Status Report 2019 EMISSIONS TRADING WORLDWIDE International Carbon Action PartnershipStatus Report 2019 ICAP 1 EMISSIONS TRADING WORLDWIDE International Carbon Action Partnership ICAP – Status Report 2019 EDITORIAL TEAM Marissa Santikarn, Stephanie La Hoz Theuer, Alexander Eden, Kai Kellner, Johannes Ackva, Constanze Haug, Lina Li, Martina Kehrer, Daria Ivleva, William Acworth. CITE AS ICAP . 2019. Emissions Trading Worldwide Status Report 2019. Berlin ICAP . The ICAP Secretariat expresses its gratitude to policymakers from the ICAP mem- bership and further collaborators from the emissions trading field, who provided insightful written contributions and/or carefully reviewed the report Botagoz Akhmetova Kazakhstan, Marco Aurlio dos Santos Araujo Brazil, Sabyr Assylbekov Kazakhstan, Paul Baldauf New Jersey, Bao Ji China Emissions Exchange Guangzhou, Jean-Yves Benoit Qubec, Pierre Bouchard Qubec, Sebastin Carranza Colombia, Chen Zhibin Sinocarbon Innovation Investment Co., Ltd., Satoshi Chida Tokyo Metropolitan Government, Claude Ct Qubec, Hugo Desrosiers Qubec, Damla Doğan Turkey, Michael Dowd Virginia, Bill Drumheller Washington, Thomas Duchaine Qubec, Diane Gagnon Qubec, Gulmira Galiyeva Kazakhstan, Nicolas Garceau Qubec, Dida Gardera Indo- nesia, Ge Xing’an China Shenzhen Emissions Exchange, Vctor Hugo Escalona Gmez Mexico, Jason Gray California, Chris Hoagland Maryland, Jason Hol- lett Nova Scotia, Huang Jinpeng China Hubei Carbon Emissions Exchange, Jung-Hwan Kim Republic of Korea, Seyeon Hwang Republic of Korea, Christine Kirby Massachusetts, Lai Han Sinocarbon Innovation Investment Co., Ltd., Marat Latypov Russia, Stphane Legros Qubec, Li Qiang Chongqing Low Car- bon Consulting, Li Jin Shanghai Environment and Energy Exchange, Pongvipa Lohsomboon Thailand, Huy Luong Quang Vietnam, Colin McConnaha Oregon, Michelle Miller Nova Scotia, Lois New New York, Shinichiro Niihara Japan, Megan O’Toole Vermont, Takuya Ozawa Tokyo Metropolitan Government, Monique Page New Zealand, Qian Guoqiang Sinocarbon Innovation Invest- ment Co., Ltd., Kathleen Rich Canada, Rajinder Sahota California, Yumiko Sato Tokyo Metropolitan Government, Christine Schell New Jersey, Juan Pedro Searle Chile, Tuba Seyyah Turkey, Tomo Shoji Japan, Mark Sippola California, Wil- liam Space Massachusetts, Su Yi-Yuan National Chung Hsing University, Sumon Sumetchoengprachya Thailand, Sophie Wenger Switzerland, Ruben Vermeeren European Commission, Nicols Westenenk Chile, Brittany White Nova Scotia, Beatriz Yordi European Commission, Olga Yukhymchuk Ukraine and Peter Zapfel European Commission. The ICAP Secretariat is grateful to the German Federal Ministry for Environment, Nature Conservation and Nuclear Safety BMU and to the Qubec Ministry of the Environment and the Fight against Climate Change MELCC for funding this report. A special thanks to Katrin Schambil, Tobias Bernstein, Katharina Vhler, and Hans Zschttig for editorial assistance. ←2 Status Report 2019 ICAP FOREWORD 04 → Beatriz Yordi and Rajinder Sahota, Co-Chairs, International Carbon Action Partnership 01 PRACTITIONER INSIGHTS 06 CALIFORNIA AND QUBEC – CLIMATE COLLABORATION IN PRACTICE 07 → Rajinder Sahota, California Air Resources Board and Jean-Yves Benoit, Qubec Ministry of the Environment and the Fight against Climate Change CHINA – LEARNING BY DOING CHINA’S DYNAMIC APPROACH TO ETS 09 → Qian Guoqiang, Chen Zhibin, Lai Han - SinoCarbon MEXICO – LESSONS FROM THE ETS DEVELOPMENT PROCESS 12 → Victor Escalona, Mexicos Ministry of Environment and Natural Resources REPUBLIC OF KOREA – THE EVOLUTION OF KOREA’S CARBON MARKET PHASE II AND BEYOND 15 → Kim Jung-Hwan, Ministry of Environment of the Republic of Korea 02 INFOGRAPHICS 17 EMISSIONS TRADING WORLDWIDE 18 GLOBAL EXPANSION OF EMISSIONS TRADING 19 SECTOR COVERAGE 20 DIFFERENT SHAPES OF CAP-AND-TRADE 21 AUCTIONING REVENUE 22 GROWING STABILITY 23 03 DIVING INTO THE DETAILS 24 EUROPE AND CENTRAL ASIA European Union 26 Switzerland 31 Kazakhstan 34 T urkey 37 Russia 38 Ukraine 39 NORTH AMERICA Western Climate Initiative 40 California 41 Qubec 45 Canada 49 Nova Scotia 51 Regional Greenhouse Gas Initiative 55 New Jersey 59 Massachusetts 60 Virginia 63 TABLE OF CONTENTSStatus Report 2019 ICAP 3 New Mexico 64 Oregon 65 Transportation and Climate Initiative 66 Washington 67 LATIN AMERICA AND THE CARIBBEAN Brazil 68 Chile 69 Mexico 70 Colombia 72 ASIA-PACIFIC China 73 Beijing 77 Chongqing 80 Fujian 83 Guangdong 86 Hubei 89 Shanghai 92 Shenzhen 95 Tianjin 98 Taiwan, China 100 New Zealand 101 Republic of Korea 105 Tokyo 110 Saitama 114 Indonesia 117 Japan 118 Thailand 119 Vietnam 120 04 ABOUT ICAP 121 NOTES ON S AND SOURCES 125 LIST OF ACRONYMS 128 IMPRINT 13004 Status Report 2019 ICAP FOREWORD Messages from the ICAP Co-Chairs O ver the past few years, key emissions trading systems ETSs worldwide have considered and undergone sweeping policy res to get their sys- tems