1 billion voluntary carbon credits in 10 years

Despite its relative small size, the voluntary offsetting market has positive results, reports the Forest Trends and Ecosystem marketplace. Over the past decade, nearly 1 billion carbon offsets have been purchased by companies, governments and individuals, spending almost $4.5 billion dollars.

Voluntary carbon offsetting can take on various forms such as an hydroelectric dam in Turkey, clean burning cook stove in South America, mangrove restoration in Africa or biogas digesters in Asia. For the last 10 years, despite many ups and downs, the voluntary carbon offsetting has shown its positive impact on the climate mitigation and adaptation.

The future of the voluntary carbon offsetting markets is directly linked to the decisions that will be taken in the next international negotiations, especially the COP21. Indeed, because carbon has no fixed price yet, the uncertainty compromises its credibility. The progressive actions of voluntary buyers can also inform and shape the international negotiations, as they have at the national and subnational levels.

 “Ahead of the curve” – State of voluntary carbon market 2015

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ClimasCOPe, analysing the COP21’s stakes

 

CDC Climate research, a partner of the ADEME, launches ClimasCOPe, a monthly publication in order to analyze international negotiations on climate.

Carbon’s price, Climate Change funds, Greenhouse gas accounting, stakeholders’ positions, adaptation and mitigation are some the issues discussed in this publication.

For each of these topics, ClimasCOPe will publish a four pages document to analyze and decrypt why they are so important and what the progress of international negotiations are. From now to November, six issues will be published.

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Linking carbon markets

UK’s Energy and Climate Change Committee published a report recommending an international connection of CO2 quota trading schemes throughout the world.

According to Tim Yeo, director of UK’s Energy and Climate Change Committee, “putting a price on carbon is an essential prerequisite in order to reverse the trend of CO2 emissions. He added that just a tax would not be enough to reach the mitigation objective. A cap and trade system is a far more incentive and useful tool”.

To not exceed the 2C threshold in 2100, all cap and trades systems have to be linked worldwide. The COP21 in Paris could be a milestone towards a global harmonization of carbon markets. Two of them already are connected in North America : between 9 states in the North-East region of the US and California and Quebec.

A global carbon market is for many, the most efficient way to go because it enables people to have s long term vision for their carbon’s investments. Because of its bottom-up approach, the cap and trade system is a good way to give countries some freedom for their contribution, preventing the top-down approach very often criticized.

The European Trade Scheme currently covers 1000 organizations in 31 countries making it the most important worldwide. Because of its position, the EUTS has a major role to play in the global carbon’s market harmonization. But before that, reforms and adjustments will have to be implemented in order to fix EUTS’s current issues. Unfortunately this should not happen before 2018.

Linking Emissions Trading Scheme

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Carbon tax in France : 14,5 € per TCO2eq

 

In 2014, the French Parliament has voted in favor of the Finance Bill that included a carbon tax – Contribution Climat Energie-. The main target of this resolution is natural gas taxed at 1,27€ per MWh. This tax was calculated on the basis of the heating value and the Domestic Tax on Natural Gas Consumption.

This tax is building up : the ton of CO2 will go from 14.€ in 2015 up to 22€ in 2016. Consequently, tax revenues will go from 2.5 billions in 2015 to 4 billions in 2016.

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Climate economics : orthodox or hetheredox

A scientific consensus has been established on the existence of climate change. However, it is not the case for solutions to implement in order to limit global warming to 2°C. Considered as a science related to production, consumption and transfer of wealth, economics give us the keys to limit climate change. Two economic theories exist on this subject: the heterodox theory and the orthodox theory.

On one hand, we have the orthodox economic theory, based on mathematical formulas, which considers that market based instruments are the most efficient to prevent climate change. In order to do so, a fixed carbon price should be implemented worldwide, supervised by a multilateral organization. This “top down” approach means that solutions decided by policy makers have to be implemented to the whole society.

