SUSTAINABLE INSIGHT

Tightening Climate Policy to Drive Carbon Offsetting and Emissions Trading

Wed 09 Sep, 2020 - 6:06 AM ET

Global carbon trading jumped to a record high of USD214 billion in 2019 as prices rose on current or expected tightening of regulation –an annual increase of more than a third. The EU’s Emissions Trading Scheme (ETS) made up about 80% of this volume, and the rollout of China’s national ETS is likely to increase this further. Demand for carbon offsets is likely to outstrip supply by 2025 as climate policies tighten, benefiting emerging markets (EM). Free trading of carbon offsets under a global scheme could cut costs of the Paris Agreement by up to 33% by 2030, or achieve a 50% increase in abatement for equivalent costs by directing mitigation towards the lowest-cost options. However, governments have struggled to agree on issues, such as the carryover of past credits, accounting treatment and measures to ensure the additionality of overall emissions reduction. Lack of agreement may slow the path of decarbonisation, but an agreement that fails to address concerns may lead to abrupt policy changes further down the line. Tightening climate regulation is leading to the launch of numerous carbon ETS globally and the expansion of existing ones to more sectors.

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