Sheldon Zakreski, The Climate Trust
Weekly Policy and Finance Update – November 6, 2017
|Bottom line | Government policies that don’t leverage the private sector undercut rapid progress on reducing emissions.|
Most climate policy advocates agree on the need to put a price on carbon, but many are indifferent to how it should be done. Whether its a carbon tax, cap and trade, or something else, what difference does it make? While setting a price is an achievement in and of itself, establishing a pricing system that incentivizes private capital can lead to greater and more sustained emission reductions than pricing policies that solely rely on the government to redistribute revenues to encourage emission reductions.
Cap and trade programs that decentralize the decision-making process and allow carbon prices to fluctuate send a stronger emission reduction signal than carbon taxes or levies that are static or rise on a fixed schedule. Consider the early results from Australia’s Emission Reduction Fund (ERF) versus California’s cap and trade system for offsets.
To date, the ERF, to which the government allocated $2.55 billion, has held five auctions (between April 2015 and April 2017) and produced 21.8 million metric tons. California’s offset market has generated 83.5 million metric tons of reductions since its January 2013 start. There are questions of whether the government will allocate additional funds to enter into additional contracts. With government support wavering to commit additional funds to continue the ERF, it also calls into question their commitment to enforce the contracts they’ve entered into to-date and ensure that future emission reductions actually occur. Meanwhile, despite a substantial reduction in California’s offset limit, The Climate Trust expects the North American offset market, which includes Ontario and Quebec, to generate an additional $5 billion in offset demand in the 2020s.
This is not to say that governments don’t play an important role in fostering emission reduction activities. The distribution of allowance revenues is a key feature of cap and trade programs. The lesson, however, is that climate change is too large a problem to rely solely on government funding programs when the market can be leveraged to deliver emission reductions regardless of which political party is in charge.
About the Emission Reduction Fund
Australian Government, Clean Energy Regulator
Compliance Offsets Program
California Air Resources Board
Emissions Reduction Fund Running Out of Money
Mark Ludlow, Financial Review, November 13, 2016
No Top-Up for Emissions Reduction Fund in May Budget
Mark Ludlow, Financial Review, April17, 2017
It’s Time For The UK To Explore Conservation Finance
Guy Whiteley, Ecosystem Marketplace, October 30, 2017
Climate Trust Sees $5 Billion New Demand For North American Offsets Through 2030
Peter Weisberg, Ecosystem Marketplace, October 31, 2017
Study Finds, Offset Investing May Increase Returns Without Increasing Risk
Kristen Kleiman, October 5, 2017
A New Phase of Development for California Dairy Digesters, Peter Weisberg, October 30, 2017
Ontario’s Better Manages Offset Invalidation, Peter Weisberg, October 23, 2017
Forest Carbon is Backed by Good Science, Sean Penrith October 16, 2017
Image credit: Flickr/Bemep