HPCA Hosts COP-27 Side Event on ‘Frontiers in Carbon Pricing’

The myriad challenges incumbent in expanding the world carbon market were the foci of discussion Wednesday (November 16) at a COP-27 side event hosted by the Harvard Project on Climate Agreements (HPCA). HPCA Director Robert Stavins moderated the panel, “Frontiers in Carbon Pricing,” on day 8 of the international climate talks in Sharm El Sheikh, Egypt.

The event panelists included Daniele Agostini, Head of Energy and Climate Policies, Enel Group; Lisa DeMarco, Senior Partner and CEO, Resilient LLP; Dirk Forrester, President & CEO, International Emissions Trading Association (IETA); and Andrei Marcu, Founder and Executive Director, European Roundtable on Climate Change and Sustainable Transition (ERCST).

Stavins framed the discussion by summarizing efforts to date to develop carbon markets – nationally, regionally, and globally — to help achieve the CO₂ emissions reduction targets outlined in the Paris Agreement. More than 60 jurisdictions worldwide to date have adopted carbon-pricing policies, largely cap-and-trade systems and carbon taxes.

“Very few of these policies, however, meet the economist’s ideal — which is an upstream, economy-wide emissions-trading or carbon-tax system which includes specific rebate mechanisms,” Stavins remarked. “Most emissions trading systems include, to varying degrees, price collars, rendering them, effectively, emissions trading system (ETS)-tax hybrids. Economists and political scientists are examining the reasons why such systems have been adopted, and policy makers in the United States and elsewhere are beginning to consider how some features of pricing systems might be incorporated into non-pricing policies, thus reducing costs, given the apparent political difficulty of enacting carbon-pricing legislation.”

Panelists debated both the political and logistical barriers that need to be cleared to pave the way for more wide-spread adoption of carbon-pricing policies. While acknowledging the difficulties of clearing those barriers, DeMarco stressed the need for policymakers to find climate solutions quickly.

“We have to bend the curve on emissions before 2030 if we want any help to keep COP-25 [during which the rules were finalized for Article 6 of the Paris Agreement] alive. We need to rapidly reduce emissions,” DeMarco remarked. She said the success of carbon-pricing regimes depends on timing, context, and durability. Constructing affordable and inclusive regimes and getting buy-in from the business community will also be critically important moving forward, she argued.

Forrester sounded an optimistic tone, noting the number of jurisdictions that are now talking about cap-and-trade, carbon taxes, and hybrid policy options to help meet their climate goals, as well as those — like the European Union, Singapore, California, and Japan — that are currently or have already implemented such policies. “We have arrived at a different juncture,” he said.

Marcu spoke to the tensions between a truly free and completely transparent carbon market, and one that is constricted by price caps, price collars, or other limitations. He also stressed that “it is an evolving world” in which emissions trading systems (ETSs) that were right for fossil fuel-centric economies might not be right for economies more reliant on CO₂ emission reductions and alternative fuel sources.

Agostini pointed to the emergence of voluntary ETS markets which are sparking a great deal of discussion now, as carbon pricing “is becoming more mainstream.” He remarked that the carbon trading marketplace is quickly changing.

“The original idea of having a single global plan for carbon pricing has failed,” he said. “In some ways what we’re seeing is the market taking over. Fragmentation is important. The realities markets erupted but have developed in a way that they can now talk to each other.”

Approximately 80 people attended the side event, which was held in the IETA Pavilion.

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