I’ve been reading about cap-and-trade programs. I think they’re a fascinating example of a market-based solution to climate change. I was looking for a structured index of all cap-and-trade programs that I could use to quickly compare them, but I couldn’t fine one, so I made one. It’s still a work in progress, but you can find it here:
I’ve taken the data from the International Carbon Action Partnership (ICAP), who have lots more cap-and-trade information and resources on their website. A few things stood out to me at first glance of the data.
First, the EU Emissions Trading Scheme is by far the largest cap-and-trade program currently in force. The EU ETS covers 4,353 megatons of CO2 equivalent (MtCO2e); that’s ~6X larger than the next largest program, which is South Korea’s Emissions Trading Scheme. However, the Chinese National ETS could cover upwards of 10,000 MtCO2e when it goes live in the next few years. Russia, Japan, Indonesia, Brazil, and Mexico are all considering or implementing cap-and-trade programs of their own, each of which would be sizable (500+ MtCO2e). Notably absent is the United States, which hasn’t seriously considered a national cap-and-trade program in over a decade. I’m also impressed by the leadership shown by sub-national actors, with states and provinces like like California (US), Quebec (Canada), and Guandong (China), and municipalities like Beijing and Tokyo, all implementing their own cap-and-trade programs. Some of these are pretty sizable – Guandong’s program is almost as big as Korea’s, and is more than 5x bigger than New Zealand’s!
Next, I’m always surprised by how concentrated emissions seem to be. A handful of countries, and within them, a handful of emitters, are responsible for the majority of emissions. California’s cap-and-trade program is illustrative. California’s cap-and-trade program is the 3rd largest sub-national cap-and-trade in the world, and the largest program outside of China, covering roughly 430 MtCO2e. That in turn represents roughly 80% of all of California’s emissions. However, those emissions are produced by only 500 companies in California. Said another way, just 500 companies are responsible for 80% of emissions in California, the world’s fifth largest economy. At first glance, I think this is concentration is encouraging, because all things being equal, it’s easier to change the behavior of a smaller group of people.
Last, I’m struck by the diversity in carbon prices, revenue, and approaches to offsets and carbon banking among all the programs. For example, emissions in the Chongqing ETS traded at an average of US $0.66 per ton of C02 in 2018, compared to $14.91 in California and $15.71 in New Zealand. I don’t know what accounts for such large differences, but I suspect it may have a lot to do with supply and demand of emissions allowances, aggressiveness of regulatory limits on emissions, availability of offsets, and maybe even differences in the definitions of “emissions”. I plan to read more on this next and write what I find here.