Washington, D.C. — Last week the European Parliament, the longtime stalwart climate-policy leader, shocked policywatchers by rejecting a proposal to indirectly strengthen the Europe-wide cap on climate-change-causing emissions. Though the parliament may reconsider its decision in the future, the failure dealt a blow to many climate champions, most notably global carbon-market players. These financiers and developers of emission-reduction projects in developing countries had looked to the European proposal to raise prices for their credits and revive investments in their industry.
Unfortunately, not many climate champions will shed tears for the ailing carbon markets. The prevailing opinion is that the carbon markets, most notably the Clean Development Mechanism created by the 1997 Kyoto Protocol, have been ineffective and even damaging, even to the extent of creating incentives in some countries to produce dangerous greenhouse gases only to destroy them.
Today the Center for American Progress and Climate Advisers released a report that stands this prevailing wisdom on its head. The report, written by former State Department Senior Climate Official Nigel Purvis and well-respected climate scholars Samuel Grausz and Andrew Light, concludes that while global carbon markets have had setbacks, they have quietly catalyzed climate action in major emerging countries.
China, South Korea, Mexico, Brazil, and India are all establishing domestic carbon markets in substantial part as a result of their positive experiences with the Clean Development Mechanism, or CDM, according to the report. In addition to helping change how these nations think about climate policy, CDM has helped these countries build the governance and private-sector capacities needed to pursue innovative climate solutions.
The authors propose in the report that the world should reform and further leverage global carbon markets to drive climate action by taking the following actions:
- Emergency climate summit: The World Bank and International Monetary Fund should convene a meeting of world leaders at the end of 2013 to agree on new measures to avert a climate catastrophe with a focus on increasing domestic ambition.
- Investing in carbon markets: Countries should make a political commitment to increase demand for global carbon-market credits, either through a new specialized fund at the World Bank or through coordinated but decentralized bilateral actions.
- International carbon-market coordinating body: Countries should establish a new body to encourage proliferating carbon markets to converge on the same high standards and help nations link their markets.
According to Nigel Purvis, president of Climate Advisers and lead author of the report:
Critics and defenders of international emissions trading have missed the big picture: The developing nations that participated the most in global carbon markets are now taking the lead in adopting domestic carbon-pricing policies. The benefits of helping to spur climate policies in these major emerging economies greatly outweigh whatever environmental benefits or problems early carbon projects may have produced.
According to Wei Zhihong, a leading climate-policy expert at Tsinghua University:
China’s good practice and positive experience with global carbon markets have helped create confidence to try carbon markets at home. … CDM has given us confidence that well-crafted climate policies can be good for China. The government used what it learned from the CDM to build its own efforts to reduce greenhouse-gas emissions and assist sustainable development.
China is the leading host of projects under the CDM, with 3,573 projects as of March 3, 2013, that have driven $220 billion in investments. Building on this experience, the Chinese government has launched seven provincial and municipal pilot carbon-market programs that will collectively put a ceiling on more greenhouse-gas emissions than South Korea produces, and pave a way for finally creating a nationwide carbon market within China.
According to Rajendra Pachauri, the 2007 Nobel Peace Prize winner and director general of The Energy and Resource Institute, or TERI, in New Delhi:
Working with the CDM demonstrated to Indian business and India’s government that climate policy need not be a threat to India. The experience has helped accelerate India’s efforts to fight climate change. India took what it learned from the CDM to help set up markets to trade renewable electricity and energy efficiency.
International carbon markets, such as stock markets and mortgage securities before them, require better oversight but they are invaluable tools for incentivizing climate action in ways that benefit people all around the world. Nations need to work harder to reform existing markets and create new ones, and if they do, carbon markets can play a key role in helping the world rise to the pressing challenge of climate change.
Read the full issue brief: Carbon Market Crossroads by Nigel Purvis, Samuel Grausz, and Andrew Light
To speak with an expert on this topic, contact Anne Shoup at gro.ssergorpnacirema@puohsa or 202.481.7146.