Category Archives: Emissions trading & markets

3 takeaways from the California, Mexico climate agreement

California Governor Jerry Brown and Mexican officials signing climate agreement. in Mexico City

California Governor Jerry Brown and Mexican officials sign climate pact. (Photo credit: Danae Azuara)

This post originally appeared on EDF Voices on July 30

If you are looking for a sign that momentum is growing on climate action, this week’s groundbreaking agreement between California and Mexico to cooperate on climate change is a good place to start.

Most of the agenda at the four-day gubernatorial event was what you would expect to find at a trade and investment mission: agreements to cooperate on education, immigration, investment, but the inclusion of serious talks on climate change was surprising and hopeful.

The most tangible impact of the collaboration will be seen in the technical cooperation, information sharing, and potential policy alignment that are envisioned in the climate change agreement. But this week’s pact also suggests three less tangible but no less important takeaways:

1. Combatting climate change is sound economic policy

The fact that the climate change agreement was one of a handful of issues highlighted on California Governor Jerry Brown’s trip underscores the increasing importance of climate change to economic growth.  The impacts of climate change in California and the United States are becoming increasingly apparent, and Mexico faces similar issues of rising temperatures, increasing wildfires, and extreme precipitation.

With the growing evidence that climate risk will bring significant economic costs in the near term, and that delay will drive up the costs of taking action, smart climate policy is increasingly a key component of sound economic policy.

At the same time, the agreement also highlights the enormous opportunities for smart policy to drive clean energy innovation and investment on both sides of the border.  California’s leadership on climate change has already helped to make it a world leader in clean technologies. For its part, Mexico is poised to tap its enormous potential in solar, wind, and geothermal energy to help drive economic growth and energy security.

2. Carbon pricing continues to gain traction

The Memorandum of Understanding (MOU), signed on Monday by Governor Brown and Rodolfo Lacy, Undersecretary of Mexico’s Ministry of Environment and Natural Resources, highlights carbon pricing as one of the key issues for cooperation under the agreement.

Both sides are already taking action in this area: California’s Global Warming Solutions Act of 2006 (AB32) includes the world’s most comprehensive emission trading program for greenhouse gases, while Mexico has instituted a partial carbon tax on fossil fuels that represents an important initial step that could lay the groundwork for a more effective price on carbon in the coming years.

A price on carbon is a crucial policy tool to achieve the deep emissions reductions the world needs to avoid dangerous climate change. By ensuring that the true costs of climate pollution are reflected in the price of fossil fuels, and rewarding emissions reductions, carbon pricing ensures deployment of cost-effective climate solutions — and creates a powerful incentive to develop new technologies.

The agreement by California and Mexico adds another boost to the growing momentum on carbon pricing around the world. About 40 national and more than 20 sub-national jurisdictions, accounting for more than 22 percent emissions already have a price on carbon, according to the World Bank.

3. A new model for cooperation

The agreement between California and Mexico can provide a model for collaboration in the emerging “bottom-up” approach to climate change, in which national policies take center stage, rather than a “top-down” global agreement negotiated at the UN. Bilateral and regional cooperation will be all the more important in a bottom-up world, to foster greater ambition and give countries confidence that others are taking action as well.

California and Quebec have already linked their carbon markets. Now with carbon pricing a centerpiece of cooperation between California and Mexico, it does not seem too far-fetched to envision a “North American carbon market” emerging in the not-too-distant future.

California and Mexico face joint challenges from a changing climate. Together they can demonstrate to the world concrete progress on practical solutions to reduce carbon emissions, drive clean energy innovation and promote low-carbon prosperity.

Also posted in Mexico, News |: | 1 Response

Bloomberg-EDF analysis: Mandates plus markets could make airlines' emissions goals readily affordable

The aviation industry can affordably meet and beat its goal of halting carbon emissions growth from 2020 if it uses high-quality, low-cost carbon offsets, according to a new analysis from Environmental Defense Fund (EDF) and Bloomberg New Energy Finance (BNEF).

Airlines’ goal of “carbon-neutral growth from 2020” could be so readily affordable that governments justifiably could hold airlines to a much tighter emissions target. Image source

Our analysis comes on the heels of a consolidated industry call for the governments of the International Civil Aviation Organization (ICAO) to commit, at their next triennial September meeting, to adopt a mandatory global program to limit aviation’s carbon pollution by 2016 at the latest.

