Carbon Markets of the Future are Forming Where You Might Not Expect

In China, Chile, and more than a dozen other countries around the world, the carbon markets of the future are beginning to take root.

Five Chinese cities and two provinces are in the process of piloting emissions trading systems with the goal of a building a national carbon market. The government has integrated its climate change strategy into its economic development planning, and it has committed to reducing its carbon emissions per unit of GDP by at least 40 percent by 2020 compared with 2005.

Australia introduced a carbon price in July 2012 to support its transition a low-carbon economy. Its biggest polluters now have to report on their emissions and pay $23 per metric tonne for carbon pollution, creating an incentive to reduce their greenhouse gases.

In Tokyo (pdf), a cap-and-trade system has been operating since 2010. By its second year, it had cut greenhouse gas emissions by 23 percent.

Other countries are also laying the ground for future market instruments that could reduce their greenhouse gas emissions cost effectively. They’re meeting this week as members of the Partnership for Market Readiness (PMR), a coalition of more than 30 developed and developing countries that began working together in 2010.

Partnering for climate solutions

The PMR provides a platform for countries to learn from one another’s experiences, and explore and implement innovative approaches to greenhouse gas mitigation, far from the tense international negotiations connected with the UN Framework Convention on Climate Change.

"These countries, learning from past lessons, are exploring and implementing markets-based approaches to tackling climate change," said Xueman Wang, Team Leader of the PMR. "Their success will be crucial to scaling up mitigation efforts."

At this week’s meeting, officials from Chile, China, Costa Rica, and Mexico are presenting their readiness proposals, explaining how they plan to implement specific market-based approaches to reduce emissions. They are the first PMR countries to reach this stage.

Chile is pursuing an emissions trading system in its energy sector and building a greenhouse gas registry system. Costa Rica is aiming for a carbon-neutral economy by 2021 – a commitment incorporated into a national climate change strategy that seeks to align low-carbon growth and eco-competitiveness. Mexico is developing market-based mechanisms to reduce up to 30 percent of its emissions by 2020.

Officials from countries as varied as Vietnam and South Africa will also be making presentations on clean growth strategies that they are implementing or considering. All face the consequences of climate change and all can contribute to the PMR as solution makers and as solution takers.

Recognizing the urgency

Action on climate change is urgently needed. If no action is taken by greenhouse gas emitters, by the end of the century, the world could be 4 degrees Celsius warmer than it was at the start of the industrial revolution. The impact on agriculture, water security, and sea level rise would have dangerous consequences for communities around the world.

Scientists consider a 2-degree temperature rise the limit of safety, which is where the world will be headed if countries make good on their current emissions reduction pledges. Getting there will take the action of countries like those in the PMR and those that follow their success.