Bloomberg reported this week that the US are preparing a fallback Global Emissions Trading Markets plan because United Nations climate talks to be held in Paris at the end of November (COP 21) have yet to set rules for such a system. If true, this is a momentous and exciting development: the country that stood in the way (and arguably continues to stand in the way) of a global carbon treaty and market by failing to ratify the Kyoto Protocol is now willing to be its saviour.
Countries are understandably nervous about making efforts to globalise and standardise market based carbon reduction efforts after previous failures, afterall it’s why we have Intended Nationally Determined Contributions (“INDCs”) and not “Kyoto Protocol II” being brought to Paris in the first place. If a coalition of the willing headed by the most important country, the US, can gather momentum behind a global carbon currency then that is good news not only for the environment but also the global economy. Markets are more efficient than regulation but to save our planet, regulation will have to come in bucket loads if Paris doesn’t deliver. It would also help allay the concerns of European industry that is arguably shouldering most of the global carbon reduction ambition to date while risking their international competitiveness.
Wider application of carbon pricing would provide the political cover for more countries to get involved in carbon markets. It would help an individual country move more rapidly towards reduction targets that have similar ambition to the others in the same market because their competitiveness would not be damaged by carbon costs. When it comes to international trade, US involvement is the key to unlock the enormous potential of any market, including carbon (picture a world where the US enforces a level carbon footprint playing-field on imports….)
However the excitement subsides, at least for now, when it comes to the EU’s involvement. It is unlikely the EU will join an international market for the foreseeable future because its ambition will likely remain the highest on earth for some time and thus its carbon pricing will be materially different. A global market is still a dream, rule setting will be a minefield, but we, in the interests of a level playing field for industry across Europe, welcome any progress that can be made towards it.