Leaders’ Voices on Carbon Pricing to Drive Climate Action

Leaders’ Voices on Carbon Pricing to Drive Climate Action

We know we need to act urgently on climate change. Fortunately, in response, carbon pricing initiatives continue to grow. In the past two years eight, new or enhanced, carbon pricing initiatives were implemented in national and subnational jurisdictions. Recent announcements, including from the EU and the Americas, are signaling greater ambition.

Despite progress, these initiatives only cover 15% of global emissions, and 75% of these emissions are priced under 10USD per ton. To efficiently tackle climate change, jurisdictions need to accelerate action to broaden the coverage of greenhouse gas emissions and deepen the impacts on emissions reductions by raising carbon prices and better aligning policies. The Leaders’ Voices on Carbon Pricing to Drive Climate Action, a CPLC side event during COP23 in Bonn, provided a platform for partners and stakeholders to focus on this discussion.

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Presided over by the CPLC co-chairs Ms. Catherine McKenna, Minister of Environment Canada, and Mr. Feike Sijbesma CEO Royal DSM, the Coalition convened a panel of leaders from regional, national and subnational level as well as from businesses and financing institutions: Mr. Jos Delbeke, Director General of the Climate Change Directorate of the EU, Mr. Matt Rodrigues, Secretary of Environment of California, Ms. Anne Ouluto, Minister of Environment, Cote d’Ivoire, Ms. Marina Grossi, CEO CEBDs Brazil, Mr. Gerard Mestrallet, Chairman of the Board of Engie, and Ms. Claudia Kruse, APG Managing Director (Governance & Sustainability), APG Asset Management.

Before the panel discussion started, Lance Pierce, President of CDP-North America, gave a presentation outlining the latest developments on carbon pricing in the private sector and the recommendations of the Task Force on Climate-related Financial Disclosure on the use of carbon pricing in climate risk assessments. To date, 1400 companies have disclosed that they are already putting an internal price on carbon, including more than 100 Fortune Global 500 companies. According to Lance, the growing interest of the investor community on carbon pricing is driven by what carbon pricing makes visible: risks, costs and opportunities. Companies are increasingly using carbon pricing to drive emissions reductions, incentivize low-carbon activities and facilitate a company-wide low-carbon transition.

The discussion illustrated the progress made so far by different actors at all levels – regional, national and local governments, companies, and investors – and pointed to the task ahead. Challenging the audience to move the debate beyond advocacy into real action, the panel reiterated for the importance of peer-to-peer knowledge sharing and bringing to light the experiences of those who have already implemented carbon pricing policies.

A low-carbon pathway

Governments have a key role in the successful implementation of carbon pricing schemes; from clearly defining policy objectives to including all relevant ministries, and demonstrating that it is a priority for their climate and development agenda, to including the private sector and civil society via early consultations. Moreover, low-carbon policy packages need to be flexible enough to adapt over time and ensure alignment with other policies. For example, making decisions regarding allocation of carbon pricing revenues, which can be used for a wide range of needs, including funding renewable or energy efficiency projects or for compensatory measures to mitigate impacts on the poorest.

The panel, echoed stakeholders form the financial sector calling for predictable pricing: predictability at meaningful levels would be a game-changer for investments in the transition to low carbon and climate resilient future.

Countries will meet their commitments to the Paris Agreement by traveling different routes -circumstances differ across regions and sectors. However, as described on the Report of the High-Level Commission on Carbon Prices, to meet the Paris Agreement temperature objective, carbon prices need to move upwards. Depending on speed and strength of the price level increase, jurisdictions must account for winners and losers and find the right strategies to mitigate the negative impacts on competitiveness. As a center for evidence-based knowledge development, the CPLC was called on to support the development of a systematic assessment to identify these impacts and policies or complementary measures to address them. Going forward the CPLC will prepare a flagship on the impacts of carbon pricing on competitiveness.

Furthermore, a narrative around using revenues to offset losses by industries that are emissions intensive and trade exposed (EITEs) can prove useful. In summary, the panelists called on CPLC to provide additional evidence-based knowledge that will help address the concerns and issues currently preventing governments and companies from welcoming carbon pricing.

Accelerating Action

The economic case for carbon pricing is clear; why don’t we see faster progress in its implementation? CDP’s report shows that more and more companies have embedded carbon pricing into their internal managements processes, but expanding and deepening efforts to illustrate how business are using carbon pricing would help to mainstream it. And making data more transparent would send a clear signal to investors and the financial community, while engaging CEOs/CFOs on sharing their experiences and demonstrating support will bring carbon pricing to the forefront of business strategy discussions. This, and other topics of interest to the private sector senior managers, will be further explored in an event convened by the CPLC on 22-23 January in Zurich.

Coalitions are powerful because they are stronger that the sum of its partners, but there’s more work that the CPLC can do to raise wider awareness and include civil society to create wide coalitions of actors aiming for an inclusive agenda, considering the engagement of low income communities, businesses, public authorities and civil society in both developed countries and for developing countries.

Walk the talk

Lastly the discussions highlighted the need to, as we move forward, underpin the discussions with technical work. Areas highlighted include: accountability and reporting (MRV); role of blockchain technology; use of revenues (and more specifically on allocation of allowances and how this can be used both as a tool to mitigate competitiveness issues and to raise revenues); carbon border adjustments and trade issues.

Meaningful prices will give direction to future investments, support progression of ambition, create jobs and spur innovation by future-proofing assets, capital and value chains in different economies. In this context, carbon pricing is positioned to play a crucial role in the investment and financing phase and in helping institutions and jurisdictions make a ‘fair’ transition towards a low carbon economy.