Paris will deliver on carbon pricing

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Paris is not just about the governments negotiating: it’s a movement towards a decarbonized world, and COP21 has been an important global moment to focus us on expedient, efficient and effective means to reduce carbon.

What is different about COP21 that is different from other meetings is that it has brought to the table the voices of citizens, businesses, investors and sub-national governments who are demanding action, often underscoring how carbon pricing is an important lever for effectively cutting emissions.

Now is the time when governments must decide to get on board to make things easy, or if they will slow down this momentum. Accepting that carbon pricing is an effective policy instrument that countries can employ as they focus on implementing their climate pledges here in Paris sends clear, signals to the private sector that they should continue and expand investment energy efficiency and renewable technology projects.

1. Governments are preparing

While COP21 is not expected to produce a single, global carbon price, the negotiations themselves are spurring action on the issue. Countries have come to Paris with solutions.  More than half of the INDCs made prior to COP21 point to market mechanisms, such as a carbon price, as an important tool for reducing emissions. 

Currently 40 nations and 23 regional or local jurisdictions already have carbon pricing - including Mexico, India, the European Union and California – and many more are expected to emerge. China’s impending national cap-and-trade program, announced in September, means that other nations have fewer excuses for inaction.  China’s pledge has been the capstone of a series of commitments by nations, cities, companies and investors in the run-up to Paris.

2. Business and Investors are Increasing support

Global investment in clean energy increased to $270bn last year ($89bn from China and $51bn from the US) and was the first significant increase in three years even as the cost of renewable energy declined.

And here at COP21, we are starting to see that carbon pricing is the new norm, and we are seeing the early stages of fund mobilization through developments like the Breakthrough Energy Coalition, where high-profile business leaders have pledged to channel billions into clean energy innovation.

But much more investment is needed, and businesses are ready to commit if our policy leaders are ready to commit.

Businesses are asking policymakers to make carbon pricing a priority, with over 1,000 disclosing to CDP that they already place a price on carbon or plan to do so within two years.  They are also giving serious consideration to the level of price needed to drive the transformation to a low-carbon economy. 

Unilever said that a price of $15 or even $30 per tonne would not likely make a material difference to GHG emissions.  At a gathering of oil and gas companies yesterday, we heard that a price of at least $40 would be needed to trigger the shift from coal to gas-powered electricity. And at $125 per tonne, Acciona believes wind production could double.

3. Paris will deliver on carbon pricing

The Paris Summit has provided a stage for world governments, businesses, and investors to set the course for a future, low-carbon economy.The rising attractiveness of clean energy, an essential ingredient in that economic transition, will be an inevitable consequence of a commitment to price the act of emitting greenhouse gases. Paris will amplify the message that the world is moving toward meaningful and rising carbon prices, giving its supporters the certitude they need to shift to low-carbon energy and become leaders in combatting climate change.

The era of cost-less carbon emissions is over.