The role of the G20 in international climate policy development
The critical path to ambitious climate action involves real-world pilots of new market mechanisms and world-class technical toolkits for assuring quality. Given its economic credibility and focus on pragmatic solutions, the G20 is well positioned to assist countries interested in forming a testing ground for a network of linked carbon markets.
Climate negotiators are working hard on details of the international framework and new market mechanisms. The ‘top-down’ UN framework embodied in the Kyoto Protocol (KP) appears to be evolving towards a new, more flexible design. The new structure will enable interested countries to use market mechanisms tailored to their own circumstances – and to voluntarily link them with other markets for better economies of scale.
This type of architecture will only work if nations use common designs, metrics and tools so that linkages are possible. Further, it will only work if business finds the markets to be clear, transparent and investable.
Business recognises that the only way policy-makers can hope to achieve their aim of limiting warming to 2°C is with a robust, global carbon price signal. Put simply, emissions markets deliver benefits more cost-effectively than other policies. Business wants to be a partner in making new markets work effectively – particularly with effective cross-border linkages.
While climate negotiators still struggle with the right design for an international policy framework, the action has shifted to the ground level. Increasingly, national and subnational jurisdictions are making market-based emissions trading schemes (ETS) their policy tool of choice to address climate change.
Emissions trading schemes are in effect (or under development) all around the world, including Australia, New Zealand, the European Union, South Korea, and – importantly – China. Subnational and regional ETS are cropping up across the Americas in California (the world’s 9th largest economy), the Canadian provinces of Alberta and Quebec, the nine Northeast Atlantic American States comprising the Regional Greenhouse Gas Initiative, and Brazil. According to the UN, over one billion people now live in a jurisdiction covered by a carbon price. The next important step is the linking of these ETS to form larger, more liquid and effective carbon markets.
High-quality market components enable markets to link more easily
The challenge of moving away from the Kyoto structure is that nations must take care to ensure quality designs that are ambitious enough to meet targets – and contain features that make linking workable. Existing UN infrastructure, like standardised baselines, registries, and offsets programmes, could play an important role in assisting emerging markets to build high-quality systems that are ready for jurisdictional linkage.
A G20 testing ground for new market mechanisms
The trend towards nation-wide emissions trading schemes is underway, yet still more remains to be done to ensure that these systems work well together. Climate change is among the core issue areas on the agenda of the 2013 G20 Summit in Russia. We at the International Emissions Trading Association (IETA) applaud the creation of the G20 Study Group on Climate Finance and the 2012 G20 Leaders Declaration to fight climate change. We recognise that the longer policy is delayed, the higher the long-term costs will be.
IETA sees a constructive new role for the G20 in encouraging harmonised, high-quality market infrastructure through the development of a world-class toolkit of critical components for operating an emissions market. This toolkit could include standardised baselines, international offset issuance procedures, model registries and other market infrastructure.
This toolkit could be made available at the UN for interested countries to utilise. By taking advantage of these world-class components, developing countries could accelerate the adoption of market mechanisms that are easily linkable. By using common components, these systems would be high quality – making them capable of linking efficiently. This would help interested countries to move towards a global carbon price.
For an efficient global price to emerge that is fair, it must involve linked markets across the G20. To reinforce these linkages, the G20 should work to ensure that international public-private climate financing commitments through the Green Climate Fund and beyond are sustainably and effectively met. The International Energy Agency (IEA) estimates that US$15 trillion of investments beyond business as usual are required to be redirected from conventional to low carbon technologies in the energy sector between now and 2035 in order to remain within the 2°C target.
While UNFCCC climate negotiations are large and complex, the G20 can provide a smaller forum, where constructive attitudes and a creative atmosphere foster better cooperation and learning. The G20 offers a more intimate setting where ideas can be vetted, best practices exchanged, and market linkages encouraged. Importantly, the G20 can enable these constructive discussions outside the glare of the UNFCCC spotlights.
IETA recognises that the G20 has a packed agenda. But with its influence and scope, it can play an integral role in building confidence amongst its members that will aid the international policy discourse. It could support (or even increase) the current momentum towards national market-based carbon pricing mechanisms and market linkage, with the long-term aim of a global carbon price.