Judging from the flurry of recent launches, carbon markets
are booming. Eight new venues opened for business in 2013, and
roughly 40 countries and 20 subnational jurisdictions elsewhere
have a put price on carbon dioxide, according to a May report
from the World Bank Group. The total value of carbon credits
being traded in these markets is about $30 billion.
Notwithstanding all of this activity, the emissions pricing
and trading concept has yet to take off. As more governments
get on board, the price of credits is falling, prompting
experts to admit that theyre losing faith in carbon
markets as a tool to tackle
climate change. The jury is definitely still out on
whether carbon markets are working, says Anja Kollmuss, a
Zurich-based senior policy researcher at Carbon Market Watch, a
watchdog group based in Brussels. In theory, theyre
beautiful policy instruments, Kollmuss notes. But
the thing is, how do they work in a political
By putting a price on carbon dioxide, governments hope to
encourage heavy emitters of the greenhouse gas to build cleaner
factories and make other
climate-friendly investments. In cap-and-trade schemes like
the European Union Emissions Trading System (ETS), governments
limit corporations total annual emissions and auction or
otherwise distribute allowances for each metric ton of carbon.
Companies that exceed their caps must buy more allowances, and
those under the limit can sell their credits directly to
heavier polluters or on the open market. Other approaches tax
carbon or facilitate the trading of carbon offsets without the
cap on emissions.
But most governments have been too lenient with emissions
targets, Carbon Market Watchs Kollmuss says; the result
is an oversupply of carbon credits and little incentive for
companies to change. As of May, the price of an ETS allowance
had fallen to just over 5 ($7), from a peak of some
32 in April 2006. The United Nations Clean
Development Mechanism, which allows developed countries to earn
certified emission reduction (CER) credits for funding
emissions-reducing projects in the developing world, has seen
CER prices plunge from a high of nearly 23 in July 2008
to less than 0.10 this May.
We are concerned about the drop in the price of CERs,
and were anxious to get that back up, says Hugh
Sealy, chair of the CDMs executive board. To boost
demand, the initiative is letting individuals, companies,
churches, governments and other institutions buy credits and
cancel them to morally offset their own emissions,
explains Sealy, a professor with the School of Medicine at St.
Georges University in Grenada. The CDM hopes to launch a
public website for that purpose by November.
Much of the recent government interest in carbon markets
stems from the World Banks Partnership for Market
Readiness. Through April developed-market partners had pledged
$126.5 million to this effort, which props up developing
nations emissions-pricing programs, offers technical
assistance and hosts discussions between carbon market experts
and newcomers. But Adrian Rimmer, London-based CEO of the Gold
Standard Foundation, a Swiss nonprofit that sets certification
standards for carbon mitigation projects, says hes
noticed more corporations seeking to apply carbon-pricing
methodologies within their industries.
Take Akzo Nobel, an Amsterdam-based paints and coatings
company that has developed a hull coating called Intersleek.
Akzo Nobel touts Intersleek as so low-friction that it makes
ships more fuel-efficient. But the product also costs more than
traditional hull paints, so the company wanted to address the
so-called split incentive created when a ship owner isnt
benefiting from the potential fuel savings that come with
operating the enhanced vessel. With Rimmers GSF, Akzo
Nobel devised a system for comparing a ships pre- and
post-Intersleek fuel consumption and then generating carbon
credits for both the owner and the operator.
Rimmer says this approach could work in other transportation
industries, such as air travel, and in the real estate
business, where split incentives discourage building owners and
renters from investing in energy-saving upgrades. The Akzo
Nobel project also shows that nongovernmental actors can apply
carbon market methodologies on a relatively small scale, he
adds. There has been a slight wobble in confidence in
carbon markets, Rimmer says. But I think
thats mitigated by the fact that theres a lot of
new experimentation going on.
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