Geoscience Reference
In-Depth Information
to a fair share of an international effort to achieve the agreed global effort. It
would be useful and probably necessary for heads of governments committed to
strong global mitigation outcomes to appoint an expert group to develop such a
framework for allocating the global effort among countries. Within the context
of concerted unilateral mitigation, each country would be free to accept or reject
guidance provided by such a framework. The framework would become a focus
of international review of each country's effort and evolve over time in response
to discussion and experience.
To conclude the discussion of the evolution of the global climate change
regime, international trade in emissions entitlements has struck some large
practical problems. Within the European emissions trading system, the many
regulatory and fiscal interventions are forcing much larger reductions in emissions
than carbon pricing. These together with slow growth in economic activity and
the realization of unexpected opportunities for low-cost abatement have caused
emissions permit prices to fall to levels that are well below the economic cost
of emissions and the value of abatement. The low prices raise questions about
the effectiveness of the scheme. Although controlled in quantum, use of offsets
at very low prices from the Clean Development Mechanism (CDM) has pushed
prices even lower. In the absence of quantitative controls, access to the CDM
has pushed New Zealand permit prices down to negligible levels. Low European
prices would, if uncorrected, introduce low prices into other emissions trading
systems with which Europe is linked, notably Australia from 2015.
It is understood by economists that broadly based carbon pricing achieves more
carbon emissions reduction at similar cost, or similar abatement at lower cost,
than large numbers of separate regulatory and fiscal interventions. Considerable
emissions reductions have been achieved in recent years in many countries
through regulatory and fiscal interventions. However, the cost advantages of
general carbon pricing become more important as mitigation targets become
more ambitious, and are likely to be essential to achieving the deep reductions
in emissions that will be necessary to achieve the agreed global objective. The
contemporary problems of uneconomically low prices in domestic and inter-
national trading schemes can therefore be seen as a threat to achievement of
long-term global mitigation goals. A tightening of emissions reduction targets
is necessary to restore prices that relate appropriately to the cost and value of
abatement in a world that is meeting its emissions reduction targets.
The CDM has emerged as the most important locus for international trade in
carbon units and for a number of years contributed substantially to incentives for
investment in emissions reduction in developing countries.
As analyzed in the recent report of an independent review panel, the CDM is
experiencing chronic oversupply of abatement units (CDM, 2012). Prices have
fallen to levels that barely cover transaction costs. With recent and prospective
reforms, the CDM is a legitimate offset mechanism with a potentially valuable
place in a global system of climate change mitigation (CDM, 2012). The review
panel concluded that a major tightening of emissions reduction targets and
