Reducing and clean carbon emissions – now an even more urgent task, according to the latest report of the Intergovernmental Panel on Climate Change
Reducing carbon emissions – now an even more urgent task, according to the latest report of the Intergovernmental Panel on Climate Change – is proving good for business. While many governments talk a big game, the business community is setting the pace on emission reductions.
Economic theory tells us that where negative spillovers such as carbon emissions are evident, the optimal combination of government and private sector behaviour to reduce them is for governments to set a sound policy framework and the private sector to respond to the incentives or disincentives the framework creates.
And so it is with carbon markets. Article 6.2 of the Paris Agreement, which hopefully will be made operational at the Glasgow meeting of the Conference of the Parties in November, provides for the establishment of bilateral and regional carbon markets.
The Australian government has established Australian Carbon Credit Units, certifying the storage or avoidance of one tonne of carbon by a project.
Issued by the Clean Energy Regulator, ACCUs are being bought by companies that have committed to zero net emissions by 2050 or earlier and are now moving to fulfil those commitments. ACCUs are also being bought by emitting businesses that exceed their allowable baseline emissions.
Yes, there is a clean little secret – the Coalition government has a carbon price set by the market. ACCUs are now trading at $22 each, sharply up from $16 early this year.
Carbon markets are great news for Australian farmers interested in diversifying their income sources. Farmers can earn ACCUs by storing carbon in their soil and revegetating parts of their properties. They might even install a few hectares of solar panels, allowing sheep to graze underneath them.
Unless the US wants to destroy rules-based international trade, it would need to implement emissions trading too.
While this sounds weirdly futuristic and dystopian to those Coalition and One Nation MPs who still consider Australia’s future is coal-fired, it is happening right now on farms in New England and many other places in rural Australia.
Imagine, though, what would happen to the price of ACCUs if they could be traded internationally. To illustrate, the current price of carbon in the European Union is almost $90 a tonne.
But far from contemplating buying our ACCUs, the EU is planning to apply a carbon border adjustment mechanism (CBAM) to imports of selected products from countries with low emissions-reduction ambition. Australia is considered to have low ambition, because it is refusing to commit to zero net emissions by 2050.
When the EU released the details of its proposed CBAM, commentators claimed the US was set to follow suit, as were Japan and South Korea.
Missing from these predictions is a crucial fact: the EU already has a domestic price on carbon while the US and Japan do not. Without a domestic carbon price, a CBAM cannot be compliant with obligations under World Trade Organisation rules.
Unless the US wants to destroy the rules-based international trading system, it would need to implement an emissions trading system or a carbon tax in conjunction with a CBAM.
Arsalan Ahmad is a Research Engineer working on 2-D Materials, graduated from the Institute of Advanced Materials, Bahaudin Zakariya University Multan, Pakistan.