Early signals on the future of international carbon markets

 

As Carbon Pulse reports, South Korea graduates from exporting to importing GHG mitigation units, conversely, from importing to exporting sustainable development support. 

Since the Copenhagen Climate Conference in 2009 failed to amend the Kyoto Protocol and build a meaningful global climate policy for the post 2012 period, demand for international flexibility instruments such as the Clean Development Mechanism (CDM) has declined. Now, as we discuss how to implement the Paris Agreement’s new mechanisms for international cooperation and the exchange of mitigation outcomes, parties are recurring to the CDM not only for inspiration, but also as policy tool to promote domestic action and incipient international cooperation.

South Korea is an inspiring actor that provides us with insights of global relevance. First, the country is famous for its spectacular rise from one of the poorest countries in the world to a developed, high-income country in just one generation. Second, it evolved from a Non Annex I country, which benefitted from the export of carbon credits to finance its clean development projects, to a country with effective GHG reduction targets and a domestic Emission Trading Scheme.

To facilitate this evolution, South Korea takes advantage of its domestic CDM projects to flexibilize and facilitate national GHG reductions and rewards early action and new projects with carbon credit prices in the range of 10 to 15 USD per credit.

Now, South Korea is preparing for the next phase of supporting GHG mitigation projects in other countries to import the resulting emission reduction units.

South Korea alone is too small to change the international market balance, but the consistent approach illustrates how countries can engage with carbon market instruments to facilitate domestic action and prepare for subsequent international cooperation. Other countries such as South Africa, Colombia and Mexico are preparing for this path. Together, they are setting powerful signals to drive the definition of effective rules for the Paris Agreement’s Post 2020 regime, as well as for carbon market engagements of non-state actors such as ICAO and IMO.