In this webinar, Mr Daniel Nachtigall from the Organisation for Economic Co-operation and Development (OECD) and Mr Stefano De Clara from the International Carbon Action Partnership (ICAP) provide a global and regional overview of the progress in the use of carbon pricing instruments and emissions trading systems (ETS) in the past two decades.
CLIMATE CHANGE IN SOUTHEAST ASIA PROGRAMME WEBINAR
Thursday, 19 May 2022 – Mr Daniel Nachtigall, Economist at the International Programme for Action on Climate at the OECD and Mr Stefano De Clara, Head of Secretariat at the ICAP, spoke on the features and development of ETSs across the world and explored the social and economic effects of ETSs. They also discussed the potential of ETS development in the Asia Pacific region. The session was moderated by Ms Sharon Seah, Senior Fellow and Coordinator of the Climate Change in Southeast Asia Programme and ASEAN Studies Centre at ISEAS.
Mr Nachtigall began by sharing his research on the impacts of the EU ETS. His team found that of the 15% in EU emissions reductions since the launch of the ETS, 10% could be attributed to its effects. Moreover, the ETS had minimal impact on employment and other economic variables, despite higher energy prices. There was even an increase in fixed assets, revenues, productivity and innovation. Depending on how countries decide on their allocation method, ETSs can provide additional revenue through the auctioning of carbon allowances, where companies pay for a higher cap on their emissions. This revenue can be used to support the government budget, investments in low-carbon research and development and financial assistance to low-income groups which are vulnerable to rising energy prices. However, carbon prices are still relatively low, and 60% of energy-related emissions are not yet priced. Mr Nachtigall also shared his research on the impact of COVID-19 on carbon pricing. He noted that many countries have implemented or strengthened carbon pricing policies despite the pandemic, while other indirect carbon pricing policies like aviation taxes were weakened, though these changes were mostly temporary.
Mr De Clara gave a broader overview of ETS implementation across the world. There are now 25 ETS in force. They are diverse in terms of design and coverage, depending on national circumstances such as the emissions profile, existing climate and energy policies and the level of climate ambition. ETS also vary in implementation; they can target end points such as power facilities in the energy sector, or upstream points such as fuel distributors in the transport sector. As pointed out by Mr Nachtigall, most carbon prices are still lower than what is needed to be aligned with climate targets; but prices have risen rapidly, especially in 2021. Mr De Clara noted that the Asia Pacific region is seeing growing interest and operation of ETS. Indonesia and Vietnam now have mandates for ETS development. In Malaysia, the Philippines and Thailand, ETSs are under consideration. He observed an interesting regional trend towards hybrid carbon pricing designs: rather than choosing either a carbon tax or ETS, countries adopt a “cap-trade-tax” system. For example, Singapore has implemented a carbon tax as a stepping stone towards an ETS; its design makes it easy to convert to an ETS once conditions and political will are present. There is a wealth of practical experience in the design and implementation of ETSs, drawn from the creation of new systems and maturation of old ones. Some older systems are now being refined to align with net zero targets. Mr De Clara stressed that there is no one-size-fits-all design for an ETS. National circumstances and the intended goals of the ETS should be carefully considered.
During the Q&A session, the panellists addressed questions relating to the paradox of linkages between different ETSs, political will and practical challenges in ETS implementation. The webinar drew an audience of over 90 participants.