Key market principles must be standardised
There is also a need for greater standardisation of key market principles, such as the legal nature of an emissions unit, adequate protections against reversibility and deliverability risks, and how best to address change-in-law risk.
It is essential that the detailed framework developed out of Article 6 addresses these long-running themes. However, this will take time. Separately, the Task Force on Scaling the Voluntary Carbon Markets is continuing with its work, but has a massive job on its hands to transform how these markets work.
Demand response creates complex global picture
Despite there being more emissions trading schemes than ever, the market has not signalled a game-changing global price for carbon. This is a significant piece of the puzzle that, perhaps inevitably, governments are deploying an array of policy measures to solve.
Europe’s proposal for a carbon border adjustment mechanism has not been universally popular, with Brazil, China, South Africa and India claiming it is protectionism masquerading as climate action. Carbon taxes and incentive-based measures are being rolled out piecemeal in line with local energy security concerns and political priorities, creating a complex global picture.
These themes will continue to impede the investment and market coherence needed to deliver Net Zero. Investors and operators need to find mitigating strategies, but the sooner governments – whether bilaterally or through multilateral bodies such as the UN – can deliver a coherent framework in which to price and trade carbon, the quicker we move out of the slow lane.
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