While forecasts are inherently uncertain, best estimates indicate that while new technologies, operations and infrastructure can help industry dampen emissions growth, substantial increases in aviation emissions are likely after 2020. Consequently, to meet their proposed mandatory goal of "carbon-neutral growth from 2020," it is very likely that airlines will need some kind of carbon offsetting mechanism.

An offset mechanism that limits credit supply to high-quality carbon units currently available and expected to come on-line in the future, could let airlines meet their emissions target at very modest cost. If governments adopt tough criteria ensuring that offsets represent real reductions in net carbon emissions, and if industry moves swiftly to capture those carbon units, the costs to airlines could be quite low – e.g., less than 0.5% of projected total international airline revenue in 2015, and less than a third of the fees airlines collected last year for checked bags, legroom and snacks.

In the current round of talks, the aviation industry is asking governments to mandate caps on airlines’ emissions at 2020 levels. Our analysis finds that a well-designed, high-integrity carbon offset program would make carbon-neutral growth from 2020 so affordable, that governments justifiably could hold airlines to a much tighter emissions target. That could mean putting back on the table a target the industry had proposed several years ago, namely cutting emissions 50% by 2050.

As my report co-author, Bloomberg New Energy Finance chief economist Guy Turner, said:

These findings show that the international aviation sector can control its CO2 emissions easily and cheaply by using market based mechanisms. The relatively small cost and ability to pass any costs through into ticket prices, should encourage the international aviation sector to accelerate and deepen its emission reduction pledges. More ambitious emission reductions now look much more doable, than mere stabilization from 2020.

Our analysis offers context to the costs of such a global market-based mechanism using offsets with strong environmental integrity, which the aviation industry called on ICAO last month to adopt to keep the industry’s net emissions stable from 2020 on. Such an offset program would allow the airlines to meet their emissions targets by both making emissions cuts within the aviation sector, and drawing on offsets that represent real emission cuts in other sectors.

Blog-exclusive addendum: effect on ticket prices

A well-designed global offset program, using high-quality offsets that represent real reductions in emissions, could add only a few dollars to a typical international fare:

  • From Paris (CDG) to Beijing (PEK): $1.90 – $3.00
  • From Paris (CDG) to Delhi (DEL): $1.50-$2.30
  • From Paris (CDG) to Cape Town (CPT): $2.40-$3.70
  • From Paris (CDG) to Buenos Aires (EZE): $2.70-$4.30
  • From New York (JFK) to Buenos Aires (EZE): $2.10-$3.20

Read more in our press release and the full BNEF-EDF analysis, Carbon-Neutral Growth for Aviation: At What Price?

Also posted in Aviation, News |: | 2 Responses

Hopeful signs for U.S. and Chinese Cooperation on Climate Change

The past week has offered a thrilling glimpse into the future for the millions of people around the U.S. and across the world who are yearning for real solutions to climate change. On June 18, Shenzhen, an economically-vibrant city of 15 million on the South China Sea, launched the first of seven Chinese regional pilot carbon market systems slated to begin by the end of 2014. The Shenzhen market is set include at least 635 local companies that contribute approximately 40% of the city’s CO2 emissions, and is expected to result in a 21% decrease in the carbon intensity of the economy in just two years. Shenzhen is one of seven carbon trading pilots that represent about 25% of China’s GDP and may include thousands of companies emitting hundreds of millions of tons of CO2.

Derek Walker is Associate Vice President of EDF's U.S. Climate and Energy Program.

Inspiration, encouragement and support for Shenzhen’s maiden market launch came from a familiar place:  California. Both Shenzhen and California have well-established reputations as trailblazers on innovative solutions that match economic growth with environmental gains. Perhaps it will be little surprise, then, that none other than the state’s top climate change official,  California Air Resources Board (CARB) Chair Mary Nichols and Governor Brown’s personal representative, Wade Crowfoot, stood with senior officials from Shenzhen and from the National Development and Reform Commission (NDRC) at last Tuesday’s launch. Nichols has presided over the development of California’s groundbreaking climate change effort and oversaw the Fall 2013 launch of California’s carbon market, the first comprehensive state-level system in the U.S.

