Around the world, cap-and-trade is still alive and kicking

Posted by Brad Plumer at 03:32 PM ET, 06/05/2012


When the climate bill died in the U.S. Senate in 2010, most observers assumed that was the last dying gasp for “cap-and-trade” as a policy for tackling global warming. Here in the United States, it’s hard to find an environmentalist or Democrat who will even whisper the phrase anymore.


Australia’s getting in on the act. (TIM WIMBORNE - REUTERS)

 Yet cap-and-trade is very far from dead. Across the globe, dozens of countries are either enacting or studying cap-and-trade programs for their heat-trapping greenhouse gases, according to the World Bank’s 2012 Carbon Market Report. Some countries, like South Korea and New Zealand, have just recently passed full programs, in which they set a hard overall ceiling on their carbon emissions, and companies get pollution permits to trade among themselves. Other nations — from China to Costa Rica to Indonesia — are seriously considering the idea.

“A range of countries seem to have decided that this is the policy of choice for meeting their emissions goals,” says Jennifer Morgan of the World Resources Institute. Here’s a rough grouping of the countries detailed in the World Bank report:

Countries or regions that have already passed cap-and-trade: This includes the European Union, Australia, New Zealand, South Korea, California, and Quebec. They’ve all set hard limits on a significant portion of their carbon emissions. (Different countries have different targets and exemptions for various sectors.) This is a sizeable chunk of the planet: By my calculations, these countries and regions represented roughly 19 percent of the world’s carbon emissions in 2008.

Countries that could shift to cap-and-trade this decade. Mexico and Brazil have both recently passed laws to significantly slow their rate of emissions growth by 2020. (Brazil’s target is voluntary.) They’ve both set up task forces to study various ways to achieve this, with cap-and-trade as an option. Japan, for its part, has set up a limited cap-and-trade scheme for Tokyo and has a voluntary carbon-trading scheme at the national level that has slightly curbed emissions.

Meanwhile, China is setting up its own regional cap-and-trade systems in several of its provinces and is looking to set up a national program by the end of the decade. Jennifer Morgan says that her organization, WRI, recently hosted a Chinese delegation in the United States to study California’s climate program, as well as the small cap-and-trade system for electric utilities in the Northeast. While China’s program likely wouldn’t shrink the country’s overall level of emissions, it would at least slow the country’s ferocious growth in greenhouse gases.

Countries that are still pondering the idea. According to the World Bank report, there are at least 14 developing countries that are in various stages of study. Chile, Costa Rica, Indonesia, Thailand, and Jordan are all developing some sort of “crediting mechanism.” South Africa has a carbon tax that could well be converted to a cap-and-trade program.
Add these programs all up, and it’s potentially quite significant. Right now, about 6 percent of the world’s greenhouse-gas sources are capped and traded. By the end of the decade, according to some estimates, that could rise to as much as one-third of all emissions.

Many of these countries could eventually link together — Australia’s climate-change minister, Greg Combet, has suggested that eventually South Korea, Australia, New Zealand and China could cooperate on some sort of pan-Asian carbon-trading system. And, the World Bank notes, there’s still plenty of demand for carbon-offset projects in the developing world under the U.N. program. All told, the global carbon-trading market rose to a record $176 billion in 2011.

To be sure, there are still plenty of concerns about carbon trading. For one, carbon prices in Europe have collapsed with the recession down to $8 per ton, which gives companies little incentive to invest in clean-energy projects. (Of course, one argument is that this is how cap-and-trade should work — when there’s a recession and pollution is way down, then companies should get a reprieve from cutting.) Critics have also questioned whether the United Nation’s carbon offsets really work, or whether they’re just funding projects, like reforestation, that might have happened anyway.

That said, cap-and-trade is still garnering plenty of interest in most of the world — even if the idea’s verboten here in the United States.