The transition to a low-carbon economy can be supported through multiple approaches, but advocacy and action are critical. Both political support for lower carbon development as well as demonstration projects that highlight multiple benefits of carbon focused resource management can support the growth of carbon markets. The carbon market describes a market that is created from the trading of carbon emission allowances to encourage or help countries and companies to limit their carbon dioxide (CO2) emissions. These markets have been developing from “cap-and-trade” or “cap-and-tax” frameworks where a limit or price for certain greenhouse gases such as carbon dioxide is established. Typically these limits or taxes become gradually more restrictive with the goal of reducing total emissions over time. Law and policy changes at state and regional levels have been major drivers of the carbon market expansion.
The UNEP Financial Initiative reports the largest carbon market in the world — the EU Emissions Trading Scheme (EU ETS) — is not driven directly by the Kyoto Protocol, but rather by regional legislation. The EU ETS implements a cap for total amounts of certain greenhouse gases that can be emitted by installations covered by the system, covering around 45% of the EU’s greenhouse gas emissions. Other regional and national carbon trading mechanisms have emerged across the globe including Japan, Australia, and the United States.
While the climate change policy framework in North America is currently fragmented, due to the lack (to date) of a comprehensive national response in both the U.S. and Canada, three major regional initiatives – the Regional Greenhouse Gas Initiative (RGGI), the Midwestern Greenhouse Gas Reduction Accord (MGGRA), and the Western Climate Initiative (WCI) – are in various stages of development. Although implementation of the MGGRA is still uncertain, and WCI is limited, together these policies are supporting growing trading programs. These programs monetize a substantial percentage of major greenhouse gas emissions in North America, presenting an advocacy opportunity to support meaningful greenhouse gas emissions through carbon market mechanisms.
A continuing challenge will be to deploy and integrate these schemes in ways that provide a coherent, long-term, consistent pricing signal to investors and resource managers. However, supporting carbon monetization at local, regional, and global levels can enable governments and land managers, as well as investors and fund managers to:
- Increase capital flows into projects that help mitigate and adapt to climate change;
- Improve the way investment processes incorporate climate change;
- Use their influence as shareholders to improve the carbon performance of thecompanies in which they invest; and
- Engage with public policy frameworks to ensure they catalyze the transition to a low-carbon economy.
Learn More
- EU ETS Fact Sheet
- Investor Leadership in Climate Change, UNEP
- North American Regional Initiatives:
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