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Summary report Working group session summaries 17Carbon marketsInternational and domestic carbon markets should continue to playa central role in climate policy.Although carbon markets have a short history and havefaced a number of well-documented challenges, participantsin this working group agreed that internationaland domestic carbon markets should continue to playa central role in climate policy. The discussions werechaired by Samuel A. DiPiazza, Jr., Chief Executive Officerof PricewaterhouseCoopers International.It was emphasized that existing emissions tradingschemes have led to emissions reductions, changedboardroom behavior and created market infrastructure.The EU Emissions Trading Scheme (EU ETS) resulted inemissions reductions of between 80 and 100 MtCO2ebetween 2005 and 2007 and further reductions in 2008.Furthermore, there are concerns that emissions tradingdoes not provide a sufficient incentive to downstreamtechnology innovation and consumer switching to lowcarbonchoices.“In a very young market, we’velearned a great deal. We’ve learnedthat markets do change behavior, andthey do affect decisions being made.”Samuel A. DiPiazza, Jr., Chief ExecutiveOfficer, PricewaterhouseCoopers InternationalHowever, the uncertainty over the long term future ofthe carbon market and the short term nature of thecurrent budgetary periods means that few companiesoperating both inside and outside Europe have taken aprice of carbon into account when investing in longtermassets such as power plants or steel mills.This working group was developed and organized byThe Climate Group. For more information, please go towww.theclimategroup.org or contact Lauren Bird atlbird@theclimategroup.com.Recommendations to policymakers• Endorse the use of markets and price signals asa tool for reducing emissions. However, carbonmarkets need to be complemented by other policymeasures to drive the deployment of solutions thatrespond less readily to carbon pricing, such as energyefficiency measures, transportation, and thedevelopment of new low-carbon technologies.• Adopt ambitious short, medium, and long-termemissions targets. Scarcity is fundamental to a capand trade program, as it creates a price that willstimulate non-marginal low-carbon investments.Ambitious targets for the short, medium and longtermis critical to ensuring this scarcity.• Employ the most effective means to maintainmarket confidence. The unpredictability of pricefluctuations and periods of extreme price volatilityand market illiquidity is a deterrent to broadermarket participation. Further work is needed toidentify the most effective and least market-distortingway to maintain market confidence untilthe market matures.• Create conditions that will enable a global carbonmarket to evolve over time. A global market is animportant goal; however, it is not necessary to designa global market from the outset. The followingmeasures can support this objective:• harmonization of rules on monitoring reportingand verification (MRV);• consistency between compliance periods; and• harmonization of rules on offset eligibility andthe encouragement of their use in all emissionstrading systems.• Build on the current project-based approach toinvestment in emission reductions. While furtherwork is needed to improve the efficiency ofthe Clean Development Mechanism (CDM) and todevelop mechanisms for rewarding private sectorfinance of projects and programs under new sectoralapproaches, immediate use of common dynamicemissions benchmarks in the CDM can be aneffective first step towards sectoral crediting.