Lead – Climate and Nature,
World World Economic Forum
Carbon markets are key to tackling the climate crisis however, the right steps and regulations need to be put in place to put pressure on organisations and countries to reduce their carbon outputs.
Greenhouse gas emissions in Ireland fell almost 6% at the beginning of 2021 due to the pandemic’s knock-on effects. However, a recent Irish climate report said emission levels have bounced back and are at a record high – some 50% above the pre-industrial era.
In the run-up to COP26 many companies and countries are calling for more to be done and for solid commitments to reduce emissions and hit “net zero”.
Value of carbon markets
The aim of carbon markets is to reduce emissions by capping emission levels set by the government and allowing companies to trade units of emissions. Simply put, in carbon markets, companies buy and sell the “right to pollute” from each other. In voluntary markets, companies purchase emission allowances to meet their own sustainability goals in the absence of government regulation.
In the beginning, emission permits are purchased at auction or given to businesses free. Since the total number of emission permits is capped, the pressure is put on countries and companies to adopt greener and cleaner production options and to reduce their carbon outputs.
In order for carbon pricing systems to work, prices need to rise. Now, the OECD puts effective carbon prices at approximately €60 per tonne. However, the social cost of carbon is much higher at around $100 per tonne, according to Nicholas Stern and Joseph E. Stiglitz.
Greenhouse gas emissions in Ireland fell almost 6% at the beginning of 2021 due to the pandemic’s knock-on effects.
Next steps for carbon markets
Overall, most carbon emissions remain ‘unpriced’ – this means no regulatory pressure for organisations to purchase credits or lower their emissions. If we can bring new carbon markets online, like we saw recently in China, this will drive up prices and make companies and governments go greener faster.
In addition to reducing emissions, carbon markets can unlock finance and investment into carbon and biodiversity. The next step is to build international carbon markets. Although there was no agreement at COP25, the upcoming COP26 meeting is a chance to develop this crucial initiative.
A ‘carbon club’, a coalition of countries who agree to trade emission allowances (credits) between their borders could help industrialised nations achieve their national climate targets and finance conservation in other parts of the world.
Carbon markets present an opportunity towards getting us closer to tackling the climate crisis. But we need to make meaningful steps forward to develop this market so that we can share in the benefit.