Enel Foundation has provided research guidance, scientific contributions and funding for an extensive comparative study conducted by the Earth Institute’s Research Program on Sustainability Policy and Management at Columbia University on the suitability of different carbon pricing mechanisms as policy instruments to mitigate climate change in different economic and institutional contexts. The study analyzed the jurisdictional characteristics of 37 countries where carbon pricing mechanisms – both carbon taxes and cap-and-trade schemes – have been implemented or proposed as a means to support decarbonization.
Over the last months, we saw a number of reports released by government agencies and non-governmental organizations (NGOs), including from the business, research and technology communities, that address carbon market expectations, challenges and solutions. These are indicative of ongoing preparatory work ahead of the upcoming negotiations on market mechanisms under Paris Agreement Article 6 (cooperative approaches), expected to conclude at the Santiago Climate Change Conference in December. This Update highlights recent reports and news releases, and provides a backgrounder to the anticipated negotiations on the issue.
Accelerating ambitious carbon pricing
There’s a growing consensus that carbon pricing is a flexible and cost-efficient tool that sends a signal for governments and private sector need to transition to a lower carbon future. However, despite the widespread agreement on the need and benefits of carbon pricing instruments, the uptake of carbon pricing around the world does not align with this assertion. To achieve a net-zero greenhouse gas emissions by 2050, the international community needs to ramp up climate ambition, and carbon pricing has a critical role to play in this process. To address this, CPLC held a stakeholder dialogue, Accelerating Ambitious Carbon Pricing, at the UN Climate Action Summit to discuss and highlight concrete actions needed for governments, private sector actors and other stakeholders to fully implement carbon pricing measures. Specifically, the focus of the session was on what priority actions are needed to strengthen institutional capacities to put a price on carbon as well as to facilitate the use of carbon pricing to enable a carbon-neutral industry transition.
The session presided over by Laura Tuck, Vice President of Sustainable Development at the World Bank and Gerard Mestrallet, co-chair of the CPLC High-Level Assembly and Honorary Chairman of Engie and Suez, provided an opportunity to leaders from governments and businesses to share their views and ideas on how to accelerate the use of carbon pricing. To kickstart the dialogue, four scene-setter statements were provided by Dr. Karsten Sach, Germany, Dr. Okonjo Iweala, Former Finance Minister of Nigeria and Co-Chair of the Global Commission on the Economy and Climate, Mr. Maesela Kekana, Chief Director International Climate Change Relations and Negotiations and Mr. Feike Sijbesma, CEO and Chairman of Royal DSM.
Karsten Sach, provided details on Germany’s latest announcement of implementing carbon pricing in the non-ETS sectors of transport and households. He noted that carbon pricing will be key to the achievement of carbon neutrality by 2015 and that for this to happen, it must be fair, smartly designed, and one that addresses the interest of low-income households. Further, well-organized and continuous stakeholder engagement, and international cooperation is key.
Dr. Ngozi Okonjo-Iweala, focused her remarks on how developing countries, and in particular African countries can use carbon pricing as a powerful vehicle for delivering social and economic priorities, including driving renewables, using revenues for resilient infrastructure, and creating the right conditions for investments and finance. While carbon pricing makes sense, it has been politically difficult to implement – and it is important for governments to work with both “winners and losers”, a point emphasized by several other speakers. She underscored the importance of international cooperation noting that developing countries cannot do this alone.
Noting that South Africa implemented a carbon tax that came into force in June 2019, Mr. Maesela John Mekana, emphasized the central role that such instrument can play in contributing to sustainable development. In addition to driving higher climate ambition, carbon pricing revenues can be generated for use in adaptation finance, job growth, poverty eradication, but most importantly, for a fossil-dependent country like South Africa, to be able to support a just transition. Key lessons that South Africa has learnt in its journey so far include the importance of inclusivity and engaging in a dialogue with all stakeholders involved.
Feike Sijbesma, CEO and Chairman of Royal DSM highlighted the newly released Report of the High-Level Commission on Carbon Pricing and Competitiveness. The key point he made is that while competitiveness might be an issue for EITE sectors, it can be managed and should not be a barrier for the uptake of carbon pricing policies. He noted that it was important to engage the private sector fully as they would be responsible for mobilizing 80% of the financial resources needed to support the climate transition.
