Global environmental challenges
Carbon trading and a new climate deal
(Updates with comments from Karen Alderman Harbert)
A key component of a prospective climate deal coming into Copenhagen has been the targets for cuts in greenhouse gas emissions.
Targets would help put a “price” on carbon emissions that could then be bought and sold under a cap and trade scheme. (Click here for a related article.)
Proponents of the potentially lucrative market say it provides clear incentives to reach targets or even overshoot them, while opponents say the system would give big polluters a way around any targets.
That leads to our question of the day: What role should carbon trading play in a new U.N. climate deal?
Karen Alderman Harbert, president and CEO, Institute for 21st Century Energy, U.S. Chamber of Commerce:
The single most important element for an international climate agreement to be successful is to ensure that the enormous sums of capital that is needed to transform the world’s energy sector can be invested.
The trillions in private sector investment required for that transformation will dwarf the size of any carbon market.
However, carbon markets, where they are used, should strive to support private sector investment and innovation.
It is important that these markets be transparent and have integrity. Even more important, because of the sheer volume of potential trades, safeguards need to be in place to reduce the risk of manipulation and fraud.
That’s why how we “measure, report, and verify” reductions is a key issue for business.
Without sound accounting standards, these markets will not have any integrity.
As the Major Economies Business Forum statement said, “Business, based on its long experience with greenhouse gas and financial reporting, stands ready to help define and implement the appropriate tools.”
We also need to be very concerned about proposals that would set up huge new global regulatory bodies to oversee any such market.
There would be no quicker way to squelch investments than to subject business to a burdensome international regulatory entity.
That would be a step backwards from the transparency and predictability that is at the cornerstone of any successful approach.
While a global greenhouse gas market will not appear in the short run, regional markets should be simplified and improved to facilitate expansion and linking, where they are employed.
Addressing potential transitions involving existing and emerging mechanisms will be necessary, maintaining clear and common rules and transparency.
In particular, the CDM should be enhanced and simplified for broader private sector utilization.
Knut Alfsen, Head Research Director, CICERO
At one level the climate problem is really easy. All it requires is the development and implementation of “clean” or “climate friendly” technologies on a massive scale.
Now, the implementation bit is again “easy”. Just make the right (i.e. climate friendly) choice the cheapest.
This will happen if we put a high enough price on greenhouse gas emissions, either by directly taxing the emissions, or by giving emission rights a price by introducing a cap and trade system.
So far the choice under the U.N. climate convention and the Kyoto protocol has been a cap and trade system.
Thus, carbon (or greenhouse gas) trading is essential for implementing the climate friendly solutions, and hence should play a large role in any climate treaty.
However, implementing existing climate-friendly solutions is not enough. We also need to develop through research and demonstration projects, new climate-friendly options.
Unfortunately, a cap and trade system alone is unlikely to deliver the necessary technological development. Thus, we need something in addition to the cap and trade mechanism.
This could be the introduction of standards or other regulations, or it could be direct public support (money!) for research and development activities.
As mentioned, the main focus of the climate negotiations has so far been on emission regulations via a cap and trade system.
It is high time that the other half of the solution is being addressed.
My belief is that this will also mitigate the confrontational stance we have seen between developed and developing countries so far, and foster a more cooperative spirit around the task of developing new technologies.
In conclusion, carbon trade is an important bit of any climate treaty, but should not be as dominating as it has been till now.
(Photo: People watch an illuminated so-called CO2 cube in the water of St Jorgens Lake in front of Tycho Brahe Planetarium in Copenhagen, December 7, 2009. The cube visually shows the amount of carbon dioxide produced by an average person in one month. REUTERS/Pawel Kopczynski)