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Emissions permit trading in practice

By Federico Mazzella ,
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An initiative to help countries and interested parties to achieve sustainable objectives in the fight against climate change

A team of experts from the Partnership for Market Readiness (PMR), which is part of the World Bank, and the International Carbon Action Partnership (ICAP) has recently published Emissions Trading in Practice: A Handbook on Design and Implementation. The publication summarizes the work of more than 100 professionals and experts from four continents regarding the latest theoretical concepts and best practices in emissions trading schemes (ETS).

The resulting document is a guide to implementing trade in emissions and fills an important gap at a time in which many nations are considering implementing market instruments as part of their efforts to cut down emissions in response to the Paris Agreement.

The publication outlines the rationale for ETSs and establishes a 10-step process for designing ETSs in which each step implies a series of decisions or actions that will shape the main features of the policy in question.

This is based partly on conceptual analysis and partly on some of the most important practical lessons learned to date in the application of emissions trading systems throughout the world, including in the European Union, various provinces and cities in China, California and Quebec, New Zealand, Kazakhstan, the Republic of Korea, and Tokyo and Saitama.

The focus of such initiatives is shifting from the identification of emissions reduction paths through nationally determined contributions (NDCs) to crucial matters relating to how these emissions reductions should be reported within the future framework for international emissions accounting.

Experience to date has shown that if ETSs are well designed, they can be an effective, credible, and transparent tool for helping to achieve low-cost emissions reductions in ways that mobilize private-sector stakeholders. However, to maximize this effectiveness, any ETS needs to be designed in a way that is appropriate to its context.

ETS systems currently operate in four continents in jurisdictions that account for 40% of global GDP. New systems are currently being planned and implemented. These systems regulate 9% of global greenhouse gas (GHG) emissions, a figure that is hoped to double when China launches its national carbon emissions market in 2017 and because of the growing interest in emissions trading in North America.

 

Partnership for Market Readiness; International Carbon Action Partnership. 2016. Emissions Trading in Practice: A Handbook on Design and Implementation. Washington, DC: World Bank.

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