Paris will deliver on carbon pricing

Paris is not just about the governments negotiating: it’s a movement towards a decarbonized world, and COP21 has been an important global moment to focus us on expedient, efficient and effective means to reduce carbon.

What is different about COP21 that is different from other meetings is that it has brought to the table the voices of citizens, businesses, investors and sub-national governments who are demanding action, often underscoring how carbon pricing is an important lever for effectively cutting emissions.

Now is the time when governments must decide to get on board to make things easy, or if they will slow down this momentum. Accepting that carbon pricing is an effective policy instrument that countries can employ as they focus on implementing their climate pledges here in Paris sends clear, signals to the private sector that they should continue and expand investment energy efficiency and renewable technology projects.

1. Governments are preparing

While COP21 is not expected to produce a single, global carbon price, the negotiations themselves are spurring action on the issue. Countries have come to Paris with solutions.  More than half of the INDCs made prior to COP21 point to market mechanisms, such as a carbon price, as an important tool for reducing emissions. 

Currently 40 nations and 23 regional or local jurisdictions already have carbon pricing - including Mexico, India, the European Union and California – and many more are expected to emerge. China’s impending national cap-and-trade program, announced in September, means that other nations have fewer excuses for inaction.  China’s pledge has been the capstone of a series of commitments by nations, cities, companies and investors in the run-up to Paris.

2. Business and Investors are Increasing support

Global investment in clean energy increased to $270bn last year ($89bn from China and $51bn from the US) and was the first significant increase in three years even as the cost of renewable energy declined.

And here at COP21, we are starting to see that carbon pricing is the new norm, and we are seeing the early stages of fund mobilization through developments like the Breakthrough Energy Coalition, where high-profile business leaders have pledged to channel billions into clean energy innovation.

But much more investment is needed, and businesses are ready to commit if our policy leaders are ready to commit.

Businesses are asking policymakers to make carbon pricing a priority, with over 1,000 disclosing to CDP that they already place a price on carbon or plan to do so within two years.  They are also giving serious consideration to the level of price needed to drive the transformation to a low-carbon economy. 

Unilever said that a price of $15 or even $30 per tonne would not likely make a material difference to GHG emissions.  At a gathering of oil and gas companies yesterday, we heard that a price of at least $40 would be needed to trigger the shift from coal to gas-powered electricity. And at $125 per tonne, Acciona believes wind production could double.

3. Paris will deliver on carbon pricing

The Paris Summit has provided a stage for world governments, businesses, and investors to set the course for a future, low-carbon economy.The rising attractiveness of clean energy, an essential ingredient in that economic transition, will be an inevitable consequence of a commitment to price the act of emitting greenhouse gases. Paris will amplify the message that the world is moving toward meaningful and rising carbon prices, giving its supporters the certitude they need to shift to low-carbon energy and become leaders in combatting climate change.

The era of cost-less carbon emissions is over. 

New Guide to Help Your Company Put a Price on Carbon

Yesterday at a special event on the margins of COP21, Heads of State put the spotlight on carbon pricing as a necessary and effective measure to tackle the climate change challenge.  Together with a global agreement, a sufficient price for carbon will help create the necessary rules and market signals to limit warming to 2oC.

Already, more than 1,000 companies report that they are pricing carbon internally now, or will be by 2017.  We want all of them – and even more companies – to join the Carbon Pricing Leadership Coalition and align with the Business Leadership Criteria on Carbon Pricing led by the UN Global Compact together with UNEP, the UNFCCC secretariat and Caring for Climate partners.

To help companies put their carbon pricing commitments into action, yesterday the UN Global Compact and World Resources Institute, together with Caring for Climate partners, released the Executive Guide to Carbon Pricing Leadership.  The guide, which features insights from more than 100 companies from around the world, is designed for individuals who are now completing due diligence on carbon pricing of behalf of their companies.  

Through interviewing more than 15 companies, surveying nearly 100 and gathering input during an open consultation period this fall, the partners found that the top 5 reasons companies price carbon include:

1. Preparing for policies affecting the company’s operations or value chain;

2. Seeking to achieve ambitious GHG goals, such as science-based GHG targets;

3. Translating climate change into financial terms;

4. Responding to investor and customer demands; and

5. Learning, testing and showcasing effective carbon pricing approaches.

Practically, the research uncovered that companies tend to take one of three distinct approaches to price carbon: internal carbon taxes, fees or trading systems; shadow pricing; or implicit pricing. The guide outlines what each of these approaches means and features company case examples illustrating how businesses have put them into practice.

The guide also highlights the benefits and challenges companies face when they price carbon. Companies say the top benefit is that carbon pricing helps them to “translate carbon into business-relevant terms and engage internally.” At the same time, businesses most frequently citied “lack of common method or guidance to set a carbon price” as their biggest challenge – something this guide seeks to address.

As companies look to show climate leadership beyond COP21, being a carbon pricing champion presents clear opportunities. Leadership means calling for effective policy, including by urging governments to help create clarity for future planning or by engaging responsibly in policy dialogues through coalitions and trade groups.

For more information about how your company can put a price on carbon, download the Executive Guide to Carbon Pricing Leadership: A Caring for Climate Report.

Use of Carbon Pricing Revenues

Substantial revenues are being raised as a growing number of countries and regions are using carbon pricing mechanisms.

The ways revenues are used vary significantly between jurisdictions, and the range of potential future uses is even more wide-ranging. Revenues from carbon pricing appear likely to continue to increase around the world, and continuing debate will be needed about how these funds should best be used in future.

The full note from the Carbon Markets & Investment Association (CMIA) summarizes the revenues now being raised and briefly looks at some current and possible future uses. 

Note available for download here.