Five keys to the future of decarbonization

In the global fight against the climate crisis, one of the star tools is the so-called _CO2 emissions trading, an artificial market that Europe is a pioneer of, which consists mainly of assigning a price to emissions, so that polluters pay for polluting.

This system with quotas for emissions and the sale of emission rights – which will be discussed at the climate summit or COP25 in Madrid in December – creates a market for emission rights to be able to pollute: the offer is established by the public sector and is related to specific objectives, for example those set out in the Paris Agreement, while the demand is generated by polluters.

From supply and demand comes a price; polluters must surrender an emission right every time they emit _CO2: that is, pay for polluting.

Companies that need to increase emissions above their limit must buy credits from others that pollute below the maximum number of credits that have been granted to them.

A much-debated measure to improve the results of this type of system, although not yet implemented, would be to impose a carbon price high enough to incentivize energy actors and financial institutions to invest in clean technologies as a more profitable formula than polluting.

Among the key issues of the next COP is the elaboration of the regulation of Article 6 of the Paris Agreement on carbon markets and how their cooperation mechanisms will be to advance in the reduction of emissions.

In addition to the European emissions market, which is serving as an example to others, there are national or subnational systems in operation and others in development in Canada, Japan, New Zealand, South Korea, Switzerland and the USA.

The European is the main carbon market in the world and the largest. Its keys are the following:

1 What does it consist of?

A central authority – usually a government – sells a limited number of permits to pollutants, who in case of contamination above their respective ceilings can buy the rights assigned to third parties if they have not been used. Supply is determined by the public sector and demand by polluters. From there a price is determined.

The IMF has just advised a _CO2 price in the developed world of around 70 euros in 2030 to comply with the Paris Agreement; the cost in Europe is now around EUR 25 per tonne.

2 What is the main objective?

The scheme applies to emissions of carbon dioxide (_CO2), nitrous oxide (N2O) and perfluorocarbons (PFCs) from aluminium production.

The disproportionate increase in _CO2 in the atmosphere by human activity (energy sector, transport, agriculture, industry, etc.) have turned this greenhouse gas into a real environmental threat.

Its increase due to the excessive use of fossil fuels raises the temperature of the Earth instigating more frequent and intense heat waves, as well as greater forest fires and torrential rains, as well as glaciers and polar ice caps that melt and raise sea levels and flood lower areas with devastating consequences.

Scientists have warned of the risk that the increase in the planet’s temperature will exceed 1.5 degrees in 2100 compared to pre-industrial levels.

3 How to stop this nonsense?

Carbon emissions markets are a key tool in trying to reverse this serious problem. The European market began its journey in 2005 by agreeing to limit the levels of carbon dioxide in electrical installations, factories, industrial plants. Corporations that issue less than allowed can accumulate their rights if they do not sell them to use them to their advantage in subsequent exercises.

4 What is the role of the European carbon market?

It works in all EU countries, in addition to Iceland, Liechtenstein and Norway, as a cornerstone for achieving the carbon neutrality that the EU has proposed by mid-century.

Although it is the world’s third-largest bloc with the highest number of greenhouse gas emissions after China and the US, the establishment of a carbon price and the emissions trading system, among other energy efficiency measures, are helping to reduce them.

According to forecasts, by 2020 European emissions from the sectors included in the system will be 21% less than in 2005; by 2030, 43% less. At the moment, the system limits emissions from more than 11,000 large electrical and industrial installations and from airlines operating between their countries. This emissions market is linked to approximately 45% of the region’s greenhouse gas emissions.

5 How does the Paris Agreement affect?

This agreement will create a new, much more ambitious and robust emissions market mechanism to strengthen international targets, transparency and accounting of emissions by the parties.

On the one hand, it will allow the use of international emission permit trading to achieve emission reduction objectives, and on the other, it will establish a framework of solid and common accounting rules, still pending to be reflected in a document, as will be tried to achieve at the Madrid summit.

Source: The Vanguard