Carbon markets for a sustainable tomorrow
07 Nov 2017 - 16:42
- Kyoto’s approach to carbon markets still the foundation for a sustainable tomorrow
The late statistician Hans Rosling has the most watched TED Talks of all time. In a presentation titled "The best stats you've ever seen", Hans Rosling uses socio-economic data derived from UN sources to challenge our biases and pre-conceived notions about development and growth.
While even the best statisticians and academicians perceive a wide-gap between the Industrialised Western Nations and the Third World, Rosling demonstrated that the gap was closing. The animated graphs and a sports-commentary like lecture by Rosling showed the rapid progress third world nations made in the 1980s and the 90s.
It was also a period in which climate-change was slowly becoming a hot-button issue. While the third world was making tremendous progress riding the wave of capitalism and free-market, scientists were ringing alarm bells at the forth-coming destruction that was all our doing. But any discussions on reducing Green House Gases brought out worries instead of ideas.
Developed and developing economies were concerned that resolutions on climate change could invariably harm the industrial sector and make electricity expensive - factors that spurred growth.
It would be hypocritical of the rich nations to ask developing countries to adopt unfeasible and impractical solutions to fight climate change, seeing how they themselves built powerful economies through unfettered use of natural resources. But, as the debate raged on for years, the members of the UN started coming together on an unfettered unlikely policy.
Could the system that propelled economies also drive the global fight against climate change?
By 1997, the Intergovernmental Panel on Climate Change, set up by the UN was almost nine years old. At this point, there was piling evidence that the emissions from human-activity would have devastating consequences on the planet. The world then met in Kyoto, Japan to ratify an agreement that came to be known as the Kyoto protocol.
The Carbon Market was set-up with three innovative mechanisms to reduce the amount of carbon in the atmosphere: Emission Trading, Joint Implementation and Clean Development Mechanism.
The 37 industrialised nations and European community were required to reduce their emission levels by 5.2% from 2008-2012. While all countries were obligated to contribute towards climate change efforts, the larger commitments were directed towards the developed nations.
Each country is allocated a generous allowance of carbon emission targets known as carbon units. The logic of the markets implied that some countries use their quotas more efficiently than others: possibly through the adoption of emission reducing technologies, renewable energies and green business practices. The countries with an excess of carbon units could then sell it to those who had exhausted their quotas for a price dictated by the free market.
The Clean Development Mechanism encourages developed nations to earn carbon credits by investing in sustainable energies and clean infrastructure in developing countries. In Joint Implementation, two developed nations work together on projects reducing domestic emissions.
Today, European Union's Emission Trading System (EU ETS) - established in 2005 - is the largest carbon market there is. Though the Kyoto obligations began in 2008,
EU ran first phase tests between 2005 and 2007. The trail period was necessary to implement a never-before tested plan, as there was no prior research, data or results to fall back on.
In the Phase II implementation, beginning in 2008, Carbon caps were applied to 12,000 power-plants and industries. According to data from Environmental Defence Fund, emissions dropped by 2-5% in the first phase of the plan and about 8% in the second phase. From 2005-2009, carbon emission reduced by, a staggering, 480 million tons. Another positive is that the implementation of EU ETS has come at very little cost - with small recoverable effects on energy-intensive sectors.
Phase III, which started in 2013 through to 2020, expands the list by adding new sectors and other harmful emissions. Additionally, the cap will decrease by 1.74% every year and by 2020, the emissions are expected to be 21% lower than that in 2005.
The United States has not implemented a nation-wide cap and trade program, but three regions including California have their own emission trading systems. Regional Greenhouse Gas Initiative, set up in 2005 and made up of seven North-Eastern states, claims a 40% reduction in carbon emissions in the power sector, all while the GDP has grown by 8% in the following ten years. It also generated $1.3 billion in carbon auctions, with 1.1 billion being invested in renewable energy.
2017 is a big year for carbon markets. Ontario, Canada held its first cap and trade auction, generating $513 million. The program is expected to generate $1.9 billion, funding investments in infrastructure to reduce greenhouse gases.
China, the world's largest polluter, is pushing forward with their long-planned carbon market. With America relinquishing its global leadership after announcing their intention to exit the Paris Accords, China plans to fill the spot by implementing a nation-wide Cap and Trade system that is bound to improve its global standing in climate related issues.
Several developing countries, including in the Middle East and North Africa (MENA) region, are also exploring the potential for establishing carbon markets.
The Clean Development Mechanism, listed in Kyoto protocol is another viable avenue available for the Middle East. According to Eco-MENA, there are only 24 projects registered in the entire region, translating to 1.5% of the global CDM projects and just 2% emission reduction credits. The richest of the Arab States could fund carbon reduction programs in Sub-Saharan Africa and other developing Arab Nations, building environmentally sustainable economies in the region most vulnerable to climate change.
Despite the initial hesitation and criticisms around the practicality of Carbon Markets, many regions are considering it as a possible solution for combating climate change. With its market-driven solution, the mechanisms enlisted in Kyoto Protocol promotes active engagement and collaboration between businesses, governments and people - pushing innovation in new technologies and methods to bring down the levels of greenhouse gases in the atmosphere.
The flexibility of implementation has not just inspired international collaboration, but also local governmental support in various regions. The Kyoto experience with carbon markets is a precursor for what is possible in the context of the Paris agreement and will act as the foundation in building a sustainable tomorrow.
Colman Hands is Senior Sustainability Expert at The Al-Attiyah Foundation