Accelerating ambitious carbon pricing
There’s a growing consensus that carbon pricing is a flexible and cost-efficient tool that sends a signal for governments and private sector need to transition to a lower carbon future. However, despite the widespread agreement on the need and benefits of carbon pricing instruments, the uptake of carbon pricing around the world does not align with this assertion. To achieve a net-zero greenhouse gas emissions by 2050, the international community needs to ramp up climate ambition, and carbon pricing has a critical role to play in this process. To address this, CPLC held a stakeholder dialogue, Accelerating Ambitious Carbon Pricing, at the UN Climate Action Summit to discuss and highlight concrete actions needed for governments, private sector actors and other stakeholders to fully implement carbon pricing measures. Specifically, the focus of the session was on what priority actions are needed to strengthen institutional capacities to put a price on carbon as well as to facilitate the use of carbon pricing to enable a carbon-neutral industry transition.
Dr. Ngozi Okonjo-Iweala and Mr Karsten Sach
The session presided over by Laura Tuck, Vice President of Sustainable Development at the World Bank and Gerard Mestrallet, co-chair of the CPLC High-Level Assembly and Honorary Chairman of Engie and Suez, provided an opportunity to leaders from governments and businesses to share their views and ideas on how to accelerate the use of carbon pricing. To kickstart the dialogue, four scene-setter statements were provided by Dr. Karsten Sach, Germany, Dr. Okonjo Iweala, Former Finance Minister of Nigeria and Co-Chair of the Global Commission on the Economy and Climate, Mr. Maesela Kekana, Chief Director International Climate Change Relations and Negotiations and Mr. Feike Sijbesma, CEO and Chairman of Royal DSM.
Karsten Sach, provided details on Germany’s latest announcement of implementing carbon pricing in the non-ETS sectors of transport and households. He noted that carbon pricing will be key to the achievement of carbon neutrality by 2050 and that for this to happen, it must be fair, smartly designed, and one that addresses the interest of low-income households. Further, well-organized and continuous stakeholder engagement, and international cooperation is key.
Dr. Ngozi Okonjo-Iweala, focused her remarks on how developing countries, and in particular African countries can use carbon pricing as a powerful vehicle for delivering social and economic priorities, including driving renewables, using revenues for resilient infrastructure, and creating the right conditions for investments and finance. While carbon pricing makes sense, it has been politically difficult to implement – and it is important for governments to work with both “winners and losers”, a point emphasized by several other speakers. She underscored the importance of international cooperation noting that developing countries cannot do this alone.
Noting that South Africa implemented a carbon tax that came into force in June 2019, Mr. Maesela John Mekana, emphasized the central role that such instrument can play in contributing to sustainable development. In addition to driving higher climate ambition, carbon pricing revenues can be generated for use in adaptation finance, job growth, poverty eradication, but most importantly, for a fossil-dependent country like South Africa, to be able to support a just transition. Key lessons that South Africa has learnt in its journey so far include the importance of inclusivity and engaging in a dialogue with all stakeholders involved.
Feike Sijbesma, CEO and Chairman of Royal DSM highlighted the newly released Report of the High-Level Commission on Carbon Pricing and Competitiveness. The key point he made is that while competitiveness might be an issue for EITE sectors, it can be managed and should not be a barrier for the uptake of carbon pricing policies. He noted that it was important to engage the private sector fully as they would be responsible for mobilizing 80% of the financial resources needed to support the climate transition.
In the open dialogue that followed, several of the speakers highlighted the need for a clear vision for carbon pricing implementation, including a roadmap and strategy to provide certainty and transparency to society and markets. Many of the speakers emphasized the importance of eliminating contradictory policies and redesigning as needed to align with decarbonization pathways. The use of revenues was also included in several interventions to demonstrate ways in which we can tax carbon and not people. There are different ways to accomplish this, Portugal, for example, is using carbon revenues to fund monthly public transport tickets.
The discussions also touched on the importance of thinking about carbon pricing in the context of sustainable development. As countries look for ways to grow, create jobs and opportunities for their citizens, considerations for a just transition must be taken for fossil fuel intensive economies. Carbon pricing could be used as a tool to, along with other policies, stimulate innovation, diversification, and investment at the pace and scale we need. Policies should be designed to protect the economic and business competitiveness for EITE but set a strong price signal that drives innovation. International cooperation can play a critical role in helping to meaningfully transform and ensure that countries are learning from past experiences.
Designing carbon pricing policies is a complex process and more high-quality research by public agencies and private sector is necessary. To support developing countries as they develop this capacity, jurisdictions should involve universities and other research organizations. Only with strong leadership from the highest levels we will be able to coordinate within and among governments, multilateral initiatives such as the Coalition for Finance Minister, the CPLC and other like as ICAP, to ensure coherence and realize the potential of carbon pricing.
Several private sector stakeholders provided their insights on carbon pricing. Sasol highlighted the importance of bringing the views of companies from developing country to the debate. As industries ready themselves for a low-carbon future, it is becoming increasingly important that there is a clear vision of the path forward, created jointly by governments and private sector, on the role carbon pricing plays.
Businesses from the oil and gas sector emphasized that companies thrive in a carbon regulated environment, for example, Equinor pays about 700 million dollars a year and remains a profitable company. Shell highlighted the importance of engaging in deep technical dialogues with stakeholders including on rules around trading, use of revenues, and the role that market linkages will play going forward. Yes Bank discussed the importance of taking a targeted approach, and the critical need for estimating and accounting financed emissions to integrate carbon price to its lending. However, lack of data remains a key challenge, and standardized tools and methodologies to establish emission reductions must be developed at a portfolio level. SSAB discussed how carbon pricing has played a key role in innovation, specifically in developing HYBRIT technology (fossil-free steel) and called for efforts to advance national and regional efforts to price carbon and motivate industries to transform rather than wait for a global price.
These examples resonated well with the Report of the High-Level Commission on Carbon Pricing and Competitiveness, outlined by Lord Nicholas Stern who argued that carbon pricing, when implemented with complementary policies, is a story of discovery, innovation, efficiency, investment and growth, allowing jurisdictions to generate revenues that can address social and economic priorities.
The need to bridge the gap in the discourse and action on carbon pricing between the national and local levels was raised. The role and potential of local authorities and governments should be considered given their central role in enabling actions that translate climate policies, including those on carbon prices.
Mr. Juergen Voegele, Climate Change Director of the World Bank