On the other hand, there are climate economists often assimilated to the orthodox theory and the “political economics”. This one is more based on social sciences as it focuses on human activities forming a society. This bottom-up approach puts an emphasis on individuals, their needs and behaviors, to analyze which actions are the best suited for each issue. The political economy states that individuals are the key to implement useful and coherent decisions. In no way there is just one solution able to tackle every issue. Each problem is different from the other and each solution has to be different too. That is why they compare several policies in order to know which one has to be set-up according to the issue.

The Kyoto Protocol embodies the failure of the top-down approach. Because policy makers forgot geopolitical issues and the civil society needs, it failed. If forgotten, all these factors are impediments to achieving a global solution.

Today policies tend to go towards a bottom-up approach. By taking into account the needs and abilities of every state, there is a better chance to find an efficient solution. Undoubtedly, it’s by mixing these two approaches that a real solution will be found to limit global warming.

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The Tobin tax to the aid of the Green Fund

Tobin Tax, Robin Hood tax, financial transaction tax… three different names for a same project which has been discussed for more than 30 years. James Tobin, Economic Nobel Prize winner, is the creator of this tax. This was in 1972, one year after the breakdown of the Bretton Woods system and the substantial liberalization of global capital flows. James Tobin –among many others- feared the extreme exchange rate volatility and global excesses on financial markets. To prevent such problems from occurring, James Tobin proposed a global tax with a very low rate but a large tax base. At this point, redistribution of the revenues was neither an objective nor an issue.

The financial transaction tax made a comeback a few years ago for its huge potential as a source of funding for the Climate Funds. Central point of the international negotiations on climate change, the funding of such a program has to face the lack of political will. In December 2014, after several weeks of discussion, the project of implementing the Tobin tax in Europe failed.

Back in 2012, 11 European countries worked towards the creation of a regional financial transaction tax. In 2013, the European Commission made a proposal to tax actions, obligations and financial derivatives. But since, an intensive lobbying from financial players succeeded in tackling this proposal. The French Economics Ministry changed the project to exclude 97% of the financial derivatives. Originally, this tax was supposed to generate $35 billion in France but these changes reduced them to 4 $billion.

With an objective of $100 billion in 2020, the Green Climate Funds, which is expected to become the main vehicle for securing and distributing finance for climate and adaptation, especially towards developing countries, is far from having reached its goal. The Tobin tax is now definitely considered as a viable option. A global agreement on the matter is very much needed to create an efficient and sustainable system.

French President François Hollande took the engagement to implement the financial transaction tax by the end of 2017. With the climate conference (COP21) taking place in Paris in December, it would be a significant progress and a strong message towards developing countries and for the climate.

 

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Fossil fuel subsidies

 

5,3$ trillion in 2015, $10 million dollars a minute every day, this is the cost of fossil fuels subsidies according to a new estimate by the International Monetary Fund. In 2014 the total amount of subsidies was 1.9 trillion, so how can such a rise be explained ?

Subventions play a major role in the International Trade. That is why the World Trade Organization is so interested by them. But what is a subsidy ? It can be defined as an economic benefit (such as a tax allowance or duty rebate) or financial aid provided by a government to support a desirable activity, keep prices low, maintain the income of producers of critical strategic products, … The basic characteristic of all subsidies is to reduce the market price below its cost of production.

For fossil fuel, most of the subsidies are directed towards transport. 5 measures account for 91% of total subsidies in France. Tax exemptions for the flying industry for TICPE – Domestic Consumption Tax on Petroleum Products -, reduced taxes on oil, partial reimbursements of taxes – TICPE – for the road transport, exoneration for the TICGN – Domestic Tax on Natural Gas Consumption- and partial tax exemptions for biofuels. The total cost of these subsidies adds up to almost 5 billion € in France.

If the total amount of these anti-environmental subsides has risen in such a spectacular way, it’s mainly because of the way they are calculated. A subsidy is the difference between the market cost of a product and its real cost. This “real” cost has to take into account pollution, environmental damages, health, and everything called “externalities”. Because the WHO estimated that these costs were higher than previously thought, the cost of fossil fuels rose up. As said by Nicholas Stern, “this very important analysis shatters the myth that fossil fuels are cheap by showing just how huge their real costs are. There is no justification for these enormous subsidies for fossil fuels, which distort markets and damage economies, particularly in poorer countries”.