In the open dialogue that followed, several of the speakers highlighted the need for a clear vision for carbon pricing implementation, including a roadmap and strategy to provide certainty and transparency to society and markets. Many of the speakers emphasized the importance of eliminating contradictory policies and redesigning as needed to align with decarbonization pathways. The use of revenues was also included in several interventions to demonstrate ways in which we can tax carbon and not people. There are different ways to accomplish this, Portugal, for example, is using carbon revenues to fund monthly public transport tickets.
The discussions also touched on the importance of thinking about carbon pricing in the context of sustainable development. As countries look for ways to grow, create jobs and opportunities for their citizens, considerations for a just transition must be taken for fossil fuel intensive economies. Carbon pricing could be used as a tool to, along with other policies, stimulate innovation, diversification, and investment at the pace and scale we need. Policies should be designed to protect the economic and business competitiveness for EITE but set a strong price signal that drives innovation. International cooperation can play a critical role in helping to meaningfully transform and ensure that countries are learning from past experiences.
Designing carbon pricing policies is a complex process and more high-quality research by public agencies and private sector is necessary. To support developing countries as they develop this capacity, jurisdictions should involve universities and other research organizations. Only with strong leadership from the highest levels we will be able to coordinate within and among governments, multilateral initiatives such as the Coalition for Finance Minister, the CPLC and other like as ICAP, to ensure coherence and realize the potential of carbon pricing.
Several private sector stakeholders provided their insights on carbon pricing. Sasol highlighted the importance of bringing the views of companies from developing country to the debate. As industries ready themselves for a low-carbon future, it is becoming increasingly important that there is a clear vision of the path forward, created jointly by governments and private sector, on the role carbon pricing plays.
Businesses from the oil and gas sector emphasized that companies thrive in a carbon regulated environment, for example, Equinor pays about 700 million dollars a year and remains a profitable company. Shell highlighted the importance of engaging in deep technical dialogues with stakeholders including on rules around trading, use of revenues, and the role that market linkages will play going forward. Yes Bank discussed the importance of taking a targeted approach, and the critical need for estimating and accounting financed emissions to integrate carbon price to its lending. However, lack of data remains a key challenge, and standardized tools and methodologies to establish emission reductions must be developed at a portfolio level. SSAB discussed how carbon pricing has played a key role in innovation, specifically in developing HYBRIT technology (fossil-free steel) and called for efforts to advance national and regional efforts to price carbon and motivate industries to transform rather than wait for a global price.
These examples resonated well with the Report of the High-Level Commission on Carbon Pricing and Competitiveness, outlined by Lord Nicholas Stern who argued that carbon pricing, when implemented with complementary policies, is a story of discovery, innovation, efficiency, investment and growth, allowing jurisdictions to generate revenues that can address social and economic priorities.
The need to bridge the gap in the discourse and action on carbon pricing between the national and local levels was raised. The role and potential of local authorities and governments should be considered given their central role in enabling actions that translate climate policies, including those on carbon prices.
The session was closed by Mr. Juergen Voegele, Climate Change Director of the World Bank and Mr. Bob Orr, Special Advisor for Climate Change of the Office of the UN Secretary General who highlighted the importance getting the key messages out to the larger public, including the youth and the private sector. To encourage this and facilitate the continued engagement in carbon pricing, the CPLC has set up a web page to gather broad input from stakeholders across the globe on what substantive actions are needed to advance the carbon pricing agenda going forward. You can add your voice and share you opinion here.
The triennial World Energy Congress, one of the most influential energy events in the world, was hosted by the United Arab Emirates in Abu Dhabi. Read a summary of the key discussions that occurred during the Side Event “Sustainable Finance and Carbon Markets: New Opportunities for the GCC?” held on 12th September 2019, at this 24th World Energy Congress.
At Asia-Pacific Climate Week, stakeholders from more than 60 countries, from government, private sector, academia and civil society, gathered to explore opportunities to reduce carbon pollution and drive low-carbon and climate resilient development. While many topics were discussed (see key outcomes here), including increasing climate finance, expanding renewable energy access, and mainstreaming nature-based solutions into climate action plans, speakers and participants emphasized pricing carbon pollution as an essential element of the region’s climate action strategy.
