Social acceptability and climate risk of carbon pricing, key topics at the CPLC Fourth Annual High-Level Assembly
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.
Attended by leaders from 14 governments, 21 companies and 45 strategic organizations including civil society bodies and academia, the Assembly thanked outgoing HLA co-Chair Catherine McKenna, Minister of Environment Canada and welcomed Susana Jiménez, Minister of Energy, Chile who will join Gerard Mestrallet, Honorary Chairman of Engie. Mr. Mestrallet led the discussion and presented the Carbon Pricing Leadership Report—the CPLC annual report which features the work of CPLC partners and commentaries from carbon pricing leaders.
Kristalina Georgieva, World Bank CEO, opened the meeting by highlighting the global momentum on carbon pricing and the World Bank’s internal carbon pricing policy that follows the US$40 and $80 t/CO2e price range recommendation by the Stern-Stiglitz report. She also reiterated the Bank’s commitment to helping member states understand and utilize pricing initiatives. Christine Lagarde, IMF Managing Director, followed Kristalina’s intervention by noting that at as carbon pricing policies advance so do stakeholders concerns on the specifics of the how, not just the what: design, process, price progression, use of the revenues and complimentary policies. In the end, she said, carbon pricing acceptability is also about the comprehensive range of tools, including addressing distributional impacts proactively, that need to be implemented to make it a lasting and effective policy.
Pricing carbon needs to be linked to investment decision making
For Philippe Le Houérou, International Finance Corporation CEO and keynote speaker, climate risk is a reality that investors can no longer ignore. The emerging threats of climate bankruptcy, changing weather patterns, and new climate-focused regulations could directly impact financial institutions. With this new reality not so distant anymore, commercial banks and other financial institutions are now working with each other to understand how to assess the financial risk posed by climate change.
As businesses begin to analyze the impact of climate change on their bottom line, they're running through systematic climate assessments and identifying carbon pricing as a critical tool in the process. Today, banks and companies are using carbon pricing, among other tools such as science-based targets, to prepare for imminent carbon regulation, avoid stranded assets, and implement the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD). While doing this, they are beginning to understand that although carbon pricing could be seen as a risk, it can also be an opportunity to drive action.
Carbon pricing must be aligned with broader development goals for job creation, inclusion, and economic growth
Ngozi Okonjo-Iweala, Co-Chair of the Global Commission on the Economy and Climate (NCE) and keynote speaker, brought the perspective of finance ministers from developing countries and their concerns as they recognize that long-term growth will not be sustainable without addressing climate change. When asked about how to achieve development goals and tackle climate change at the same time, she relies by encouraging them to lead on the green economy for growth. She suggested that phasing out fossil fuel subsidies, which in many countries continue to artificially prop up fossil energy sources at great cost to the economy, and that introducing carbon pricing, can help send the right signal.
There is a concrete opportunity. Work by the NCE, that Dr. Okonjo-Iweala co-chairs, shows that phasing out fossil fuel subsidies globally, and instituting carbon pricing, can generate up to 2.8 trillion, more than India's GDP today, by 2030. Carbon pricing instruments offer an opportunity to align environmental policy with broader development goals that developing countries care about: job creation, inclusion, improved health outcomes, and economic growth.
New stakeholders and regions should be engaged in an inclusive advocacy strategy
Throughout the Assembly, interventions emphasized how partner-led initiatives and reaching out to new stakeholders will be critical. For example, Minister Jiménez announced a new collaboration between the World Bank and Chile on future climate markets under Article 6 of the Paris Agreement. Finland announced the setting up of a Coalition of Finance Ministers for Climate Action that will promote a set of principles, one of which relates to putting a price on carbon. John Roome, Senior Director for Climate Change at the World Bank, closed the meeting by emphasizing the importance of a well-targeted and aligned CPLC workplan to build political support, facilitate private sector engagement, and support the landing of key international climate mechanisms—Article 6 and the next generation of Nationally Determined Contributions.
The Coalition hosted two additional events at the margins of the HLA. The day before the HLA, “Carbon Pricing in the Americas: Stock-Take and Knowledge Exchange” brought partners from across the region to provide an update on progress and a conversation on how to better align programs. The event featured a fire-side chat with U.S. Congressman Paul Tonko (D-NY20), Chair of the House Subcommittee on the Environment and Climate Change. The following day, the “CPLC Technical Workshop” took place at the Embassy of Canada. The program included three partner-led workshops on topics including Article 6 of the Paris Agreement, corporate climate strategies, and carbon pricing revenues for societal benefit. Bringing together over 80 participants, the event reflected the power of partner collaboration to deliberate on and provide potential solutions to complex technical challenges.
Going forward, the Coalition, as called for during the meeting, will continue to broaden engagement from developing countries and subnational jurisdictions at public and private sector level, while deepening engagement so that support for carbon pricing policies sets at an institutional level. Utilizing the recently launched Guide to Communicating Carbon Pricing, CPLC will also continue to advocate for carbon pricing policies that are designed and communicated in a way to increase acceptability and sustainability.
Today carbon pricing mechanisms are mostly supply-side instruments by design. This is not enough for carbon pricing to move the economy at scale. But when carbon pricing impacts decision making across value chain and creates a demand for carbon efficient or carbon neutral solutions and products, it will be more effective at making a difference. In this context, the CPLC was called on to explore how to make carbon pricing a demand instrument.
Additionally, following Lord Stern intervention challenging multilateral development banks to coordinate and implement internal carbon pricing in the form of shadow prices, the CPLC will strive to build the evidence base on application of shadow prices with a view to understanding fairness and defining approaches that would be relevant for portfolios in developing countries.
At the core of the CPLC is the convening and collaboration with diverse stakeholders and the Coalition welcomes the new Coalition of Finance Ministers for Climate Action and looks forward to working with them and the working groups covering Article 6 of the Paris Agreement so that we can together respond to the climate change challenge.
Additional pictures from the meeting: https://www.flickr.com/photos/156763910@N05/