Background and Objectives
A warming planet is not just an environmental challenge, it is also impacting countries and people, with the poor the hardest hit. In response, countries around the world are developing different ways to fight climate change. Nearly 40 countries and 23 sub-national jurisdictions are designing or implementing different carbon pricing policies such as emissions trading systems or carbon taxes. Others are choosing non-market approaches such as standards and bans. While efforts to share information and experience will continue to be valuable inputs to domestic decision-making, ultimately each government is making decisions based on what is the best fit for its circumstances and needs. This trend is likely to continue as the theme of "nationally determined" mitigation contributions is a key component of the Paris Agreement.
This "patchwork" of different mitigation actions is helpful for ensuring that mitigation addresses domestic needs and innovation. However, this bottom-up development has also led to heterogeneity across countries, which has made it increasingly complex to track progress and compare achievements. Moreover, since directly linking mitigation actions, such as emission trading systems, involves regulatory modifications to harmonize the schemes, the growing heterogeneity in scheme design could make linking in the classic sense increasingly challenging. This could potentially put the benefits of a global carbon market beyond reach. These benefits include: a widely accepted price on carbon, significant scale to attract investment, a strong signal to the market that carbon pricing is here to stay, improved price stability, and cost-efficiency.
Against this backdrop, the World Bank Group’s Networked Carbon Markets initiative is working with civil society, governments and the private sector to explore alternative visions for how a future international carbon market could accommodate a "patchwork" of different domestic climate actions. The Networked Carbon Markets initiative’s focus is not to "harmonize" climate actions so that units can be traded on a 1:1 basis, but rather to facilitate cross-border trade based on a shared understanding of the relative value of different actions. This is intended to enable more countries to participate in a liquid and scalable international carbon market, while still preserving the environmental integrity of the trade. The effectiveness of these linked carbon markets, however, will be contingent upon the transparency of the process and accountability of relevant institutions and structures. In response, the Networked Carbon Markets Initiative is exploring the services and institutions needed to enable transparency, comparability and, ultimately, linkage of carbon markets in the future.
Work Plan in 2016
The first phase of the Networked Carbon Markets initiative’s work plan is to support linking climate actions within jurisdictions. Given this objective, the Networked Carbon Markets Initiative has conducted a series of regional pilots in Peru and Thailand to assess the robustness, comparability and exchangeability of domestic programs. More information on the lessons learned from the pilot experiences following the links below.
To share the findings and lessons from its work program, the Networked Carbon Markets Initiative has prioritized a global outreach effort in 2016. For example, it recently hosted an event on "Transparency and Linking in a New Paris Regime" as part of a four-day workshop that was jointly organized by the World Bank Group’s Partnership for Market Readiness (PMR), the Carbon Pricing Leadership Coalition (CPLC), and the Swiss Government. The event brought together 170 key experts from the public and private sectors to explore different ways that systems can link in the new Paris Regime and how enhancing transparency of climate actions may support countries’ linking efforts. More information following the links below.
The Networked Carbon Markets initiative work plan for 2016 also includes running modelling and simulation exercises to test various linking scenarios; conducting scoping studies to identify opportunities for the Networked Carbon Markets initiative to support linking efforts in specific countries; supporting experts from various fields in their efforts to enhance assessments of countries’ climate actions through sponsoring Climate Transparency’s work program; and continuing to convene experts to discuss potential post-2020 services and institutions for an international carbon market through a series of multi-stakeholder workshops.