Carbon markets for the fight against climate change

Strengthening carbon markets, to support the CO₂ reduction targets set by the Paris Agreement, is a real opportunity for countries, international organizations and the private sector.

During the December appointment in Poland, for COP24, the delegates managed to agree a part of the Paris Rulebook, the regulation that makes the Paris agreement operational. However, one of the key points of the Paris Agreement has been postponed to the next meeting with the UN climate conference scheduled for the end of 2019 in Chile.

At COP25 we will have to discuss and define the guidelines that will regulate the so-called "next generation" of carbon markets. An implementation regulation that we have to define incomplete, precisely because of the failure to define a package of common rules for an International Carbon Market and for the new market mechanisms.

The main unresolved issues all revolve around Article 6, an article of fundamental importance for the participation of the private world in the objectives defined by the Paris Agreement.

Concrete solutions for reducing emissions

There are two ways to motivate companies to reduce their greenhouse gas emissions: carbon taxes, which provide a direct incentive to reduce emissions, and carbon markets, which help reduce costs to meet the reduction targets emissions by providing an indirect incentive to achieve the objectives.

Carbon markets can play a key role in stimulating climate mitigation and supporting sustainable investments in developing countries.

So what are the key points for the new generation of carbon markets?

• Reducing political uncertainty: the next generation of carbon markets must be built on firmer foundations. This requires political clarity, stable and higher prices and a predictable and long-term demand.
• Improvement of regulatory systems efficiency and transparency: after the Kyoto experience, where transaction costs and risks for investors have been increased, a better standardization of validation, monitoring and verification systems is essential to improve transparency and the legitimacy of the regulatory system.
• Private investments to increase climate change mitigation: the private sector can play a primary role in the fight against climate change, concentrating the activities of reducing emissions in low-cost options and in the conscious choice of funding in line with the objectives and the company mission.

Carbon Pricing strategic tool for sustainable development

Internalizing climate risk in decision-making, investment and organizational processes is an important step for companies, but it is not always supported by a correct CO2 price. There are several ways to implement an internal initiative to define the price of carbon, and this can vary greatly depending on the sector in which the company is located.

In December 2018, the World Bank published "Guide to Communicating Carbon Pricing", a practical and detailed guide on how to develop communication strategies for carbon pricing and how to integrate communications in the policy-making process. Effective communications are considered an integral part of the design and implementation of a carbon price.

Another report published in December 2018, by the World Resources Institute, underlined the importance of carbon price expansion, stating how this can contribute to the achievement of both economic and climate benefits.

Eighty-eight countries have stated that they are planning or considering the use of carbon pricing as an instrument to meet the commitments made in the Paris climate agreement. More than 1,000 companies have decided to apply an Intenal Carbon Pricing to guide their investment decisions, and supporting companies to become aware of their emissions and speed up the process of change.

Those wishing to increase their climate ambitions, be they businesses or countries, and support a transition to a Carbon Neutral economy can not afford to ignore carbon prices.

Nowadays, to give the ton of CO2 an economic value, through Carbon Pricing mechanisms, is considered the most effective tool to fight and limit emissions.