Cities, regions seen as ‘essential’ to growth in emissions trading
Delegates from 26 national and sub-national governments representing nearly half of the world’s economic output have pledged to strengthen cooperation in establishing “carbon markets” — while noting the special importance of such steps by cities and other local regions, particularly in the absence of national action.
In coming years, cooperative steps might include technical cooperation and information sharing to support the implementation of emissions-trading schemes in other jurisdictions.
The occasion was the 10th anniversary of the world’s leading knowledge hub for such schemes, the International Carbon Action Partnership (ICAP). The statement was signed Friday in Lisbon at a three-day summit convened by ICAP.
It comes as emissions-trading systems are poised to operate in 19 jurisdictions. That includes the Tokyo metropolitan area and a nationwide set-up in China, the largest emitter of greenhouse gases. By the end of the year, areas with such cap-and-trade schemes are slated to represent nearly half of the world’s economic output, according to ICAP.
Given the ongoing politicization of climate action, however, attention has increasingly turned to cities and other sub-national regions.
“Commitments at the subnational level […] are essential to combating climate change,” the declaration reads. “Subnational efforts, including those of many ICAP members, are crucial to achieving our climate goals.”
Route to Paris
Emissions trading is an environmental policy that caps the total amount of greenhouse gases in a given market. Beneath that cap, it distributes the “available” emissions among participating companies in the form of tradeable allowances.
“In the absence of national leadership, subnationals can play a really important role advancing emissions trading systems. And over the last decade, they have done so.”
According to ICAP, the approach gives policymakers a high degree of certainty that climate targets will be met — as well as a system that can easily be interlinked with other systems (in this way, ICAP envisions an eventual global set-up). At the same time, the schemes harness market forces to enable emissions cuts to take place where they are cheapest.
The group suggests that carbon pricing will provide a key route for fulfilling the ambitions of the Paris climate agreement, the global accord struck in 2015. As signatories “work toward the
implementation of their commitments under the Paris Agreement, and subnational jurisdictions implement their own climate change programs, emissions trading and cooperation across borders will be a key building block in many jurisdictions’ strategies,” the ICAP declaration states. “Emissions trading can help ensure that the goals of the Paris Agreement are met in a cost-effective manner.”
While cities make up a core of the world’s greenhouse gas emissions, metro Tokyo currently is the only such ICAP member. The Tokyo metropolitan government started a first-of-its-kind urban emissions trading scheme in 2010 and reduced total greenhouse gas emissions by 22 percent in the first three years.
Unlike schemes operating in larger geographic areas such as states or countries, the Tokyo initiative covers only electricity consumers — in its case, commercial buildings — and not energy generators. That is to say, compliance focuses on how much energy a building uses and forces building owners to trade credits among each other. But energy-generating facilities, which are often participants in other cap-and-trade schemes, don’t yet play a role in the Tokyo market.
That may change, however, as neighboring Saitama Prefecture starts its own trading system that would link with Tokyo’s. (Update: The Sautama programme is now operating and linked with Tokyo’s.) Such local action could galvanize the national government to establish some sort of initiative nationwide, especially if enough prefectures join in to represent a significant portion of the country’s population and economic output.
In addition, city-wide trading programmes are also operating in China as part of that country’s pilot programmes. Such schemes are currently underway in Beijing, Chongqing, Shanghai, Shenzhen and Tianjin, according to ICAP.
Still, cities or metropolitan areas launching their own carbon-trading schemes remain rare today. That’s because there are only so many cities where the commercial building sector makes up such a significant portion of emissions that a policy of this nature makes sense. Other financial capitals such as London, New York City and Paris, for example, already are covered by trading schemes in the European Union and the U. S. East Coast.
According to ICAP, a national — or supra-national, as in the case of the E. U.— is preferable, but something is better than nothing. “In the absence of national leadership, subnationals can play a really important role advancing emissions trading systems,” ICAP’s William Acworth told Citiscope. “And over the last decade, they have done so.”
Cap and trade
The European Union launched the world’s largest such initiative in 2005. Two years later, Germany and California started ICAP as a global network to bolster the exchange of ideas. At the time, the U. S. state was considering its own cap-and-trade scheme during an era of climate-sceptic national policy under then-President George W. Bush.
Following the establishment of ICAP, sub-national areas in North America — where unlike Europe, there were no national or supranational schemes — began exploring cap-and-trade. The Western Climate Initiative launched in 2007 with the hopes of promoting an international market among states and provinces in the western United States, Canada and Mexico. Meanwhile, on the U. S. East Coast, nine states began trading emissions under the Regional Greenhouse Gas Initiative in 2009.
“The ICAP members are pioneers in climate solutions and are all benefitting tremendously from the in-depth discussions we have had with representatives from other emissions trading schemes,” said Lois New, director of climate change for New York, one of the participating states. “We have shared knowledge, developed capacity, discovered creative solutions to challenges and found synergies that will continue to encourage our work back home.”
While a robust western market has yet to materialize, California eventually embarked solo in 2012. It soon linked its market with the Canadian province of Québec. Now carbon credits are traded on an open, cross-border market between the two sub-national jurisdictions. Following strong sales of California-Québec carbon credits at a May auction, Ontario announced that it will join in as well, likely next year.
Both jurisdictions credit ICAP with facilitating the complicated process of linking two markets between a state and a province with different legal systems, currencies and working languages.
“Collaboration with ICAP partners has helped to lay the groundwork for California’s cap-and- trade programme, our linkages with Québec, and our soon-to-be launched linkage with Ontario, as well,” said Mary Nichols, chairwoman of the California Air Resources Board.
The anniversary celebrated in Lisbon left Québec’s director of carbon markets, Jean-Yves Benoit, optimistic. “Today, these governments have renewed their commitment on the world stage, agreeing to take practical steps towards implementing best-practice policy and to work together further towards a common low-carbon future,” he said.
NOTE: This story has updated with regard to the Saitama programme and to note the pilot programmes in China.