gE Blog Series: Global Energy Part 4 - Global Carbon Markets

In part 3 of our global energy blog series, we discussed which countries could capitalize on the falling oil prices. For the fourth installment of the series, we turn our eyes to some of the environmental issues surrounding the energy industry, specifically the issue of carbon emissions. As climate change fears increase and become more urgent on a global scale, world leaders have been looking for solutions to reduce harmful emissions while avoiding the economic pitfalls that can be associated with taxes or regulation. One solution gaining popularity is carbon markets, which create carbon emission allowances that are given to businesses. These credits can be used or sold depending on the amount of emissions the business produces, giving companies an incentive to reduce their emissions.

The global carbon market has grown in recent years, and its estimated value is expected to reach $80 billion in 2015. The European Union has the largest unified market in the world, with almost half of the trade bloc’s carbon emissions covered in the market. For its size, the market has not been as effective as once hoped, leading some to call for reform while others have called it a failure. The EU’s problems have not stopped new markets from opening, such as South Korea, which opened for trading earlier this month. The market is already the second biggest in the world, and South Korean officials hope that the market will lead to a 30% reduction of emissions by 2020. Another success story has been in North America, where California and Quebec combined their own carbon markets to create a joint market, the biggest on the continent. Officials hope that the market can expand in the near future, possibly into Ontario and U.S. states located in the Northeast and Northwest.

The expansion of carbon markets is important not only for a cleaner environment, but also for the future of the markets themselves. The EU has long been pushing for a more global market, hoping to increase the efficiency of the overall market. Several countries have discussed implementing markets, but the biggest development is in China, where officials announced plans for a nationwide market to be created in 2016 after much success in several test areas. China’s trading scheme is expected to become the biggest in the world, with estimates stating its value at $65 billion by 2020.

China’s announcement is an encouraging sign that governments around the world are beginning to take the environment more seriously. Carbon markets, if effective, could become a very useful tool for countries to reduce emissions, while also rewarding businesses that work to become more eco-friendly. As more countries develop their own trading schemes, a global carbon market could emerge that would impact the entire energy industry, as well as businesses and economies around the world.