Carbon Markets Need Global Regulator to Spur Climate Funding

United Nations envoys meeting in November should appoint a regulator to link carbon markets emerging from China to California and stimulate investment in emission-reduction projects, according to a carbon lobby group.

A global overseer would coordinate markets and boost private-sector confidence in efforts to cut greenhouse gas, said Anthony Hobley, president of the Climate Markets & Investment Association, whose members include JPMorgan Chase & Co. and Cargill Inc. More than 50 jurisdictions have set up or are considering carbon markets, UN and World Bank data show.

UN envoys meet in Warsaw on Nov. 11 to lay the groundwork for talks on a climate treaty in Paris in 2015, due to come into force five years later. An outline of international trading standards is needed as negotiators hammer out emission-measuring rules, according to submissions to the UN from the European Union, Ecuador and Indonesia.

“It allows whatever is implemented in Paris to be implemented that much faster,” Hobley, head of sustainability at law firm Norton Rose Fulbright LLP in London, said in a Sept. 24 interview. “If you could put in place some rules and standards that would allow markets to interact more efficiently, that would be good.”

A set of market rules, known as the framework for various approaches, is needed because UN envoys have failed in past talks to agree on a system to impose emission limits on nations and boost demand for carbon credits and allowances, Hobley said.

Carbon Markets

“There has to be order and environmental integrity, and it makes sense to take advantage of the efficiencies that would come from proper linkage of the various market mechanisms and approaches,” David Abbass, a spokesman for the UN Framework Convention on Climate Change secretariat in Bonn, said today by phone. The UNFCCC hosts the climate talks, where nations negotiate ways to stem human-induced temperature increases.

In cap-and-trade markets, emission allowances are auctioned or allocated for free to power plants, factories and even countries, which must surrender the permits to cover discharges. The EU’s carbon market, the world’s biggest, started in 2005 to help meet its Kyoto Protocol target of reducing emissions by 8 percent in the five years through 2012 compared with 1990.

Those favoring international carbon trading, including the EU, want to begin work on a system to ensure greenhouse-gas markets are credible, because the programs cost less than regimes such as subsidized renewable energy, Hobley said.

“If you don’t have minimum standards, you can’t link anything,” he said.

Permanent Regulator

A permanent regulator would “only address the international aspect” of national policies that create emission reduction credits or allowances that could be used for compliance with UN carbon limits, the EU said in a submission dated Sept. 12. The framework could also oversee emission reduction from non-market measures or “outcomes,” it said.

Isaac Valero-Ladron, a spokesman for the European Commission in Brussels, said Sept. 24 that officials weren’t immediately available to comment further.

Instead of UN-imposed budgets, nations will probably retain most control over their response to climate change, Hobley said.

It’s a big challenge for envoys to set up a system that will help switch the world away from fossil fuels and the heat-trapping gases they produce, Hobley said.

“It’s a stretch for international law,” he said.

Trading Limits

Before setting up the framework, UN envoys first need to decide whether there should be limits on carbon trading in the 2020 agreement, especially if some nations’ emission-reduction targets aren’t ambitious enough, said Eva Filzmoser, a director at Carbon Market Watch in Brussels, which lobbies for effective climate policy.

“We are in favor of international oversight,” Filzmoser said today by phone. “If it’s done wrong, it can undermine the whole thing.”

Carbon markets being set up in China and Japan already demonstrate the need for a framework, the Climate Markets & Investment Association, or CMIA, said in a submission to the UN.

China’s pilot markets include a carbon offset program that produces China Certified Emission Reduction credits, which can be used by emitters to meet their compliance obligations. This “may become a barrier to linkage” if the country establishes a national emissions-trading market, according to CMIA.

“To overcome this problem, China would need recognition for their China CERs from the UNFCCC” or use CERs issued by UN-endorsed regulators to comply with UN targets, CMIA said.

While a market framework would take months to set up, “it would be telling the business community that nations have not abandoned this concept of carbon prices,” Andrei Marcu, the head of carbon for the Centre for European Policy Studies in Brussels, said in an interview yesterday. “We are starting the engines.”

To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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