Carbon markets are springing up everywhere. The World Bank reports that 61 carbon pricing systems already exist or are under development globally. What gives? And is this important?
To explore these questions, 360 Energy convened five top carbon market experts in a wide-ranging virtual “kitchen table” conversation.
The widespread emergence of carbon markets is important. Energy consuming companies need to reduce the carbon emissions from their operations to comply with current regulations or to meet their own sustainability goals. Achieving Canada’s international climate action commitments will require continually deeper emission reductions. If companies can’t meet these emission reduction targets fast enough, they can purchase credits or finance emissions reductions outside their operations instead. Carbon markets have emerged to satisfy this need. As global climate ambitions strengthen, emerging carbon markets are expected to play an increasingly important role.
The webinar conversation was moderated by Katie Sullivan, Energy Director at the International Emissions Trading Association (IETA). Also featured were:
- Nico Girod, Managing Director, Markets at ClearBlue Markets
- James Renouf, Director Environmental Trading & Corporate Strategy at Capital Power Corporation
- Alastair Handley, President at Radicle
- Arjun Patney, Vice President, Global Markets at Natural Capital Partners
The wide-ranging dialogue provided a variety of valuable observations:
- Carbon market mechanisms being used in Canada include the Western Climate Initiative in Quebec (and California); Nova Scotia’s new cap and trade program; Alberta’s Technology Innovation and Emissions Reduction programs; British Columbia’s Carbon Tax; and the Federal Carbon Tax and Output-based Pricing System;
- Canada lacks a credible national carbon market that would allow any organization, anywhere in the country to purchase and sell emissions compliance offsets from any other part of the country;
- Compliance units and recognized offsets will be in high demand across Canada, with a 7.33-million-unit shortfall for the 2019 reporting year. This is due in part to delays from the federal government in releasing regulations for a federal carbon offset program;
- Companies need to view emissions and credits as commodities much as they currently view natural gas or electricity as commodities. Companies need to understand these new commodity markets, like any other, so they can effectively and successfully navigate them;
- Alberta has had notable success with offset programs. Years ago, they adopted a continual improvement process of learning by doing. This allowed businesses to start generating credits quickly while improving carbon credit quality and cost over time. As a result of the program, Alberta’s agricultural sector leads the world in carbon offsets generated. Alberta could have a particularly strong position in emerging carbon markets if it pivots from emphasizing energy production to carbon management;
- Large carbon emitters currently have exposure and participate in carbon markets. However, to create more carbon market liquidity, large numbers of smaller carbon emitters will need to take actions;
- Carbon markets are complex. Most North Americans have no understanding of how to work in these markets. Carbon markets operate similarly to energy markets in this regard. Suppliers are the larger players and have knowledge that smaller consumers lack. This knowledge imbalance will dampen the demand for the transactions required to build the market place;
- Government has a vital enabling role in providing certainty and in setting proper market design regulations as pre-requisites for business to participate.
Nearly every company will soon need a strategy to reduce energy use and eliminate carbon emissions from their operations. Completely eliminating carbon emissions will not be a viable option for many of these companies – certainly not in the near future. They will have to look to carbon offsets and carbon markets to help them achieve success.
Carbon markets will only become stronger and play a more prominent role as time goes on. Expect the buzz to only get louder.