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CARBON FINANCE091

" "CAP-AND-TRADEIS INCENTIVE-BASED AND RELIES UPON INDIVIDUAL FIRMSUNDERTAKING INVESTMENTS ANDSTRATEGIES TOMINIMISE THECOST OF ACHIEVING A DEFINED ENVIRONMENTALTARGEThe world is gripped by uncertainty aboutthe future. Governments are having todeal with economic and politicalupheavals in the wake of financial crises,which reverberate across the globe. In a new atmosphere of fiscal constraint, policy will bedictated by the ability to find solutions to socialproblems that deliver value for public money, andincentivise or leverage private investors and businesses.In an age of austerity, costly and inefficient policies areno longer acceptable to taxpayers.Yet underneath these clearly man-made global crises,an even larger man-made planetary one continues togrow. Climate change demands the attention andaction of policymakers and citizens, whether theyrecognise it today or not. The problems for our environment and our economicand development goals do not move as quickly asthose caused by the short-run economic volatility feltevery day, yet they contain the potential to cause evengreater catastrophes. The scientific consensus showsthat taking action against anthropogenic emissions isnecessary, and it should be a common cause forgovernment and business.These economic and environmental challengesinteract through government policy, which needs todeal with both of them at once. There is an increasingneed to find a policy instrument for public goods thatachieves the targets in a cost-effective manner. When it does not matter where these public goods areachieved, markets provide the greatest opportunity toachieve them cost-effectively. The InternationalEmissions Trading Association (IETA) is the primarymembership organisation for business which isdedicated to promoting the use of carbon pricing andmarkets to deal with the public good of reducinggreenhouse gas emissions. Cap-and-trade has been unfairly vilified by thosewhose real target is the need to do anything at all onclimate change. The alternatives of expensive andinflexible "one-size-fits-all regulation", or subsidiesthat taxpayers cannot afford, to support technologiesthat bureaucrats should not be picking, are well-knownto be worse. Cap-and-trade is incentive-based and relies uponindividual firms undertaking investments andstrategies to minimise the cost of achieving a definedenvironmental target. The combination of certainty ofachieving the desired result, alongside the freedom forcompanies to achieve reductions as they see fit, makecap-and-trade the most efficient option available forclimate policymakers.The failure of the US cap-and-trade legislation last yearhas led to collective political amnesia in that countryabout the scientific and economic realities of climatechange and how best to combat it, and the impact is feltall over the world. But there are many current examplesof carbon markets that demonstrate the economicadvantages of cap-and-trade, continuing to justifyIETA's belief that the future will inevitably becomecarbon-constrained, and the constraint will be tradable. Europe's Emissions Trading Scheme (ETS) is theworld's largest carbon market, covering what is still asignificant and proportion of global emissionsreductions. The third phase of the scheme is beingfinalised and IETA is engaged in policy design andprocedures with policymakers at the European level.PROMOTING MARKET MECHANISMS TO ADDRESSCLIMATE CHANGE092CARBON FINANCEHENRY DERWENT, PRESIDENT AND CEO, INTERNATIONAL EMISSIONS TRADING ASSOCIATION (IETA)T