2016, tripling that of 2014, according to the carbon Disclosure Plan (CDP). The prices of carbon used within these companies vary widely, ranging from US $0.30 to US $893 per tonne of CO2e, with about 80 per cent of emissions priced in the range of US $550 / t CO2e.

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Prospects for the future

The share of global emissions covered by the carbon pricing mechanism is expected to show the biggest increase in history in 2017. If China can complete the construction of a carbon emissions trading system in 2017, initial informal estimates suggest that the share of global emissions covered by the carbon pricing mechanism could increase from the current 13 per cent to 20 per cent to 25 per cent. Other plans launched in 2017 include the introduction of a carbon trading system in Ontario, Alberta in Canada, a carbon tax in Chile and South Africa, and a carbon tax in Chile and South Africa. France is planning to introduce a floor on carbon prices in 2017.

The scope of carbon pricing mechanisms has expanded significantly in recent years, but these mechanisms are still in their early stages. To mobilize political support, some policy makers have introduced relatively low carbon prices. Even so, the realization of the carbon pricing policy framework and institutional structure has laid the foundation for increasing future emission reduction ambitions.

Policy suggestion

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Promote the coordination of carbon pricing mechanisms with the broader policy context

Only when the carbon pricing mechanism is coordinated with a wide range of policy environment can it give full play to its best effect and achieve the greatest public acceptance. Climate mitigation is just one of several goals that policymakers need to balance. To make carbon pricing work best, policy makers need to pay attention to the following issues:

(1) combine carbon pricing mechanisms with complementary policies to achieve the effectiveness of all policies and ensure that the impact of carbon pricing mechanisms is socially acceptable. It should be noted that carbon pricing mechanisms can help achieve other goals, such as improving the efficiency of tax increases or helping to reduce local air pollution.

(II) manage policy overlaps related to carbon pricing. These policy overlaps will increase the cost of emission reduction for society as a whole, and policy makers can use common goals to manage the relationship between these policies and carbon pricing mechanisms, reduce side effects and minimize costs.

(3) to address a series of challenges of countervailing policies. Countervailing policies make the carbon pricing mechanism have some adverse effects on investors and consumers. Carbon pricing can be introduced without waiting for the cancellation of the opposite policy, and it can be used as part of the fossil fuel reform plan. However, in places where low-carbon investment is financially discouraged, carbon pricing mechanisms may need to be weighed.

The dynamic nature of complex interactions between carbon pricing, other climate change policies and the broader domestic policy environment means that all problems cannot be fully predicted and the management of these interactions will be an evolutionary and iterative process. Policy makers should combine periodic review and evaluation processes to respond to emerging challenges.

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Establish a global carbon market after the Paris Conference

In addition to being one of the effective tools to achieve domestic emission reduction, the carbon pricing mechanism can support international cooperation on climate mitigation by establishing a global carbon market. The global carbon market allows individuals with economic responsibility to reduce emissions to buy emission quotas in a cost-effective manner. This flexibility can significantly reduce costs and increase the ambitions of emission reducers.

Modeling analysis shows that the global carbon market can reduce the payment cost of emission reduction. By the middle of the 21st century, the global carbon market has the potential to reduce the cost of global climate mitigation by 50%. By 2050, the flow of funds to sell emission reductions in some poor parts of the world will reach 2% to 5% of their gross domestic product. In addition, the global carbon market will improve the ability of decision makers to address the challenges of carbon leakage and to cope with the impact of domestic carbon pricing competition.

At present, there are still some obstacles to establishing a global carbon market. First, sellers may worry that the current sale of carbon quotas will make it harder for them to meet INDCs or other commitments in the future. Second, sellers worry about losing control over domestic carbon pricing and the political challenges posed by possible international transfers of money. Solutions to these obstacles include technical cooperation results-based climate finance sectoral approaches mechanisms to measure and reflect differentiated ambitions and the widespread use of international standards.

Source: climate change Science dynamic Monitoring KuaiBao, Lanzhou Literature and Information Center, Chinese Academy of Sciences, No. 22, 2016. Please indicate the source.