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In a world coping with climate setbacks and Donald Trump’s re-election in the United States, the growing prominence of international carbon markets may just be the good news we have been looking for. Canada should take notice.

More than a of the in 2012, the most recent United Nations Framework Convention on Climate Change (UNFCCC) global Conference of the Parties (COP29) meeting appears to have already seen important breakthroughs. This includes a decision on a under Article 6 of the Paris Agreement, while finalization of rules for emissions trading continue.

Similarly, in North America, . This paves the way for the state’s planned .

As the , emission trading systems are on the rise. New York and Maryland are developing carbon markets that might see advantage in linking with California-Québec-Washington. Looking globally, the same report indicates that a number of emerging economies are also developing emissions trading systems – including India, Brazil and Indonesia.

However, the Canadian hardly mentions international carbon markets.

As the world warms, there is an urgent need to discuss how Canada can engage with growing international carbon markets. More than simply a way to bring down the costs of climate change mitigation for Canadians, they are a form of international co-operation. International carbon markets are a means of sharing the cost of climate change mitigation across participating jurisdictions.

Carbon markets 101

There are two variants of the carbon market, and .

Emissions trading is based on firm-level emission inventories that are aggregated by the government to form a hard cap that is reduced over time. Carbon offsets are individual projects where the project developer argues that emissions will decline relative to a counter-factual baseline scenario. This counter-factual baseline is what emissions would be if the investment into the carbon offset project were absent.

Emissions trading systems allow regulated firms flexibility to reduce emissions at lowest cost. Firms that are able to reduce their emissions below a government-imposed quota- the “cap” – can sell their surplus to firms unable to do so. Governments require that aggregate emissions across firms in a particular jurisdiction decline over time. As such, a price for carbon emerges through this system, measured per tonne of carbon dioxide equivalent (tCO2e).

Firms can trade carbon within the same jurisdiction but different jurisdictions can also link their carbon markets, allowing trading between firms across borders. This is what California and Québec have been doing since 2014.

The costs of reducing emissions varies significantly around the world due to a range of factors. For example, research suggest that the costs of decarbonization are relatively . International carbon markets could help spread out these costs. make the benefits of an interconnected carbon market perhaps even more attractive.

For example, the goals of the Paris Agreement might be achieved through introduction of a uniform global carbon price of approximately CDN $104 per tCO2e by 2030. This is substantially lower than is slated to rise by 2030.

Carbon offsetting, by contrast, tends to be restricted to emissions in sectors that are difficult to measure or in developing countries where there is insufficient capacity for emissions trading. Organizations developing carbon offset projects are usually tasked with .

The prospect of project developers manipulating baselines . However, counter-factual baselines are in development co-operation.

Political headwinds in Canada

Canadians should seriously consider a carbon market system linked with other jurisdictions – including across Canada, globally and with individual U.S. states.

The Canadian federal government under Prime Minister Justin Trudeau has started to “bend the curve” as Canada’s emissions . But to reach the , Canada will need to reduce emissions at least five per cent year-upon-year through 2030.

At the same time, support for federal climate policy appears to have declined.

While the growing popularity of the Conservative Party cannot be attributed to any single factor, . This should not come as a surprise. Public opinion research consistently finds that .

In contrast, there is little noise being made by major political parties in Québec about the province’s carbon market. One reason is that current carbon market prices are half that of the federal carbon tax at $40 versus $80. . But instead, it should ra be seen as politically astute.

, where it is relatively cheaper to do so. Indeed, if one factors in .

That being said, to California. However, Québec firms have, so far, . And for good reason.

Economic modelling suggests that if Québec were to seek to achieve its 2030 emission reduction target unilaterally, without linkage to California, . That means that Québecers would see the price of carbon paid at the pump rise sharply from the current approximately nine cents per litre to 57 cents. Such a rise would be ripe for political backlash.

Carbon markets can work

Overall, the Québec experience suggests that international carbon markets can work both globally and here in Canada.

There are legitimate concerns about carbon markets on issues ranging from to as well as about “selling out.”

Any serious conversation would have to address these concerns, though many of these are perhaps more down to neoliberal economic policy, . A .

One idea to build bridges between carbon markets and industrial policy is . These would allow buyer countries to prevent capital flight, while selling countries can ensure climate finance inflows are priced high enough to lead to transformational change.

International carbon markets are a way for Canada to take responsibility for its emissions while supporting emission reductions elsewhere in the world. It is imperative that whoever is in power in Ottawa in the coming years take them seriously.