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Complexity in carbon markets set to reshape geopolitics: IETA

Dirk Forrister, the president of the International Emissions Trading Association, highlights the increasing complexity of carbon markets, especially with the introduction of policies such as the EU’s Emissions Trading System 2 (ETS 2) and Carbon Border Adjustment Mechanism (CBAM). Here’s a breakdown of the key points from his interview:

  1. Geopolitical Impact on Carbon Markets: Forrister emphasizes that carbon markets are becoming closely intertwined with geopolitics, particularly with policies aimed at achieving carbon neutrality. The EU’s initiatives, such as ETS 2 and CBAM, are reshaping the politics of energy and climate by influencing alliances among countries.
  2. Role of Strong Partnerships: Achieving net zero emissions can be costly, necessitating collaboration among countries. Forrister stresses the importance of strong, reliable partnerships in navigating the challenges of decarbonization. He believes that market architecture can facilitate such partnerships but emphasizes the need for political agreement to make them effective.
  3. Implications of CBAM and ETS 2: The introduction of CBAM by the EU, which imposes a tax on carbon-intensive imports, is driving industries, companies, and countries to innovate and adapt. ETS 2, which expands the EU’s cap-and-trade program to cover additional sectors like buildings and road transport, is described as a massive undertaking with significant implications for carbon markets.
  4. Geopolitical Shifts: Forrister discusses how geopolitical factors, such as the war in Ukraine and changes in fuel supply to Europe, are accelerating Europe’s energy transition. He also highlights the potential for new alliances to form as countries seek partners to achieve net zero emissions.
  5. Alignment with Paris Agreement: Forrister emphasizes the importance of aligning carbon markets with the goals of the Paris Agreement. He sees the agreement as fundamental to addressing climate change collectively and stresses the need for cooperation among countries to achieve net zero emissions.

Overall, Forrister’s insights underscore the evolving landscape of carbon markets, driven by policy developments, geopolitical shifts, and the imperative for international cooperation to address climate change effectively.

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