Prospects for International Carbon Market

ASPI Director of Asia-Pacific Sustainability Alistair Ritchie delivered a presentation for the 11th International Greenhouse Gas Conference on Prospects for Carbon Markets in 2030.

Ritchie shared his insights on international carbon markets and how they could evolve under the Paris Agreement by 2030. Ritchie explains that there is an urgent need to ramp up ambition levels for greenhouse gas emissions reductions noting that, “under the current commitments, the forecast is for a global temperature increase of more than 3.2 °C - more than double the aspirational target of 1.5 °C.” Despite more countries signing up to net zero emissions by 2050, the current NDC 2030 targets need to be higher in order to achieve the targets in the long-term (2050) strategies and the goals of the Paris Agreement.

Ritchie notes that many Nationally Determined Contributions (NDCs) have reference to carbon pricing policies, including emission trading systems (ETSs) and carbon taxes, as well as policies which have an implicit carbon price such as standards and mandates. According to Ritchie, there are clear drivers for ETSs under the Paris Agreement. Carbon budget-based NDCs align well with ETS cap-setting, linked ETSs would facilitate inflow and outflow of international carbon units in NDCs and, above all, ETSs enable reduction targets to be achieved at lower cost. Lastly, “The design of carbon pricing policies needs to be compatible with the economic development and growth of the relevant jurisdiction. For example, under China’s national ETS, their initial approach is for a more flexible tradable performance standard approach with rate-based reduction targets,” advises Ritchie. He goes on to explain that “all jurisdictions are facing an energy transition, and the reality of lower-cost renewables and coal phase-out is important to factor into ETS cap-setting to achieve a sufficient carbon pricing signal…and ETS funds can help industry to radically decarbonize their processes to remain competitive in the future.”

Ritchie also presents an overview of carbon markets in different global regions to explain what different jurisdictions are already doing to reduce emissions and enact carbon pricing policies. However, Ritchie re-emphasizes that more ambitious reductions are required by 2030 to help achieve the goals of the Paris Agreement.