This Week In V-Carbon:
A Resources for the Future workshop discusses the economics behind ETS linkages, timely given Australia's new plans to link its ETS with the EU ETS. California carries out a mock trial auction for its cap-and-trade program. Thailand incubates its voluntary carbon market. The Brazilian Boa Vista A/R project becomes ACR's first verified forest carbon project in Latin America.
Connecting The Dots
8 September 2012
This article originally appeared in the V-Carbon newsletter. Click here to read the original.
| New domestic market mechanisms moved from theory to practice over the last two weeks, with a recently announced collaboration between Australia and the European Union starting in 2015 and a successful practice cap-and-trade auction in California.
As part of a workshop on border measures organized by Resources for the Future this week, researchers explored the political and economic appeal of direct linking of emissions trading schemes (ETS) and indirect linking of offsets markets as alternatives to border carbon adjustments. One of the papers presented, written by Marco Springmann from the University of Oldenburg, concludes that linking Annex I countries' domestic ETS and extending sectoral coverage in a large coalition would yield greater global welfare improvements than implementing carbon tariffs on energy-intensive goods imported by non-Annex I countries. It was noted that price controls are incompatible with such linkages, as they hinder acting countries from fully harmonizing carbon prices.
Australia will be testing the waters with its own linkage starting in 2015 when it links its ETS with the EU ETS and scraps its price floor, setting the stage for the world’s first full inter-continental linkage of emissions trading schemes. An Ecosystem Marketplace exclusive digs into what Australia's “link-and-scrap” decision could mean for the domestic project development under the Carbon Farming Initiative.
While it appears the new policy could potentially point to some short-term price uncertainty for Australian farmers as Australian emitters gain access to the EU's cheaper carbon credits, in the long run it could deliver efficiencies to the international carbon market. The removal of the floor price in particular, says Dave Sag of Australia-based Carbon Planet says, honors “the whole point of emission trading schemes, [which] is to deliver a certain level of reductions at the lowest cost.”
More linkages could be on the horizon, with Australia’s climate change minister Greg Combet stating that Australia would also pursue links with South Korea, New Zealand, and California. Point Carbon's Emilie Mazzacurati projected that a linkage with California would not occur until further down the line once both EU and Australian prices stabilize. California pulled off a relatively smooth-sailing mock trial auction last week, just months before the state officially launches its cap-and-trade program in November.
Elsewhere in the carbon markets, at the national level Thailand is pushing for legislation on GHG emissions reporting as it builds capacity for a domestic voluntary carbon market, slated for roll-out by October 2013. At the project level, Brazil saw its Boa Vista afforestation/reforestation carbon offset project become the first Latin American forest carbon project verified under the American Carbon Registry.
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