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International emissions trading could cut climate policy costs by $1 trillion: IETA

Highlights

Cooperative approach can cut costs, increase ambition

Almost 200 countries to meet in Katowice, Poland, for climate talks

London — An international system of emissions trading between nations could cut the cost of meeting global climate targets by nearly $1 trillion, the International Emissions Trading Association said in a report Wednesday, ahead of United Nations climate talks in Katowice, Poland, starting Sunday.

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"This year, we began to see the first economic analysis of the value of Article 6," said IETA CEO Dirk Forrister, in reference to the Paris Agreement's article, which sketches out a framework for countries to trade emissions reductions internationally.

"It shows the potential of Article 6 to lower costs -- making higher ambitions possible" Forrister said in the report.

"The initial assessments by the Joint Global Change Research Institute at the University of Maryland show that, with current levels of ambition, Article 6 cooperation can lower costs over the century by nearly $1 trillion," he said.

"Viewed from another perspective, economists at the Environmental Defence Fund found that cooperative approaches envisioned in Article 6 could drive double the ambition for the same economic cost," he said.

"This is the potential value of Article 6, and why it deserves such serious attention. It is also why the business community is so intently focused on its success, because it can lower cost and enable transformation," said Forrister.

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Negotiators from more than 190 countries are set to gather in Poland's southern city of Katowice from December 2-14 for the 24th Conference of Parties to the UN Framework Convention on Climate Change, known as "COP24."

The countries aim to agree rules and guidelines for a new global climate framework made up of voluntary commitments to reduce greenhouse gas emissions by governments under the 2015 Paris Agreement, in a system designed to encourage progressive scaling up of ambition over time.

The Paris Agreement's overall goal is to limit global temperature increase to no more than 2 degrees Celsius from pre-industrial levels by 2100 and to aim for 1.5 degrees C.

For such an emissions trading system to work, Article 6 will need to set out common standards for countries to account for market imports and exports of emissions units, so as to avoid double-counting and assure public confidence. The system works on the principle that countries and industries with the cheapest carbon abatement costs should fully pursue those options, reducing the need for less efficient and expensive mitigation options, reducing the overall cost of meeting international targets.

"At present, over half of the countries involved in the climate negotiations plan to use Article 6 to achieve their future climate aspirations. Many are already using market approaches via domestic emissions trading or carbon tax systems," said Forrister.

"Put simply, for a country to scale up its ambition, it needs to have clear rules that provide flexibility to cooperate with others through international trading. Absent this clarity, large scale change will be impossible - and the ambitious temperature targets will be too expensive," he said.

"Thankfully, the reverse is also true: a clear and simple rulebook in Katowice can enable countries to implement cooperative approaches - and build the type of market system that can transform the energy system globally," he said.

Aside from the work on the rules of a new international trading system, old divisions are likely to re-emerge under the UN climate process. In the past, countries have frequently clashed over how the burden of climate action should be shared, who should pay for the damage affecting more vulnerable countries, and by how much.

Unlike the previous Kyoto Protocol -- which set out legally binding emissions targets for industrialised countries only -- the Paris Agreement seeks to foster greater global cooperation by asking countries to determine what they can achieve, with a view to increasing collective ambition over time.

IETA represents over 130 companies from all sectors of the economy which have an interest in market-based approaches to reducing greenhouse gas emissions. Those include companies with emissions reduction obligations as well as non-regulated companies which invest in carbon markets.

-- Frank Watson, frank.watson@spglobal.com

-- Edited by James Leech, newsdesk@spglobal.com