In , the best-performing commodity in the world was not oil or iron ore, the mainstays of the 20th century economy. It was not copper or lithium, which will play a crucial role in the global economy of the 21st century. The simple technical reason for the price increase is that the EU has reformed the market.
The reserve came into force at the start of and has had a dramatic effect. There must always be caution when predicting carbon prices, because they are an artificial market, entirely governed by policy, and if supportive policies are withdrawn then prices can collapse — as the first decade of the EU ETS demonstrated.
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It was not just the EU ETS; efforts to create a global carbon market as part of the Kyoto Protocol came to nothing, and a voluntary market in the US, the Chicago Climate Exchange, fizzled out in when it became clear that there would be no legislation to tackle emissions in the US. But sentiment towards carbon markets has strengthened significantly in recent years, for a number of reasons. One is that the evidence of human impact on the climate continues to strengthen, not just scientifically but anecdotally — recent heatwaves in Europe, fires breaking out in the Arctic, a huge increase in ice melt in Greenland, deadly wildfires in California are just a few of the recent examples.
This is backed by a strengthening social movement around the world — spearheaded by Swedish student Greta Thunberg and the global school strikes, along with the Extinction Rebellion campaigners — that is helping to drive policy changes in a range of countries. A number of countries, including the UK and France, have committed to net-zero targets, while Ursula von der Leyen, newly elected president of the European Commission, promised MEPs she would create a European Green Deal, including a stronger carbon market, a net-zero target and a carbon border tax.
In the US, a number of Democrat lawmakers are pushing the idea of a Green New Deal and it has captured the public imagination in a way that has never been seen before.
Now carbon markets are being seen as a way to drive efficiencies in economies. These factors all add to the growing consensus that something needs to be done. And carbon markets are seen as part of that ambition, not just in Europe but around the world. Now they are being seen as a way to drive efficiencies in their economies.
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Canada launched a national market earlier this year and there are regional schemes in the US, in California and the Regional Greenhouse Gas Initiative in the northeast of the country. All jurisdictions must go further and faster in using carbon-pricing policies as part of their climate policy packages. Beijing has had a number of pilot schemes running for the past 11 years in provinces and cities including Shanghai and Shenzhen.
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These were meant to be followed by a national scheme, but few details have yet been forthcoming. One leading expert, however, expects the Chinese government to make an announcement soon. That scheme was set up by President Obama as part of the deal for China to set up its carbon market. If they go national, it will create the largest commodity market in the history of the world. Chris Peterson, a Canada-based consultant at Anthesis, points out a move by China would also have wider ramifications. Internal carbon pricing changes behaviour when people are given a budget and have to manage to it.
It also removes obstacles to compliance. His US-based colleague Don Reed points out that it also has the potential to change the debate in the rest of Asia.
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When fully established, it will be bigger than the EU ETS and alongside that scheme, a really significant proportion of global emissions would be covered by a carbon price. Global momentum is building for putting a price on carbon. Today, nearly 40 national and 20 sub-national jurisdictions are participating or preparing for a carbon price with some markets already linked.
Business leaders are standing up in support of a price on carbon as an effective way to incentivize low-carbon growth and lower greenhouse gas emissions. This Coalition brings together leaders from across government, the private sector and civil society to share experience working with carbon pricing and to expand the evidence base for the most effective carbon pricing systems and policies.
Carbon Pricing Champion companies commit to align with the Business Leadership Criteria on Carbon Pricing comprising three core elements:.
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