European Investors Call for Changes in Carbon Trading

May 22, 2009

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The Institutional Investors Group on Climate Change (IIGCC), the European investors’ forum for collaboration on climate change, is calling for key changes in the carbon markets to reduce greenhouse gas (GHG) emissions and to drive investment in low carbon solutions.

The report, Toward an Effective Global Carbon Market, proposes several measures to leverage private sector investment in developing countries to mitigate the risks of climate change with the primary call for stronger, long-term price signals through the emissions trading schemes (ETS) to drive investment in low carbon technologies.

IIGCC says each scheme needs to set ambitious caps, in line with the Intergovernmental Panel on Climate Change (IPCC) recommendations, which will create sufficient supply and demand, and therefore a price for carbon at a level that will boost investment in low carbon technologies.

The report also calls for cap-and-trade schemes from advanced emerging economies in order for emissions reductions to meet the IPCC’s recommended targets.

The report comes out in the wake of the EU Commission’s recent announcement that GHG emissions from businesses participating in the European Union’s Emissions Trading System (EU ETS) fell 3.1 percent in 2008 compared with 2007. Stavros Dimas, environment commissioner attributes the 3 percent reduction to businesses taking measures to cut their emissions based on a strong carbon price before the economic downturn started.

While IIGCC continues to support the Clean Development Mechanism (CDM), the group suggests a number of measures aimed at further improving its scale and efficiency. These include setting sector or program-based targets, as opposed to the current project-by-project approach. Investors also want improvements to the institutional framework supporting the CDM to allow the Board to focus on executive tasks such as ensuring the transparency and efficiency of the operational rules for assessing low carbon projects.

In addition to the proposed measures, IIGCC also believes other types of financing mechanisms are needed, which would raise funds from the private sector to finance climate change mitigation, particularly in developing countries. This translates into the need for stable and credible policies at the national level to attract finance for low carbon technologies in the developing world, according to the report.

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