New carbon trading markets are opening, despite the lack of progress and urgency at the UNFCCC level.

Robbie Louw, a director of Promethium Carbon, a carbon advisory firm, says development and cooperation amongst localised carbon initiatives have overtaken the UNFCCC as the primary driver in the race to curb emissions.

He believes that a ‘process of reversal’ is emerging as a common attribute amongst some of the world’s most significant carbon players. “In this process, old assumptions become quickly outdated, as climate leadership emerges from unlikely corners,” he says.

“With UNFCCC progress effectively stalled until 2020, the drive towards global carbon pricing rests increasingly within the realm of localised initiatives, be they market-based emission trading schemes (ETS), offsets, new market mechanisms NMMs or non-market in nature such as a carbon tax. Numerous carbon pricing initiatives are at various stages of implementation across the globe and many have the potential to inter-link and generate additional benefits.”

Mr Louw says the increasing role of “bottom-up” carbon pricing is a highly visible development on the global economic horizon. Aside from the world’s largest emissions trading scheme, the EU ETS, national or sub-national schemes are already in operation in Australia, Japan, New Zealand, the USA, Switzerland, China and Canada, and are planned in South Korea and Brazil.

Further initiatives such as efficiency certificate trading, fossil fuel subsidy removal and renewable energy support structures are similarly multiplying from the ground level up.

“Beyond a reversal of the top-down UNFCCC-led approach to climate change, we are also witnessing a policy reversal among key players in the carbon space on a macro level. More and more, former climate sceptics across the spectrum of nations, corporations and institutions are reinventing themselves as like-minded contributors to the carbon pricing infrastructure of the future,” he says.

Mr Louw says that by the first quarter of 2013, only 30% of global emissions came from jurisdictions that in one form or another have failed to take steps towards carbon pricing. “As such, although the international carbon market remains in a weak state of repair, at least three quarters of global GDP will, by 2015, be generated within an economic framework that places a price on carbon.”

“Distortion of international trade is resulting from the increasing weight of carbon as a recognised global liability. Developments in carbon pricing therefore implies a complex mixture of risks and opportunities that form the basis of new climate leadership and cooperation amongst unexpected allies.”

Mr Louw says that the EU and Australia have agreed on full harmonisation of emissions trading by 2018. The target date for this has now been moved forward to July 2014.  Also of significance is the forthcoming carbon pricing link in California and Quebec by 2014.

Whereas Korea does not currently have plans to link its scheme in the immediate term, key design features of its ETS are drawn up in line with European standards to enable future linking.

Sectoral-specific exclusions in the design features of carbon schemes, such as in the case of the RGGI, can address concerns of industry within the scope of regulation. Conversely, certain sectoral-specific inclusions in carbon pricing, such as international aviation in the EU ETS, can produce consequences that go beyond carbon pricing and create an unintended domino effect.

National actors have been seen to rely on tax exemption as a means to protect trade- exposed sectors, particularly in the case of Norway and South Africa. However, such initiatives are often criticised to the extent that they reduce the utility of pricing carbon in the first place.

As dissatisfaction with the level of ambition and achievement of international climate negotiations continues, new leaders are emerging from amongst previously unlikely candidates. This dimension reflects a process of reversal evident throughout the spectrum of carbon pricing development, says Mr Louw.

The US and Chinaare increasingly seen as playing a leading role in addressing climatechangedespite US failure to ratify the Kyoto Protocol, and the rapid development of coal-fired power plants in China.

Cumulatively, the two countries contribute approximately 37% of total global emissions, yet both nations are not only on track to meet their climate commitments, but have also entered a bilateral agreement to cooperate on tackling climate change, and intend to strengthen emission reductions targets, he said.

The focus of Chinese and US climate ambition rests largely with emissions trading and renewable energy investment. In 2011, the two countries were joint world leaders in renewable energy investment. In 2012, China only narrowly overtook the US as the world’s largest contributor to investment in renewables with a 22% rise in commitment equating to a $67-billion investment.

The Major Economies Forum on Energy and Climate(MEF)was launched in 2009 with the intent to advance climate and energy dialogue among 17 major Annex I & II countries. During COP18 it was reported that the US may seek to move elements of UNFCCC negotiations to the MEF as an alternative forum.

To date, a number of MEF meetings have recognised the growing acceptance and applicability of a bottom up approach to carbon pricing, the ambitious nature of a top-down approach and the need to develop a hybrid of the two. The forum will continue to act as a platform enabling experience sharing and design feature alignment of carbon pricing mechanisms.