In the past year and a half, Portugal and Mexico implemented new carbon taxes, South Korea started one of the world’s largest emissions trading systems, and California and Quebec linked their cap-and-trade systems, which Ontario plans to join.
China, meanwhile, has been learning from its seven local carbon markets (the oldest, in Shenzen, is about to wrap up its second year), and the entire country, a leading emitter of greenhouse gases, plans to launch a national emissions trading system as early as 2016. Chile also advanced carbon pricing, approving a carbon tax to start in 2018.
These are among about 40 countries and more than 20 cities, states and provinces now using or planning to use a price on carbon to bring down greenhouse gas emissions. Altogether, the initiatives in operation today are valued at almost $50 billion, according to the World Bank’s new Carbon Pricing Watch, an early brief previewing the annual State and Trends of Carbon Pricing report.
“An effective carbon price is an essential, if insufficient, part of a policy package that can lower emissions and drive the economy toward a low-carbon, resilient future,” said World Bank Group Vice President and Special Envoy for Climate Change Rachel Kyte. “It makes pollution more expensive, incentivizes efficiency and clean production, and helps business leaders and investors understand the long-term direction of travel.”
Businesses are actively supporting carbon pricing
The conversation around carbon pricing has also been expanding and maturing. Leaders are no longer asking whether they should price carbon but are instead looking to the World Bank Group and others for technical advice as they determine how to put carbon pricing into operation.
For years, businesses and government have discussed separately the risks that climate changes poses to their supply chains, assets and people. Governments said they were waiting for businesses to respond; progressive businesses were waiting for governments to set policies.
“Now, everybody is around the table working on developing the most economically effective solutions to deal with climate change. They understand the risks of failing to take action,” Kyte said. “This is a bottom up approach being driven by businesses, governments and others looking at the most effective way to price carbon.”
At Climate Week Paris May 18-21 and then at Carbon Expo in Barcelona, business leaders headlined panels on carbon pricing and called for wider use of robust, effective carbon pricing mechanisms. They described carbon pricing as a key piece of the policy package necessary to drive more sustainable choices.
The clear message from both business and government: business as usual is not an option. And they’re putting effort behind their words:
- Several of the leaders speaking out in Paris and Barcelona are actively working on solutions through the Carbon Pricing Leadership Coalition, organized by the World Bank Group, World Economic Forum, We Mean Business Coalition and 12 other international development and business organizations.
- Thirty-one governments have been sharing their experiences with carbon pricing as they help the design the carbon markets of the future through the Partnership for Market Readiness.
- During the Business and Climate Summit at Climate Week Paris, several business announced new climate initiatives, including 25 business networks representing more than 6.5 million companies pledging to lead the global transition to low-carbon, climate-resilient economy. Investors also launched an Investor Platform for Climate Actions looking at measurement, engagement and reallocation of capital.
Governments are writing carbon pricing into their plans
Carbon pricing is also being written into country contributions for the international climate agreement expected later this year at the UN climate talk in Paris, as Carbon Pricing Watch explains.
The European Union, for example, plans to revitalize its emissions trading system, the world’s first and largest ETS, to meet its 2030 target of reducing greenhouse gas emissions by 40 percent compared to 1990 levels.
European leaders have gone farther in recent weeks, calling for international use of carbon pricing. German Chancellor Angela Merkel and French President François Hollande issued a joint call for action on May 19 that included “introducing carbon markets and pricing on national and regional level with the aim of giving strong economic incentives for low-carbon transformation.”
How to price carbon
Governments can take different paths to price carbon, all leading toward the goal of reducing greenhouse gas emissions. The new Carbon Pricing Watch looks at each government's choice, how its pricing mechanisms operate, and recent or planned changes.
Emissions trading systems, among the most common methods, set a gradually declining cap on emissions and create a market for emitters to buy or sell emissions permits up to the cap. The value of ETS’s globally rose from $32 billion a year ago to $34 billion today, despite the repeal of Australia’s Carbon Pricing Mechanism last July, according to Carbon Pricing Watch.
Carbon taxes, valued at $14 billion globally today, are levied at a set rate based on greenhouse gas emissions or the carbon content of fuel. Together, carbon pricing instruments now cover about 7 Gt CO2e, or about 12 percent of annual global greenhouse gas emissions. Countries, cities, states and provinces responsible for almost a quarter of the global greenhouse gas emissions now have carbon pricing.
The revenue is also used in different ways in different jurisdictions, often with the goal of supporting climate change mitigation efforts and offsetting the impact on poor people. The EU ETS directive, for example, requires that at least half of the revenues be used for climate and energy purposes, such as energy efficiency, renewable energy, research and sustainable transportation.
The full State and Trends of Carbon Pricing report, to be released ahead of the international climate talks later this year, will delve into greater detail and analysis of the impacts of carbon pricing initiatives and advantages for international cooperation.