The California market is a promising model for Shenzhen and the other Chinese pilots. California has held three allowance auctions to date, with strong participation by companies and a modest increase in the price of allowances with each auction. Ultimately, California’s carbon market will be a key element driving the state back to 1990 levels of greenhouse gas pollution by 2020, accompanied by dramatic improvements in air quality and significant incentives to carbon-cutting entrepreneurs. Nichols formalized the partnership between California and Shenzhen by signing a Memorandum of Understanding (MOU) paving the way for technical cooperation between officials and other stakeholders engaged in the respective carbon market programs.

The California-Shenzhen partnership is just the tip of the iceberg in the crescendo of cooperation between the U.S. and China.  Earlier this month in California, President Obama and Chinese President Xi signed an agreement to collectively fight dangerous hydrofluorocarbons (HFCs) that are used in air conditioning and refrigeration.  HFCs are pound-for-pound some the most potent greenhouse gases, and controlling them will be an essential short-term piece of solving the climate change puzzle.

As California and Shenzhen roll up their sleeves to support one another’s ambitious climate change programs, they will provide demonstrable proof of the promise of cooperation between their nations and will deliver results and momentum towards national action. In her remarks at the Shenzhen launch, Mary Nichols called the leadership of California, Shenzhen, and other provinces, states and cities around the world “a foundation that national and international action can spring from.”

The Chinese carbon trading pilots are strong signals that climate change is an issue to be taken seriously and to be acted on expeditiously. In the U.S., President Barack Obama takes the stage in Washington tomorrow to lay out his Administration’s vision for bold national action to fight climate change, an eagerly-anticipated outline of how progress will be achieved towards Obama’s 2009 commitment to slash greenhouse gas pollution 17% by 2020.

While 2020 will be an important milestone in charting progress, it is but the beginning of a long journey. Climate change science couldn’t be clearer about the need to achieve dramatic greenhouse gas reductions by mid-century. And no long-term solution to the environmental challenge of our lifetime will be found without the leadership of the world’s top greenhouse gas polluters. That leadership is now coalescing into national and bilateral action and, for the first time in some time, offers hope that we are headed in the right direction.

Cross-posted from EDF's California Dream 2.0 blog.

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World's Carbon Markets: EDF, IETA launch online resource on emissions trading programs

While Washington is stuck in gridlock, other jurisdictions around the world are moving forward on climate policy.

Market-based approaches to cutting carbon are in place in jurisdictions accounting for nearly 10% of the world’s population. Above: areas shaded blue have emissions trading programs that are already operating; areas in green have programs that are launching or being considered.

Market-based approaches to cutting carbon are already in place in jurisdictions accounting for nearly 10% of the world’s population and more than a third of its GDP. Many more jurisdictions are either moving ahead with market-based measures, or actively considering them.

As interest grows around the world, policymakers are increasingly seeking information about the range of existing and proposed initiatives.

In response, EDF has partnered with the International Emissions Trading Association (IETA), a trade association that represents businesses involved in carbon trading and climate finance, to launch The World's Carbon Markets: A case study guide to emissions trading.

The online resource provides detailed information about key design elements and unique features of 18 emissions trading programs that are operating or launching around the world.

EDF has also put together a quick reference chart that makes comparing the 18 programs even faster and easier.

Growing interest in emissions trading

Market-based policies are a proven way to limit carbon pollution and channel capital and innovation into clean energy, helping to avert the catastrophic consequences of climate change.

While emissions trading programs around the world, like the ones we have looked at in detail, vary in their features, they all share the key insight that well-designed markets can be a powerful tool in achieving environmental and economic progress.

The countries, states, provinces and cities highlighted in this report, which are moving ahead with strong action on climate change, constitute a vital and dynamic world of “bottom-up” actions that complement multilateral efforts such as the ongoing United Nations climate negotiations.  Jurisdictions considering market-based approaches can use this new resource to learn from their growing number of peers already headed in that direction.

We expect the site will also be of value for policy makers, academics, analysts, journalists, and colleagues in the NGO community and beyond.

If you find the information in The World’s Carbon Markets case studies helpful, please share edf.org/worldscarbonmarkets with your networks.

Also posted in Economics, News |: | 3 Responses