International carbon markets and carbon pricing will play a major role in the fight against climate change and help advance ambitious climate action, Climate Action and Energy Commissioner Miguel Arias Cañete said, adding: “But we have to get them right.

Hosting the International Carbon Markets Conference in Brussels on 3 June aimed at laying the foundations for agreement on establishing effective and robust international carbon markets, Cañete highlighted the importance and urgency of climate action.

“Today our topic of choice is international carbon markets,” he said. “As many of you will be aware, these buildings are no strangers to debate on carbon markets. It is here that we have over the last nearly 20 years, been discussing, implementing, and improving our European carbon market – our flagship Emissions Trading System. I can tell you now – we do not need to be persuaded on the importance of carbon markets. If implemented well, they can deliver on the promise of enhanced ambition and integrity,” Cañete said.

He reminded that ensuring high ambition and high standards requires no small measure of both political determination and technical understanding.

“Our ETS system is now in its fourth phase and has been subject to three comprehensive revisions, We continued strengthening the ETS to deliver on our 2030 targets. Today the carbon price is above €25 and has more than tripled, compared to the start of the Commission mandate, being consistently above €20 since the beginning of 2019. As a result, the total revenues of Member States raised from auctioning carbon allowances amounted to a record 14 billion euros last year, providing funds to support low carbon investments across Europe. It is precisely because of our experience with the ETS, that we were disappointed that comprehensive guidance on the use of international carbon markets was beyond our reach in Katowice,” he said.

“This does not mean that we have given up, we will be working hard to secure agreement in Santiago. We are convinced that with sufficient political will and technical understanding an agreement is within reach. But not without work, and not without a will to compromise. There are many explanations for why we did not get the carbon markets chapter of the Katowice Rulebook over the line in Poland,” Cañete said.

“Progress was made, and the options narrowed. There remain, however, many issues on the table, both technical and political, and the parties remain far apart in terms of the solutions needed to resolve them” he said. “Our challenge is to identify what is key and to find a compromise that works. Compromise, however, cannot be at the expense of integrity and ambition,” the Commissioner added.

“Carbon markets depend crucially on confidence and credibility, and our agreement needs to deliver both: Confidence will come from an assurance that the use of markets is contributing to ambition, and does not undermine it, or stand in the way of further ambition. Credibility, on the other hand, will come when we are clear as to what the risks are, and what is needed to address them,” he said.

Substantial banking of Kyoto protocol surpluses will reduce ambition or at least defer action for many years, Cañete said, adding that this is particularly problematic because as we all know, Kyoto Protocol surpluses are many times more than the anticipated demand, and allowing for their use will defer additional action.

“Equally, a failure to account for action transferred to others and the potential for double counting will do the same – potentially rendering our stated goals ineffective. Weak rules on offsetting risk doing the same, and will even undermine our collective ability to meet current and future commitments. We cannot all work on the basis of offsetting where credits are given simply for improvements on ‘business as usual.’ Finally, perhaps fundamentally, the absence of clear rules leads to uncertainty,” he said. “It is against this backdrop that we must consider the role of the guidance and rules we adopt. International rules cannot deliver ambition on their own, but good rules can help incentivise action – both now and in the future.

Europe is currently debating its long-term strategic vision for 2050 with the goal of climate-neutrality – something that will be essential for meeting the Paris temperature goals. The EU should agree on a framework to reduce carbon emissions that does not merely help deliver on existing goals, but reflect the EU’s longer-term aspirations, Cañete said.

He recalled that the EU was the major purchaser of Clean Development Mechanism (CDM) projects and as such, kick-started the international carbon market during the first stages of the Kyoto Protocol. “I will not say that linking to the CDM was a mistake, but it has certainly been controversial, as was our subsequent withdrawal from the market. What we do know is that we cannot afford to continue with the CDM model.

For those who don’t remember the history, the EU bought a substantial amount of CDM units initially, and this represented substantial tonnes of reductions not delivered at home. Moreover, half of the surplus is now in the EU-ETS as a result. Whatever new mechanisms we establish will need to reflect the new circumstances of the Paris agreement,” Cañete said, calling for CDM reform.