ready for the post-2020 era. As these market res start to kick in, we have started to see signifi- cant price effects, which can now be tracked with the new ICAP Allowance Price Explorer, available on our website. From a climate perspective and as noted in the most recent IPCC Special Report, reinforced car- bon price signals coupled with complementary poli- cies can support increased ambition, cost-effectively. Although robust carbon prices are important drivers for low-carbon investment, the key determinant of the mitigation impact of an ETS is its cap trajectory, and how it compares to a business-as-usual path- way. Through the recent res, the world’s most experienced systems have legislated ambitious caps out to 2030 in line with their broader climate targets, providing a predictable planning horizon to covered businesses. A key challenge when designing such ambitious cli- mate policy and delivering on the targets, is to ensure that the competitiveness of the covered industries is maintained and that carbon leakage is avoided. Here, recent res have also produced real progress, strik- ing a balance between steadily tightening caps and protecting those sectors genuinely at risk. Finally, to better arm markets against any unforeseen develop- ments, systems are also putting market stability mea- sures in place. Regardless of the approach adopted, these tools give businesses and investors more cer- tainty for future planning and investment decisions. Despite these achievements, the challenges of com- petitiveness and market stability are at the core of all ETSs and they will remain with us for years to come. Over the past decade, ICAP has become one of the key fora for front-runner jurisdictions to compare notes and share lessons learned on these and other chal- lenges. In the coming year, we intend to step up our role as a plat where carbon market policymakers can meet each other and exchange views, making the most of the unique global mix of knowledge and expe- rience our members and observers combine. We are delighted that Mexico, which may start its own national carbon market as early as 2020, has joined ICAP last year as an observer, and we look forward to continuing stimulating discussions in an ever expand- ing circle of peers pioneering and fine-tuning carbon markets as a key tool on the path towards deep decar- bonization.← BEATRIZ YORDI Co-chair of the International Carbon Action Partnership and Director of European and International Carbon Markets, Directorate-General for Climate Action, European Commission RAJINDER SAHOTA Co-chair of the International Carbon Action Partnership and Assistant Division Chief, Industrial Strategies Division California Air Resources BoardAlthough robust carbon prices are important drivers for low-carbon investment, the key determinant of the mitigation impact of an ETS is its cap trajectory, and how it compares to a business-as-usual pathway 4 Countries 1 Supranational From Local to Supranational 27 jurisdictions are implementing 20 ETSs across scales 7 Cities 15 Provinces / StatesStatus Report 2019 ICAP 05Reinforced carbon price signals coupled with complementary policies can support increased ambition, cost-effectively Jurisdictions making up 37 of global GHG emissions are covered by an ETS 8 of global GDP are using emissions trading of the global population lives under an ETS in force. 1/8Status Report 2019 ICAP 06 PRACTITIONER INSIGHTS Designing Cap-and-Trade 01With the scheduled start of Chinas national ETS, the share of emissions covered by carbon markets will jump to 14 in 2020Status Report 2019 ICAP 07 PRACTITIONER INSIGHTS 01 An interview with California Air Resources Board RAJINDER SAHOTA Qubec Ministry of the Environment and the Fight against Climate Change JEAN-YVES BENOIT CALIFORNIA AND QUBEC Climate collaboration in practice INTRODUCTION With just about 5,000 kilometers and a national boundary separating them, California and Qubec operate the most geographically dispersed linkage between cap-and-trade programs. Under the joint heading of the Western Climate Initiative WCI, these two climate-ambitious sub-nationals have been col- laborating for more than a decade. Their quest to col- lectively lower the costs of climate change mitigation has resulted in a stable yet flexible carbon market and an example of what the future of climate collaboration can look like. The ICAP secretariat sat down with ICAP Co-Chair Rajinder Sahota of the California Air Resources Board, and er ICAP Co-Chair, Jean-Yves Benoit of the Ministry of the Environment and the Fight Against Climate Change in Qubec, to discuss shared his- tory, challenges, opportunities, and prospects for the future. HISTORY Founded in 2007 by a group of five western U.S. states, the WCI was ed with the mandate of taking a regional approach through market-based mecha- nisms to address climate change. Four Canadian provinces, Qubec