Ávarp Guðlaugs Þórs Þórðarsonar umhverfis-, orku- og loftslagsráðherra á málþingi Lagadeildar HÍ um kolefnismarkaði

Góðir áheyrendur,

Það er mér ánægja að segja nokkur orð hér í upphafi þessa málþings, sem fjallar um þarft og brýnt málefni. Ávarpið er á ensku, þar sem það er hluti af umræðu með þátttöku erlendra sérfræðinga á þessu sviði.

I will now proceed in English – and thank our distinguished guests for coming here and discuss with us the important issue of carbon markets. We want to learn from the best – welcome!

Let me start with some basic observations. The idea of „carbon markets“ sounds odd to many people. Carbon is one of the elements, indeed a most valuable element; it is the main building block of life as we know it. If we explain to the non-expert that this is not a market for carbon as such, but for emissions of carbon dioxide and other greenhouse gases, it is likely that the confusion will only grow.

This is very understandable. Emissions and pollution are not goods, but side-effects of our industries and actions, that should be avoided. It is not easy to grasp the thought that you go the market to buy and sell pollution.

Yet, economists advocate carbon markets as a helpful tool in our efforts to cut emissions and fight climate change. How can this be? The logic is actually simple. It is difficult to abolish all pollution, but we can and must bring it down to safe levels. If we put a price on pollution, then we create an incentive to avoid it. Markets are dynamic and good at setting prices. So, markets for pollution permits should, in theory, be useful to guide efforts towards the most cost-effective actions.

This theory has been put to a test. And it works. Markets for pollution permits were first used to help bring down sulphur dioxide pollution in the United States. It was a so-called cap-and-trade programme, with an overall cap on emissions, where polluters would have to cut emissions or buy permits. Pollution declined, and in a more cost-efficient manner than regulations or taxes would have achieved, experts found.

Such a cap-and-trade system has since been incorporated into climate policy, most notably in the Kyoto Protocol and the European Emissions Trading Scheme – ETS. The Paris Agreement of 2015 also has clauses on emissions trading, in the much-discussed Article 6.

I think this is good. Government regulations alone are not always the best or most efficient way to achieve environmental objectives. We need to harness the ingenuity of science, business and civil society. Again, the rationale is simple. One: Putting a price on carbon creates an incentive to cut emissions. Two: A carbon market helps bring resources to the most cost-effective solutions. As a politician who believes in markets and involving the private sector I am positive towards this logic.

Of course, carbon markets are not a silver bullet to our climate problem. If they are well-designed, they are of great help. If they are poorly designed, they will be of limited use, and could even do more harm than good. Poorly designed carbon markets can lead to carbon leakage or greenwashing. We therefore need to understand the principles and learn from past mistakes and successes. That is the reason we are here – to help us understand and to lay the foundation using carbon markets as an effective instrument to reach our climate goals.

I am not going to go over in detail the Icelandic government‘s policy and vision for carbon markets here, as time does not allow this, but allow me to make a few points:

· Iceland has an ambitious climate policy and goals. We aim for carbon neutrality by 2040, and having abolished fossil fuels by the same time. We have a good history to tell, as we were perhaps the first country to complete a clean energy transition in electricity generation and heating. We do not want to rest on those laurels, but continue our clean energy transition, ahead of others.
· We want to reach our climate goals in cooperation with industry and civil society and harness their ingenuity and drive. Government regulations alone will not bring us there. Carbon pricing and carbon markets do have a role.
· Iceland is a participant in the ETS, and will continue to be. It is important that the rules are transparent and fair, and that they do not lead to carbon leakage. It does not help the climate if our policies and taxes chase industry from Europe to areas without emissions regulations and carbon markets.
· Iceland would be happy to see truly global carbon markets, developed under the Paris Agreement and other instruments. These would help us to reach real cuts in emissions, and reduce the risk of carbon leakage.
· We have encouraged a voluntary market in carbon credits, as a means to encourage initiatives in afforestation, reclamation of wetlands and other climate-friendly actions. As the demand for carbon credits grows, there is a need to ensure the quality of such actions.
· I have recently appointed a working group that has the task to map the status of the carbon markets in Iceland and identify opportunities for Icelandic companies to act on this market. Both the voluntary market as well as markets under Article 6 are to be looked into.
· The voluntary market can not replace robust national accounting, and the need to cut emissions and ensure reliable carbon uptake from the atmosphere.
· We need to communicate clearly and inspire trust in carbon markets. They can be sophisticated and effective instruments, but they are not easy to understand, as I mentioned in the beginning. Examples of greenwashing and other problems erode public trust. Without trust, markets function poorly.

I wish you a good discussion here, and I am certain that you will come up with good ideas to help us in forming our policies and actions. We need that, for the sake of the planet and the future.

Thank you,