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10 WORLD 3.8.2023 THE European Union now has the most developed emissions trading system (ETS) of any market globally, analysts at BMI, A Fitch Solutions company, said in a report. BMI's analysts noted in the report that, in its early stages, this ETS was "plagued by a surplus of carbon allow- ances and low-price levels". ey add- ed in the publication, however, that, "in recognition of the flaws in its market design, the EU moved to materially strengthen the system". is included setting up a market sta- bility reserve, increasing the emissions reduction target, accelerating the rate of reduction in the annual emissions cap, and lowering free allocations, the analysts highlighted in the report. "As a result, prices rose from an aver- age of EUR 15.9/tCO2e in 2017, to EUR 80.9/tCO2e in 2022 and are set for fur- ther gains over the coming years," the BMI analysts stated in the report. "e bloc continues to tighten its environmental policies and the rising costs attached to deeper decarboniza- tion will drive long-run price increases, with EUAs set to average comfortably above EUR 100/tCO2e by the mid- 2020s, up from around EUR 87/tCO2e currently," they added. e analysts noted in the report that the EU's experience can offer "impor- tant lessons in market design and im- plementation to other countries, ide- ally allowing them to sidestep some of the pitfalls common to early carbon market evolution". On its website, the European Com- mission (EC) describes the EU ETS as a cornerstone of the EU's policy to combat climate change and its key tool for reducing greenhouse gas emissions cost-effectively. "It is the world's first major carbon market and remains the biggest one," the EC's site states. e EU ETS works on the 'cap and trade' principle, the EC site highlights, noting that a cap is set on the total amount of certain greenhouse gases that can be emitted by the operators covered by the system. e cap is re- duced over time so that total emissions fall, the site notes. "Within the cap, operators buy or re- ceive emissions allowances, which they can trade with one another as needed," the EC site states. "e limit on the total number of al- lowances available ensures that they have a value. e price signal incentiv- izes emission reductions and promotes investment in innovative, low-carbon technologies, whilst trading brings flexibility that ensures emissions are cut where it costs least to do so," the site adds. "After each year, an operator must surrender enough allowances to cov- er fully its emissions, otherwise heavy fines are imposed. If an installation reduces its emissions, it can keep the spare allowances to cover its future needs or else sell them to another op- erator that is short of allowances," the site continues. USA, Canada In its report, BMI also looked at car- bon pricing schemes from other sec- tions of the globe, including the U.S. and Canada. "While the U.S. has a growing num- ber of ETSs in place at the state level, the lack of a federal carbon pricing scheme speaks to the highly politicized nature of the climate change and its increasing politicization globally," BMI analysts noted in the report. "Over the years, various carbon pric- ing schemes have been proposed at the federal level, but they have been scup- pered by the lack of bipartisan support for climate-related policies," they add- ed. "ere is wider support for a carbon border adjustment mechanism, al- though this could be difficult to imple- ment in the absence of a federal CPI," they continued. e analysts highlighted in the re- port that five ETSs are currently in place in the country. ese comprise the Regional Greenhouse Gas Initia- tive (RGGI), Massachusetts Limits on Emissions from Electricity Generators, California's Cap-And-Trade, Washing- ton's Cap-And-Invest, and the Oregon ETS, the report pointed out, adding that "several more" are under consid- eration or development. "In contrast to the U.S., Canada en- joys a strong and forwardly transpar- ent federal carbon tax, which under- lines the critical importance of robust financial incentives in driving deeper decarbonization," the BMI analysts said in the report. "By global standards, the current pricing level is relatively high, set at CAD 65/tCO2e (USD48/tCO2e) in 2023 and, while provinces are allowed to set their own CPIs, the country's federal backstop ensures minimum stringency standards across every mar- ket," they added. "Equally important, the government has set out a clear price trajectory up to 2030, at levels broadly consistent with the Paris Agreement goals. As per the 'Update to the Pan-Canadian Approach To Carbon Pollution Pric- ing 2023-2030', carbon prices will rise by CAD 15/tCO2e every year to reach CAD 170/tCO2e by 2030," the BMI an- alysts continued. EU now has the most developed emissions trading system The European Commission (EC) describes the EU ETS as a cornerstone of the EU's policy to combat climate change and its key tool for reducing greenhouse gas emissions cost- effectively

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