In the current climate policy environment, country-led sovereign market mechanisms are the most realistic and effective path to emissions reductions. Apart from the already existing systems in the EU, India and New Zealand, systems are under development or implementation in countries such as Australia, Canada-Quebec, South Korea, USA-California, and several provinces and cities in China.
Market mechanisms should provide effective and efficient incentives for industries to reduce their CO2 emissions beyond a business-as-usual pace of improvement. Successful market mechanisms should:
- Guarantee free trade and fair competition;
- Prevent carbon leakage;
- Reflect the socio-economic development of the regional economy;
- Be tailored to the characteristics (i.e. reduction levers) of different sectors and target the legal entity / operator that has control over operations and investments.