Shifting into high gear with carbon pricing

December 1, 2015 by  
Filed under Strategy and Leaders

This article is contributed by Jovin Hurry, who is reporting from Paris.

COP21 - carbon pricing

To price or not to price, that has been the long debated question.

Now the question has changed – how much to price carbon.

The heads of state and government of France, Chile, Ethiopia, Germany, Mexico and Canada with the leaders of the World Bank Group and the International Monetary Fund in a tour de force of unity are calling onto companies and countries to put a price on carbon to drive investment for a cleaner, transformed global economy.

Carbon pricing in simple terms is about charging those who emit carbon dioxide (CO2) for their emissions, as an economic mechanism for reducing global-warming emissions. This charge is a carbon price, an amount paid for the right to emit one tonne of CO2 into the atmosphere.

Carbon pricing usually takes the form either of a carbon tax, or it can also be a requirement to purchase permits to emit, also known as cap-and-trade.

“The goal is to gradually set a sufficiently high carbon price around the world to encourage better behaviour,” said H.E. President François Hollande of France.

Through carbon pricing, countries can provide an incentive for businesses and investors to reduce their exposure to carbon, while accelerating investments in clean energy, clean transport and clean technologies.

The wave is already here. A recent World Bank report, State and Trends of Carbon Pricing 2015, shows the number of implemented or planned carbon pricing schemes around the world has almost doubled since 2012 and are now worth about $50 billion.

It is about building a green economy beyond the moral grounds, on a competitive landscape. “In Europe, we will also improve our carbon market while ensuring that the most compliant countries remain competitive,” he continues.

Moving on, the heads of state and government officially launched the Carbon Pricing Leadership Coalition. The Coalition brings together key governments such as Mexico, Germany and France along with nearly 90 global businesses and NGOs.

While carbon is currently priced in different ways across different regions, there’s call for these pilots to become global. Because it is not priced universally, there is no agreed-upon market mechanism responsive enough to the costs of CO2 emitted.

The leaders acknowledged there are still inroads to make, tough decisions to reach ahead, e.g. determining the exact monetary damage caused by a tonne of CO2. IMF Managing Director Christine Lagarde thinks “…the right carbon price should be at the center of this effort. Indeed, given the slump in energy prices, there has never been a better time to transition to smart, credible and effective carbon pricing. Policy makers need to price it right, tax it smart, and do it now.”

It seems that the mood is slowly shifting toward taxes as national policy measures and toward a neutral carbon-price-commitment position for the purpose of international climate negotiations. “We are seeing increasing momentum from heads of state and other global leaders to put a price on carbon pollution…” said World Bank Group President Jim Yong Kim.

About 40 nations and 23 cities, states and regions have implemented or are putting a price on carbon with programs and mechanisms covering about 12 percent of global greenhouse gas emissions. The coverage is expected to grow given China’s recent announcement to bring in a national emissions trading system in 2017.

Partners in the Coalition will collect and share the best evidence of successful carbon pricing policy, mobilise business support and convene leadership dialogues worldwide to tackle the goal of navigating the political challenges that prevent greater use of carbon pricing.

Although pricing carbon can can reduce health and environmental impacts, like premature deaths from exposure to outdoor air pollution, or can provide governments with the financing needed to support sustainable development, as well as spur greater investments in low carbon growth, it remains to be seen what norms and procedures will be set in place to suit different politics, economies and geographies, so it does not become a license for market actors to continue polluting with a false sense of good conscience.

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