being one of them, were quick to join in 2008. Qubec and California adopted cap-and- trade regulations in their legislatures and established individual programs by late 2012. As of January 1, 2014, they were officially linked and held their first joint auction later that year in November. At the start of 2018, Qubec and California welcomed a third member to their linked market with the addition of Ontario. Despite a successful link, it was soon clear that political changes could undo their work. Several months after the tripartite linked market had begun, newly elected Ontario Premier Doug Ford, almost immediately upon inauguration, made the first defin- itive move of his incumbency the effective withdrawal of Ontario from the WCI linked market. The unilateral withdrawal forced Qubec and California to react swiftly. They undertook coordinated measures to miti- gate any potential market uncertainties, with the chal- lenge resulting in a public display of their unity, and a joint market that remained robust throughout. This ability to trans challenges into opportunities is a recurrent theme in their collective work. CHALLENGES AND BENEFITS OF COLLABORATION California and Qubec have diverging economic pro- files with different abatement options across their jurisdictions. Electricity production might be the most notable difference, as Qubec has basically no GHG emissions in this sector with its electricity production originating almost entirely from hydropower approx- imately 99 of renewable electricity generation. Yet, it is a principle of cap-and-trade that a broad market with differing abatement opportunities leads to the greatest cost effectiveness. “We adopted an ambitious mitigation goal of 20 below 1990 levels by 2020. Linking with California allows us to achieve this with a smaller impact on our economy. In fact, between 1990 and 2016, our GHG emissions were reduced by 9 below 1990 levels while our economy grew by 62”, Jean-Yves Benoit states. In this light, he sees their different economic profiles “more as an opportunity than as a challenge” . One might also imagine that the different cultures, time zones, currencies and languages have made the collaboration difficult. Rajinder Sahota, however, “can’t think of any” major challenges. Both agree that it takes some time to learn and adjust. “There is an evo- lution, going from a standalone regulatory agency to the mindset of a partnership.” Looking back, Rajinder Sahota notes “with WCI we got a taste of what collabo - ration needs to look like. But it wasn’t until we started writing regulations in advance of the linked market with Qubec that we began to realize what collabora- tion really meant” . Jean-Yves Benoit explains “It was a new way of thinking and doing things - something we had to learn.” Rajinder Sahota concludes “I’m happy to say that, over time, it becomes second nature to consider your partner in the other jurisdiction and to have that level of trust, openness and direct dialogue with folks in the other program.” There is an evolution, going from a standalone regulatory agency to the mindset of a partnershipStatus Report 2019 ICAP PRACTITIONER INSIGHTS 01 08 The experience has even brought benefits beyond managing the linked market. “I realized early on that the skills we learned in collaborating with Qubec paid dividends in working with other state agencies within California. It actually helps us in finding solu- tions in other discussions and settings” , notes Rajinder Sahota. WHAT TO EXPECT IN THE COMING YEARS In 2017, California enacted legislation providing direc- tion and a clear role for their cap-and-trade program for the period extending through until 2030. Qubec did the same by amending its cap-and-trade regula- tion for the post-2020 period and by setting its annu- ally declining cap through 2030. Not only is this a testament to the policy’s success, it reflects the wider success of the partnership between the WCI jurisdic- tions, a success that continues to inspire others to join the partnership. However, welcoming new jurisdictions doesn’t come without its challenges, as was seen in this past year, where Ontario first joined and several months later dropped out. The experience nevertheless proved valuable. The onboarding process was highly suc- cessful, and has demonstrated that the joint market is ready for new partners to opt-in. The rapid withdrawal of Ontario became a real-world test of market resil- ience, and also provided useful lessons. Two factors were important here the regulatory design of the mar- ket proved itself able to cope with such unanticipated events, and good communication networks enabled market participants to stay ined and reassured during the process. Jean-Yves Benoit reflects “the end result was that our market stayed extremely stable throughout the delinking process with Ontario.” The experience has in no way deterred Qu