Environmental markets and climate action

"Where European Carbon Markets Meet to Promote Climate Action": is the slogan of Europe's largest event on environmental markets. The event was held in Barcelona from May 23-25, 2022, for the fourth time. The summit was promoted and led by IETA and brought together the private sector, businesses, decision-makers, policymakers, media, non-governmental organizations, consulting and trading agencies, and academia.

The meeting was a time to examine problems and opportunities in today's carbon markets and assess pricing trends and investment potential, with the ultimate goal of understanding the steps being taken in the transition to a zero-emissions economy. This year, in conjunction and collaboration with the plenary meetings and thematic workshops of the meeting, a virtual edition of the Innovate4Climate conference organized by the World Bank was also held, where more specific topics were touched upon concerning case studies and industry reports. A large number of issues related to the ETS were addressed.

There were questions about whether and how energy security issues and rising gas prices might affect the European "Fit For 55" policy, which calls for a net reduction of at least 55% in GHG emissions by 2030, embedded in the macro goal of achieving the Union's climate neutrality by 2050. In this regard, the question was raised as to whether the proposed revision of the ETS, particularly the strengthening of the Market Stability Reserve (MSR) during this fourth phase, is too lenient to ensure market stability too ambitious, given the unprecedented energy crisis underway. The value of the Carbon Boundary Adjustment Mechanism (CBAM) as a tool to protect European producers from carbon leakage was also considered, and resistance to expanding the ETS to include buildings and road transport, another key "Fit for 55" issue, was discussed because of the potential impact of the policy on the most vulnerable users.

Article 6 of the Paris Agreement and its relationship to the voluntary carbon market was discussed. Although it was finally adopted at COP26, thus freeing up the possibility of implementing Nationally Determined Contribution (NDCs), the reduction targets that states signed up to in the Treaty were no direct regulation of the voluntary market prepared. Much attention was therefore focused on the importance of greater convergence and interaction with regulated markets.

Other topics covered in multiple sessions included the growing role of environmental finance in the context of CO2 markets and the development of digital environmental markets and technological innovation in the sector. Rising allowance prices and reduction targets by 2030 and 2050 align investments toward the targets and stimulate both the growth of carbon trading and digital currencies, with many new entrants developing significant digital credit assets. Thus arises the potential need for global regulation to improve the transparency of this financial channel.

As part of the Innovate4Climate meetings, examples of high-impact solutions implemented by governments to transform their economies and explore how to successfully integrate climate and sustainable development goals were presented. The World Bank's State and Trends of Carbon Pricing 2022 Report" was presented, providing key developments over the past year and an overview of existing and emerging carbon pricing instruments worldwide.

As part of the voluntary market meetings, best practices in offsetting emissions for companies with net-zero strategies were presented. As part of digital environmental markets and technological innovations in the field, the World Bank promoted the "Climate Warehouse" prototype, a public utility metadata infrastructure built with Blockchain technology to facilitate transparent sharing and reporting of projects and emissions information.

The Carbon Pricing Leadership Coalition (CPLC) was presented as an incentive to price carbon as a driver of decarbonization to achieve net-zero. As more countries worldwide plan to implement carbon pricing policies to achieve the Paris Agreement goals, there is an increasing need to develop effective collaboration between governments and the private sector. In this context, IETA launched the Partnership for Market Implementation (PMI), a fund to assist countries in building and implementing pricing projects and instruments aligned with their development priorities.

The European Climate Summit took place at a crucial time for carbon markets and climate policies in general. The price of permits has reached record levels in the past year, policymakers and companies need to align programs and investments with the "Fit for 55" and Paris Agreement to achieve net-zero by 2050, and the geopolitical environment has shown all its uncertainties. As Europe grapples with the energy and economic impact of the war in Ukraine, it has become evident how interconnected energy, climate, and economic policies are. Decarbonization and energy transition have now become synonymous not only with climate action but also with power and geopolitical security, as well as affordability and economic stability. However, all these discussions were followed a few weeks later, on June the 8th, by a vote in the European Parliament, which rejected the proposal to revise the ETS.

The Greens and Socialists rejected the proposal due to amendments proposed by conservative groups that weakened it, while conservatives considered it too ambitious, especially in light of inflationary pressures. During the following week, however, a compromise was reached by the main parliamentary groups, which was finally voted in plenary on Wednesday, June the 22nd. The Parliament thus approved the ETS reform, the border adjustment mechanism and the Social Climate Fund, a new fund to help those most affected by the costs of the energy transition. It is now up to the European Council to adopt the vote in order to start the trilogue dialogues between the Parliament, Council and Commission later this autumn.