Today, coal is the main recipient of these subsidies but it’s also unfortunately the most polluting energy (40% of the global CO2 amount). Oil and gas share the rest of these subsidies. China is mainly responsible for these subsidies with $2300 billion in 2015, far ahead USA (700 billions) and Russia (335 billions).

On renewable energies, Coady said : “If we get the pricing of fossil fuels right, the argument for subsidies for renewable energy will disappear. Renewable energy would all of a sudden become a much more attractive option.”

The total amount of fossil fuels subsides exceed the global health’s budget. According to the IMF, suppressing them would benefit the global economy by encouraging the use of renewable energies. CO2 emissions would be reduced by 20% and deaths caused by air pollution would be reduced by 50%.

 

To go further :

– COADY David, PARRY Ian, SEARS Louis, SHANG Baoping, How Large Are Global Energy Subsidies ?, Rapport de du Fonds Monétaire International, 2015

– PLUMER Brad, “The IMF says we spend $5.3 trillion a year on fossil fuel subsidies. How is that possible ?”, Vox, May 20, 2015

 – CARRINGTON Damian, “Fossil fuels subsidized by $10m a year says IMF”, The Guardian, 18 May 2015

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French ambitious energy transition bill adopted

 

After a lot of back-and-forth and some heated parliamentary debates, the French National Assembly and the Senate have finally found an agreement in France on the new energy transition law. Voted on the 22nd of July 2015, this law is part of the ambitious project to raise the carbon price.

Indeed, the bill promotes a fourfold increase of the carbon price in 2030. Currently at 22 euros, it would rise to 56 euros in 2022 to eventually reach 100 euros in 15 years.

The carbon price directly impacts interior taxes on energy consumption, especially the domestic tax on natural gas consumption and the domestic tax on energy products. The goal is for the carbon price to reach the minimum price at which people will start changing their behavior. This doesn’t mean that the environmental taxation will have an impact on the global taxation. Any increase of the environmental taxation will be automatically compensated by a reduction of other taxes.

Other measures have also been taken. They mainly target renewable energies with a facilitated financial access and administrative process. Energy poverty, food waste but also housing renovation have been discussed. These measures have to be implemented now. This will be the case once they are included in the finance act.

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Carbon Market : the EU’s visible hand

 

9 months until the COP21 and the European Union finally sheds some light on the carbon’s market which is currently running out of gas.

Because of the excess of C02 quotas, the carbon’s price has dramatically dropped by 75% since the beginning of the economic crisis in 2008. Currently the ton of CO2’s price is set around 5€, quite far from the 30€ necessary to send a real incentive. In July 2013, Brussels froze 900 millions of tons until 2020. Only in 2019, new quotas will be allowed on the market.

The European Parliament Committee on Environment has adopted a reform proposal leading to freeze emissions quotas in the hope of a carbon’s price rebound.

 

The European Union’s hand is visible and aims to bring some stability by creating a reserve made from these frozen quotas.

Surplus Quotas

According to an estimation made by the European Commission, there was an excess of 2,1 billions of quotas in 2014. The decision was made to freeze 1,7 billions of quotas … in 2019 ! This means that for the next 4 years, unused quotas will pile up.

An estimation from Reuters said that this measure should lead to a rise of the carbon’s price to 25€ by 2025.

WWF’s analysis

 

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To think climate action as an investment

 

Climate change is a very serious threat for mankind and especially for the most vulnerable populations. Global warming will reduce crop yields and will trigger more often extreme weather events.

The cost of climate change could be high in the future. Tackling climate change has a cost but doing nothing right now and having to adapt later would definitely be more expensive. This why acting to avoid climate change must not be considered as a cost as much as an investment.

Andrew Steer, President and Director of the World Resources Institute (WRI) put forward new ideas. For example, investing in cities’ public transportation will have a positive impact while helping workers’ productivity throughout cities. Reforesting abandoned wastelands is an opportunity for many poor populations to see an increase of their incomes. Finally energy savings is not free but the benefits far outweigh the costs.

Andrew Steer’s interview

 

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