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Jury Still Out on Carbon Trading Programs, Review Finds

Carbon trading cap-and-trade programs are poised to grow, but how effective they are remains a question, according to a report by the California Public Utilities Commission (CPUC).

During 2015, carbon trading pricing varied widely from under $1.00/ to $130/ton of carbon dioxide equivalent (tCO2e), with 85% of the emissions priced under $10/tCO2e, according to World Bank statistics cited by the CPUC’s "Celebrating the Year of the Carbon.”

According to California regulators, growth in carbon trading is coming from three principal sources: the United Nations Climate Change Conference in Paris held last December; China's push to begin a cap-and-trade program by 2017; and the U.S. government’s Clean Power Plan (CPP).

However, the experience to date with three carbon trading programs in European Union (EU), New England and California is "mixed,” CPUC said.

"In California's case, the cap-and-trade program is not old enough to provide sufficient data for detailed analyses, but experts have been content with the design of the system," the report said.

The report summarized the EU emissions trading system (ETS) as providing many lessons, and the U.S. Northeast's Regional Greenhouse Gas Initiative (RGGI) as "learning from mistakes and continuing on its path, while generating significant revenues for its member states." Meanwhile, other countries are establishing cap-and-trade systems, but their effectiveness economically and environmentally is still unknown.

"As we finish the first quarter of 2016, carbon markets are active and keep sending mixed signals," the report said. "Domestic regional carbon markets are expected to grow as states contemplate how to comply with the CPP."

The value of emission allowances and credits traded globally, the so-called carbon market value, is expected to increase by 25% this year, the report said, citing Reuters projections. Conversely, the EU ETS has lost all its former historic allowance price gains so far in 2016, meaning "more planning and adjusting" will be needed in that carbon market.

"Nevertheless, nations continue to support policies that aim to mitigate climate change," CPUC said. "Two-thirds of Canadians support the idea of implementing cap-and-trade to combat climate change."

The CPUC report cited World Bank statistics for 2015 that counted 40 national and more than 20 subnational (California, Quebec and RGGI, for example) jurisdictions as putting a price on carbon, collectively representing nearly 25% of the global greenhouse gas (GHG) emissions. The jurisdictions employ either a carbon tax or emissions trading systems. These instruments cover 12% of global GHG emissions -- 8% by ETS and 4% with taxes.

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