The Carbon Pricing Leadership Coalition (CPLC) in collaboration with the World Bank’s Partnership for Market Readiness (PMR), the Inter-American Development Bank (IADB) and IETA organized a full day discussion on Carbon Pricing, Markets and Sustainable Development.
On Tuesday, during the Latin America and the Caribbean Climate Week, CPLC, IETA, the World Bank Group and the Inter-American Development Bank will host a day focused on Carbon Pricing, Markets, and Sustainable Development. You can access the full agenda here.
Last week, three new carbon tax proposals were released in Congress: Rep. Rooney’s bill and Rep. Lipinski’s bill in the House of Representatives, and the Coons/Feinstein bill in the Senate. Given the unprecedented level of movement in Congress surrounding carbon tax legislation, the Center on Global Energy Policy’s Carbon Tax Research Initiative launched a new online resource that explains what you need to know about a federal carbon tax in the United States, including comparisons of the existing federal carbon tax legislation introduced thus far.
Supported by GIZ Global Carbon Market Project in East Africa on behalf of the German Federal Ministry for Environment, Nature Conservation and Nuclear Safety (BMU) in cooperation with the UNFCCC Regional Collaboration Center Kampala, Burundi, Ethiopia, Kenya, Rwanda, Tanzania and Uganda established the East African Alliance on Carbon Markets and Climate Finance in June 2019.
Policy Options, the digital magazine of the Montreal-based Institute for Research on Public Policy, recently published a series of articles and a podcast on how carbon pricing has evolved at the federal and provincial/territorial level in Canada.
On June 20 and 21 2019, the Netherlands held a conference in the Hague on Carbon Pricing and Aviation Taxes, gathering politicians, civil servants and scientists from EU Member States as well as other countries. Read some key takeaways.
Integrating carbon pricing into investment decision making and ensuring that carbon pricing policies are designed with consideration of social and development concerns were the two key topics of discussion at the Carbon Pricing Leadership Coalition (CPLC) Fourth Annual High-Level Assembly (HLA) that took place during the World Bank and International Monetary Fund Spring Meetings.
In early March, the Carbon Tax Research Initiative at Columbia University's Center on Global Energy Policy (CGEP) joined the CPLC as an official partner. The Initiative explores key questions and implications related to the design and implementation of a carbon tax in the United States. Check out some of their work here.
On Tuesday, March 19 at Africa Climate Week, the World Bank Group (WBG) and International Emissions Trading Association (IETA) hosted a Carbon Pricing Leadership Coalition (CPLC) workshop on Carbon Pricing, Markets, and Sustainable Development in Africa. This all-day event showcased how policies and programs to put a price on carbon can mobilize climate investment, drive social benefit, and reduce carbon pollution. The agenda featured key stakeholders who are either implementing, considering, or advancing carbon pricing—including representatives from Burkina Faso, Côte d'Ivoire, South Africa, Rwanda, Senegal and Nigeria.
UN Climate Change News, Accra, 20 March 2019 – Africa Climate Week in Accra, Ghana, got firmly underway this morning with the commencement of the high-level segment at the capital’s Convention Center. The overriding message being heard at this Regional Climate Week is that a ‘bright and happy future’ will be largely compromised without the proper financing, which also needs to be de-risked to encourage flows of finance to the 54 African nations. There are some positive signals: the World Bank Group last week announced $22.5 billion over 2021-2025 in climate support in Africa – a commitment which acted as a precursor to their co-hosting of a ‘Carbon Pricing Day’ on the margins of the Africa Climate Week, highlighting how innovative policies and programs can mobilize climate investments, drive social benefits, and reduce carbon pollutions.
Launched in May 2017, the Carbon Pricing Dashboard is an interactive online platform that provides up-to-date information on existing and emerging carbon pricing initiatives around the world.
Change in numbers as of February 1, 2019:
46 national jurisdictions and 28 subnational jurisdictions are putting a price on carbon.
57 carbon pricing initiatives are implemented or scheduled for implementation