Carbon Pricing, Markets and Sustainable Development in the Latin America and Caribbean Region

Over 4,000 people from all over the world gathered in Salvador da Bahia, Brazil, for a week-long conference covering a range of climate issues. The Latin America & Caribbean Climate Week (LACCW) is organized by the partners of the Nairobi Framework Partnership (NFP) to bring together diverse stakeholders in the public and private sectors around a common goal of addressing climate change.

In this context, 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. The event brought together close to 200 participants from government, businesses, civil society and academia.

Carbon pricing is at the center of the global and national debates on climate mitigation, and the policy is often referenced in academic and policy circles as a key element for consideration in strategies in the region to reach the goals of the Paris Agreement. Since signing the agreement four years ago, carbon pricing continues to gain momentum and most of it driven by the Americas. To date, 57 carbon pricing initiatives are implemented or scheduled for implementation. Of this, four initiatives originate in LAC and 16 in North America. Of note for the LAC region: Chile, Colombia and Mexico already have carbon taxes in place and are considering an ETS. Argentina’s carbon tax has been finalized and implemented.

From the wide-ranging discussion, 3 key issues emerged to highlight:

When it comes to carbon pricing, not one size fits all

Pricing carbon has no set formula; initiatives in the LAC region are unique to each country’s circumstance and priorities. Jurisdictions must carefully study their economic, environmental and social context to determine the best policy. From choosing between a tax or an emissions trading system to the design elements of each option, and the use of revenues, to how different stakeholders relate to the policy and the sectorial composition of the economy. For example, in a report launched later in the week on the use of carbon revenues, participants explore the different cases of using revenues to either support further climate mitigation, industry competitiveness, or pursuit of further economic and development objectives.

However, even as each jurisdiction designs their policy to serve their context, there is broad scope for international cooperation to align or link the initiatives to scale up their impact and reduce their overall cost.

Communicating carbon pricing is as important as the design of the instrument

communicating carbon pricing

“We are so in love with the instrument that we forget why we need a carbon price” said Maria Paz Cigaran from Libelula to sum up the challenges in communicating carbon pricing policies in the region and around the world. The policy is certainly loved by economists and well regarded by policy makers and environmentalists, however, it continues to receive mixed reviews from broader stakeholders, in no small part, because of the way it has been communicated so far.

The carbon pricing superpower comes from the immediate effect it can have in the current high-carbon economic model, while shaping and funding a future economy that is low-carbon. Panelists and young voices from the audience challenged the participants to connect with people in a more human way because initiatives, like carbon pricing, that help to tackle climate, cannot be limited to public authorities or the private sector. Jurisdictions planning to implement carbon pricing need to fully engage all stakeholders in dialogue that supports increasing climate ambition. In this context, panelists underscored the role that youth voices, which are getting louder around the world, have in taking risks and demanding swift action.

The role of nature-based solutions

We are pressed on time to transform our economies to function in a carbon-neutral way by the middle of this century. To decarbonize and reduce the impact of climate change, we need to act on multiple fronts; there is not one policy or technology that alone will solve the crisis in the short time we have. Carbon offsets, a reduction in emissions of carbon dioxide or other greenhouse gases made to compensate for emissions made elsewhere, are an important complement to decarbonization efforts.

Nature-based solutions (NBS), defined as actions to protect, sustainably manage, and restore natural or modified ecosystems, that address societal challenges effectively and adaptively, simultaneously providing human well-being and biodiversity benefits, are receiving renewed attention. Offsetting carbon emissions in sectors that could be slow to decarbonize can provide a useful vehicle to transfer much needed investments towards nature-based solutions. The LAC region is ready to capitalize on the related voluntary and NBS benefits and co-benefits.

Panelists also highlighted the important contribution of international cooperation to provide flexibility and reduce costs, and the need to take stock of the experiences with market instruments to prepare for initiatives such as CORSIA. CORSIA, the Carbon Offsetting and Reduction Scheme for International Aviation, will create considerable demand that what will drive investments in offsets, in particular from nature-based solutions.

Discussions did not end with the day. With 79 events including technical and thematic dialogues, workshops, side events and exhibitions, the LACCW offered a prime platform for networking and learning. Conversations surely continued at the Asia-Pacific Climate Week which took place in Bangkok as momentum builds towards the UN Summit in New York in September and the UN Climate Change Conference (COP25) that will take place in Santiago, Chile, on 2-13 December 2019.