Hindsight on 2015
Sean Penrith, The Climate Trust
January 4, 2016
On January 5th last year, The Climate Trust (The Trust) released our top ten list of observations that would play out in the carbon market. Holding ourselves accountable, it’s useful to briefly review how we fared on some of the notable predictions in 2015 for what turned out to be a pivotal one in terms of climate awareness. We believe that last year will go down as a pivotal turning point in history with regard to climate change.
The Trust predicted an increase in demand for offsets given the introduction of transportation fuels under California’s cap. If the full 8% offset usage provision were used by covered entities, it would create demand for offset supply of 473 million over the 2015-2030 period. We saw a surge in the use of offsets for compliance from 1.6 million in 2014 to just over 11 million in 2015. We received more inquiries at The Climate Trust for offset credits than we could service during the year, so we witnessed first-hand the level of market demand.
We didn’t need to wait long for our next observation; the inclusion of rice and Alaska. By June 2015, the California Air Resources Board (ARB) approved the Rice Offset Protocol that rewards rice farmers for adopting best practices when growing rice crops. ARB also amended their Forestry Offset Protocol to allow projects in Alaska to receive credits for forest management that verifiably sequesters carbon.
Last year we discussed the growth of conservation finance. Ahead of the Paris talks, more than 183 countries representing 94 percent of the greenhouse gas emissions on the planet had submitted their national plan to combat emissions. However, many of these plans, especially in developing countries, rely on up to $1 trillion for investment in renewable energy, climate-smart farming and sustainable forestry. Such investment flows are yet to be identified, but there is certainly a galvanized commitment from country leaders to take action on carbon emissions and finance, especially in light of the fact that 2015 has been declared as the hottest year ever recorded.
I attended the climate talks in Paris and witnessed the incredible focus on the topic of releasing flows of conservation finance. As a delegate with the International Emission Trading Association (IETA), I found over 20 events on just IETA’s key event calendar that dealt with finance. The section addressing finance in the final Paris Agreement was a huge lift. It had a positive outcome that set the floor for finance flows at $100 B/year by 2020 which is great! The Agreement states that developed countries should continue to take the lead in mobilizing financial resources and developing countries contributing on a voluntary basis. This scaled-up finance is aiming to achieve a balance between adaptation and mitigation, focusing on particularly vulnerable parties.
A number of things cemented our conviction that a post-2020 carbon market was here to stay. The most significant was of course the adoption of the Paris Agreement on December 12, 2015. Article 6 in the Agreement covers flexible market mechanisms that market actors were holding out for. It calls for cooperative approaches using ITMOs (international transfers of mitigation outcomes) or credits, rules for carbon accounting and a to-be-established crediting registry mechanism. A pretty big deal!
What was amazing was how 18 countries went further than the Agreement. Led by New Zealand, countries signed on to a carbon market declaration (Australia, Canada, Chile, Columbia, Germany, Iceland, Indonesia, Italy, Japan, Mexico, Netherlands, New Zealand, Panama, Papua New Guinea, South Korea, Senegal, Ukraine and the US). This declaration has sent a massive signal that markets have a crucial role in supporting GHG goals in the post-2020 period. This group aims to develop standards and guidelines for environmental integrity of global carbon markets. The ultimate aim is of increasing action and raising ambition, through the use of carbon markets. I am sure that California will be able to disseminate much of their market learning, and help increase the size of a fungible carbon market tremendously.
We predicted significant movement both on an executive level and on a subnational level in terms of climate action. We saw this happen with the release of the final Clean Power Plan that gives a strong nod to trading and market linkages. We also saw Ontario, Quebec, and Manitoba agree to program linkage under the Western Climate initiative with California’s cap-and-trade program. China is set to roll out their national emissions trading system in early 2017. Mexico followed their 2014 climate change agreement with California with another agreement with Quebec to learn about cap-and-trade from the Canadian province.
We were also gratified to see the increased involvement of other US agencies in the realm of climate change. The US Department of Agriculture announced new awardees for their Conservation Innovation Grants (The Climate Trust was fortunate enough to be one of them). 45 projects were selected to receive funding support totaling $20.5 million with a keen focus on approaches to stimulate private finance to boost conservation finance flows.
It was fantastic to see our predictions bear fruit, mainly because it signifies the maturing of a carbon market both nationally and internationally. Here is looking forward to a great 2016.
Read on for our 2016 Carbon Market Forecast.