Nordic Climate Finance Summit

Session Overview

The European Union Emissions Trading System (EU ETS) is a cornerstone of the EU's policy to combat climate change and a key tool for reducing greenhouse gas emissions cost-effectively. It operates on a "cap and trade" principle, where a cap is set on the total amount of certain greenhouse gases that can be emitted by installations covered by the system. Companies receive or buy emission allowances, which they can trade with one another as needed. The limit on the total number of allowances available ensures that they have a value.

Thematic Areas

Compliance vs. Voluntary Carbon Markets

• Compliance markets, like the EU ETS, are regulated and mandatory for certain sectors, whereas voluntary markets are optional and offer companies the flexibility to purchase credits to offset their emissions beyond regulatory requirements.
• Market Integrity, Transparency, and the Role of Third-Party Verification
• Ensuring integrity and transparency in carbon markets is crucial. Third-party verification bodies play a vital role in independently assessing and certifying emission reductions, which boosts market credibility and investor confidence.
• Merging International Compliance Carbon Markets
• There is a growing interest in linking different international compliance markets to create a more unified and efficient system. This could potentially enhance market liquidity and reduce compliance costs while promoting best practices globally.

Key Challenges

Price Volatility

• Fluctuations in allowance prices can create uncertainty for businesses attempting to plan long-term investments in emission reductions.
• Regulatory Complexity
• Navigating the complex regulations of the EU ETS and other compliance markets can be challenging for companies, especially those operating in multiple jurisdictions.
• Fraud and Market Manipulation
• Ensuring robust measures against fraud and manipulation is essential to maintain trust and stability in the markets.

Opportunities

• Innovation and Technology Development
• The compliance market drives innovation in low-carbon technologies and energy efficiency, offering opportunities for businesses to develop new solutions.
• International Cooperation
• Linking with other international markets provides an opportunity for broader cooperation on climate goals and sharing of technology and best practices.
• Investment in Sustainable Practices**
• Companies investing in emissions reductions can benefit from lower compliance costs and enhanced corporate reputation.

EU Carbon Removal and Carbon Farming

The EU is increasingly focusing on carbon removal and carbon farming as essential components of its climate strategy. Carbon farming involves agricultural practices that increase the amount of carbon stored in soil and vegetation, thus helping to offset emissions. The EU is exploring incentives and regulatory frameworks to encourage these practices, recognizing their potential to contribute significantly to carbon neutrality goals. Carbon removal technologies, such as direct air capture, are also being promoted to complement existing emission reduction strategies and achieve net-zero emissions by 2050.

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