Emissions trading systems are a critical tool for valuing emissions reductions and reaching the goals of the Paris Agreement.
Putting a price on carbon
Right now, our emissions levels put us on a dangerous trajectory of unmanageable climate change, and so 195 countries around the world have promised to reduce and eventually phase-out their emissions through the landmark Paris Agreement. There isn’t one catch-all way of doing this: we’re going to need a range of changes, from increasing energy efficiency to increasing the use of renewable energy – and of course, avoiding deforestation.
But we can’t do this without putting a price on carbon. And emissions trading systems are a practical way of achieving this which make this transition to a ‘zero-carbon economy’ easier and more affordable.
Paying for the carbon we use and emit is like paying for repairs: it helps us address the damage caused by fossil fuels and unsustainable land use by making them more expensive – and therefore less attractive. Thus, the use of high carbon products and services decreases, while cleaner and more sustainable options become more viable.
How does it work?
In an emissions trading system, a limit (cap) is set on the amount of carbon that can be used in a given time, and emitters get tradeable allowances for reducing their emissions. These allowances are sometimes given out by governments or can be bought and sold by emitters. The result of all this trading is that we find the most cost-efficient way of reducing emissions and meeting the emissions ‘cap’.
Emissions trading systems are a critical tool for achieving the goals of the Paris Agreement.
Emissions trading systems around the world
The Kyoto Protocol, the previous climate agreement before the Paris Agreement, is one example of an international emissions trading system which allowed emissions reductions to reduced in the cheapest locations first.
As a result of the Kyoto Protocol, over 1 billion carbon credits were imported by businesses in Europe from developing countries about the world, with the biggest exporters being China, India and Brazil. In fact, carbon credits became 14th biggest export from Brazil demonstrating the fantastic potential for innovation when a value is put on carbon pollution.
Today, carbon pricing schemes are being implemented worldwide. About 100 country commitments made as part of the Paris Agreement, representing around 58% of global emissions, are planning or considering some sort of scheme1.
Another way of pricing carbon is through carbon taxes. These charge a flat amount per tonne of carbon used, and so the price governs how much carbon ends up being used. Most of Europe, and parts of North America, including Canada and several of its provinces, are covered by emissions trading schemes, and some of these even exist alongside carbon taxes.
Some industries are even creating their own schemes – like the aviation industry. Airlines plan to deliver carbon neutral growth by 2020, first reducing their own carbon footprint and then buying carbon assets like the ones we bring to market.
 World Bank, Ecofys, and Vivid Economics (2016), State and Trends of Carbon Pricing 2016.
How forest carbon links to emissions trading schemes
Forest carbon projects like ours keep threatened trees standing, preventing the carbon in them from being lost to the atmosphere and also retaining their carbon absorbing qualities. Therefore, these projects cause emissions reductions, which are valued through generating carbon credits. These credits can be bought by emitters to rebalance their carbon footprint.
The graph to the right shows the historical average price per tonne of carbon for different types of projects; you can see that forest conservation is one of the most cost effective options. That’s how they can be used to help businesses (and governments) lower emissions for less cost.
And that’s why we say forest carbon is the most cost-effective way of meeting our climate commitments.
We believe that a price on carbon emissions is essential. We also know that while the economy is clearly transitioning to a lower-carbon system, it isn’t happening fast enough. Businesses (and individuals) can’t wait for governments to implement perfect climate change and carbon pricing policies before taking action.
We work with businesses that wish to take action today to manage climate risk and shape the policies of the future by choosing to put a value on carbon emissions.
Find out more about our business solutions that put a price on carbon and how we work with clients to integrate carbon credits into their business strategies and products.