38Smith School of Enterprise and the EnvironmentSmith partners include Japan, Canada (Western Climate Initiative), Australia (NSW Greenhouse Gas Abatement Scheme), New Zealand and the US (Regional Greenhouse Gas Initiative). Linkage of these systems would open up new opportunities for mitigation and increase market liquidity for participating companies. Linkage between systems face various challenges [50], but they are not insurmountable.The developing and emerging world has signalled its interest in being included in CO2 trading markets. Again, here there are planned schemes in several countries that could be linked to the EU ETS either on a sectoral or nationwide basis. Mexico is in the process of setting up a voluntary program for GHG accounting and reporting which at present covers 21 per cent of national emissions but which is to be expanded to cover 80 per cent. This scheme will provide essential capacity building for future participation in the CO2 markets. President Calderon has expressed interest in joining a North American trading scheme with the US and Canada. In Brazil, the introduction of a domestic cap and trade scheme is being considered [35]. For many of the least developed countries, there are significant advantages in incorporation into trading agreements. Developing nations are frequently left out of global trading agreements and this hinders their growth. Inclusion of developing nations in CO2 trading agreements would create internal incentives to engage in climate change mitigation and adaptation. Inclusion could be based on NAMAs for which support is claimed. Incentivising those countries to grow their economies with low carbon dioxide intensity through internal democratic decision making in this way should be a priority. The creation of parallel trading schemes in some parts of the world will generate CO2 price differentials, and it must be anticipated that some large countries will impose no financial disincentive on CO2 emissions. This would encourage the high CO2 emitting manufacturing sectors to move their operations into these countries or zones. The natural response would be an imposition of CO2 border tariffs on goods entering the CO2 trading zone. (In order to benefit from the imposed tax, the response of the exporting country would be to impose the border tax at the point of export with agreed verification procedures). In this way the carbon leakage problem could be managed. However, multiple CO2 prices and trading regimes would not be favoured by the World Trade Organisation. In time the advantages of a single globally traded CO2 pricing mechanism could be a significant driver towards a global agreement.Other nations with similar interests are likely to group together to develop solutions. For example, countries that have a large portion of the world's forests, such as many of the nations of South America, may group together to adopt procedures to collectively reduce deforestation. Strong support for this is driven through the potential profitability under the REDD+ scheme, which offers significant incentives for avoided deforestation and reforestation. The declaration by the Government of Brazil at Poznan to terminate all deforestation by 2025 has been a precursor to such action. Chapter 6

EnvironmentSmith School of Enterprise and the Environment39Chapter 6: Parallel Processes