G20 Foundation Publications Turkey 2015 | Page 119

CLIMATE CHANGE & SUSTAINABILITY 119
THE ROLE OF CARBON TRADING IN
THE CLIMATE CHANGE CHALLENGE
Dirk Forrester, President, International Emissions Trading Association
the prospects for a federal ETS in the US on the back of the
Clean Power Plan regulation, to name a few.
Markets matter for the Paris Agreement for a few key reasons.
Market mechanisms are the quickest, lowest cost way of
achieving the environmental objective of reduced emissions.
The price signal established by a carbon market acts as the
economic incentive to make the reductions in the most cost-
effective way for the individual emitter: be it investing in more
efficient technology, switching from coal to gas, increasing the
mix of renewables, carbon capture and storage, or offsets (if
permitted).
Neither a carbon tax nor a command-and-control system are
as cost effective as cap and trade. With a tax, as long as the
polluter is happy to keep paying, emissions can go up. And
in times of economic shock – such as recession – the levy
is unable to adjust to the situation quickly, whereas a traded
price can. With command and control, the regulation in effect
forces a technology on a sector, which may not be the most
cost efficient, risking spiralling price rises as the cost is passed
on to consumers.
In the six years that have elapsed since the
Copenhagen climate talks ended in bitter
acrimony, the tone of the debate has shifted
significantly. No longer are we debating whether
climate change is real or not; instead, the
discussion has been more on what are we going
to do about it. The process of each country
preparing its Intended Nationally Determined
Contribution (INDC) for the future agreement has
helped focus minds on prec