Experts say cross-border links can make emissions cuts cheaper, but socialist states want to block market mechanisms
By Megan Darby
Countries around the world are developing an array of different carbon taxes and trading systems to control greenhouse gas emissions.
The more these can be joined up, experts say, the cheaper it will be to tackle climate change.
This argument is gaining ground among businesses and developed economies, but advocates fear anti-capitalist Latin American states could use UN climate negotiations to block it.
Dirk Forrister, CEO of the International Emissions Trading Association (IETA), says there will need to be “a heroic amount of investment” to limit global warming to 2C – the politically agreed “safe” threshold.
“We are going to need more linkages so businesses can optimise their investment worldwide.”
More than a thousand businesses and 73 countries have signed a World Bank statement in support of carbon pricing.
At the moment, the price of carbon varies between countries and regions, under a range of different policy measures.
A discussion paper commissioned by IETA from the Harvard Project on Climate Agreements makes the case for linking up these diverse policies.
Ahead of UN climate talks in Lima next month, it urges negotiators to set a framework to help, not hinder, this goal.
Governments will submit national plans to cut carbon emissions early next year, which will feed into a global deal to be struck in Paris.
The Harvard report says a Paris agreement should let countries transfer a portion of their national commitments to other parties, through linked carbon markets or tax systems.
Effectively, this means outsourcing emissions cuts to parts of the world it is cheapest to achieve them.
Co-author Robert Stavins, head of the Harvard Environmental Economics Programme, told MPs in a UK parliamentary inquiry that economies responsible for around 65% of world emissions were likely to back this approach.
These included the US, European Union, Japan and China – Beijing is planning to launch a national carbon market in 2016.
“The sources of opposition are largely going to be a set of Latin American countries,” said Stavins.
Socialist governments in countries like Bolivia, Venezuela, Cuba and Nicaragua have a record of rejecting market-based approaches to cutting emissions.
They want emissions cuts to be delivered within national borders.
Stavins said: “They are very, very opposed to a role for markets, of even allowing markets in the 2015 agreement.
“There is no doubt in my mind that they will be introducing text – they probably already have – that would essentially debilitate any kind of linkage or other kinds of global carbon markets. So the first thing is to make sure that that does not happen.”
In a separate report, IETA explores how a Paris deal can support market mechanisms for climate finance, emissions cuts and clean technology.
UN climate chief Christiana Figueres writes in the foreword they “will play an important role” in meeting the 2C goal agreed by negotiators in 2009.
Parties “need to come to a common understanding of how diverse instruments for carbon pricing… can fit together,” she says.
“Environmental effectiveness requires maximising cooperation so that parties can find the lowest cost mitigation.”
The biggest carbon pricing initiative in the world is the EU emissions trading system (ETS), which has operated across national borders since its inception.
It is set to be overtaken by a Chinese national carbon market before the end of the decade.
The most advanced example of separately conceived carbon markets linking across borders is Quebec and California.
Sir David King, climate envoy for the UK, backed the idea of linking carbon markets in evidence to the UK parliamentary inquiry.
It could help address concerns in Europe about “carbon leakage”, he said: heavy industries moving abroad (and taking jobs with them) rather than tackling their emissions.
Another problem with the EU ETS has been a collapse in the carbon price to around €5 a tonne – inadequate to spur significant low carbon investment.
A link between the EU and Chinese markets “would create a much better assurance of prices,” said Sir David.
“If we then could stretch that to California and Quebec and the other nations – Mexico is coming into the frame – that are introducing this… I think the bigger it becomes, the more likely it is to succeed.”