New World Order for Carbon Pricing
Nigel Topping
The Paris agreement sent a clear signal for business to expect carbon pricing to become one of the policies to achieve bold action on climate change. The French government made clear that the negotiated text was only part of the successful outcome. Powerful contributions came from the ambitious action plans submitted to the Summit that cover 187 nations and by businesses, investors, cities and regions.
Taken together, the Paris text and action plans demonstrate the inexorable rise of carbon pricing as key to decarbonizing the global economy. Ninety nations submitted action plans including market mechanisms for carbon pricing to the Paris conference. As President Francois Hollande noted, policies in effect in the G20 group of major economies mean that 90% of the global economy will be covered by a carbon pricing system by 2018. More than 1,000 companies are implementing carbon pricing as part of their action on climate change, according to the not-for-profit CDP. The final agreement recognized the importance of incentives to cut emissions through carbon pricing and other policies among companies, and regional, state, and local governments.
The entire We Mean Business coalition (BSR, CDP, Ceres, The B Team, The Climate Group, The Prince of Wales’s Corporate Leaders Group, and WBCSD) lauds this effort to strengthen the price signals giving companies and investors the certainty they need to invest and innovate to drive the transition to the clean-energy economy. Business asked for this outcome from Paris, and Paris delivered.
Paris launched an initiative to define a ‘corridor’ for increasing carbon prices, with We Mean Business and CDP forming an expert panel to set the actual price range at regular intervals. Building on the existing Carbon Pricing pathways project and the work of the Canfin-Grandjean Commission on Climate Finance, the future carbon pricing corridor will be published at the World Bank meetings in April 2016.
Paris also catalyzed support for ending fossil fuel subsidies, which the International Energy Agency estimated at $548bn per year in 2013. The Friends of Fossil Fuel Subsidies Reform, led by The Prince of Wales’s Corporate Leaders Group, presented a communiqué from close to 40 governments, hundreds of businesses and influential international organizations, urging a phase out of fossil fuel subsidies. And the summit also established a transparent system for carbon price accounting, to avoid double-counting of emissions saved.
The heads of France, Germany, Chile, Mexico and other nations backed the Carbon Pricing Leadership Coalition. The coalition includes 16 nations, many regional governments (including five Canadian provinces and the state of California), as well as many multinational companies and NGOs with expertise in carbon pricing. Prime Minister Justin Trudeau of Canada, who also backed the coalition, won last month’s federal election in part on an election pledge to institute a national carbon pricing plan.
Movement toward carbon pricing is inevitable, noted Hollande, and nations do not need the same carbon price or pricing mechanism to cut their emissions. China and Chile are instituting national systems and France plans to increase its domestic fossil-fuel tax, to 100 euros per metric ton in 2030, from 22 euros per metric ton next year. There was already strong momentum for carbon pricing headed into Paris, with 40 nations and 23 states, cities, and regions having adopted carbon taxes or cap-and-trade systems. We can expect many more to do so in the next few years.
World Bank President Jim Yong Kim called the momentum behind carbon pricing “a dream come true.” He believes carbon pricing is the “most direct and certain path to zero net carbon emissions” before the end of the century, necessary to combat climate change pushing an additional 100 million people into poverty. “The goal is to gradually set a sufficiently high price around the world to encourage better behavior,” he said.
We should not underestimate what was achieved in Paris simply because it did not impose a single, global price on carbon. The meeting supercharged the global momentum behind carbon pricing, led to binding national commitments and gave us the framework for collaboration and accounting to expand and converge these systems over time. This progress was made possible precisely because nations voluntarily committed to cutting emissions in ways that worked best for each.