As global political and business leaders gathered in Washington for the annual Spring meetings, a group of CEOs, environmental ministers and the heads of both the World Bank and International Monetary Fund (IMF) met to review the work of the Carbon Pricing Leadership Coalition over the past year. As leaders discussed the progress made, one delegate summed up the conversation quite well: The pace of jurisdictions adopting or considering carbon pricing is accelerating, and companies will soon have nowhere to hide.
Carbon pricing: which countries are involved ?
As of May 1st, 42 national jurisdictions and 25 subnational jurisdictions have a carbon pricing initiative implemented or scheduled for implementation. Recent entries include South Africa, Columbia, Mexico Chile and Kazakhstan. Nations considering implementation include Brazil, Argentina, Canada and Turkey. This represents a major shift in climate action after the 2015 Paris climate accord, where all countries now have responsibilities and targets to meet.
What role is the private sector playing in carbon pricing implementation?
While direct carbon pricing was seen as a sensitive topic during the Paris negotiations, it has now gained strong momentum. Part of the reason for this shift may stem from the private sector’s view of carbon pricing as a predictable mechanism for transitioning to a low-carbon economy. The CPLC’s 2018 report shows that 11% more companies had adopted an internal carbon price in 2017over 2016 in anticipation of mandated pricing. The CDP reports that in 2017, 1,400 companies (including over 100 of the Global 500) are currently using or will implement an internal carbon price in the next two years. At the One Planet Summit in Paris in December 2017, over 50 business leaders stood with a unified voice for carbon pricing and a global group of CEOs at the World Economic Forum also called for pricing carbon.
How should we use carbon pricing mechanisms ?
Several of the delegates were eager to point to innovative ways that revenues from a carbon price can be used. While some jurisdictions have proposed revenue-neutral prices, one delegate pointed to Colombia’s new carbon tax as an innovative approach which is showing early signs of success. The tax was included as part of a national tax reform and allows companies to meet their targets through the tax system or through the purchase of voluntary carbon offsets. The revenues from the tax are also being used to protect forests and invest in rural communities – a key part of the recent peace agreement. The French delegate also reiterated the need to use any revenues to assist the most affected industries and communities. All parties at the table echoed the need to communicate broadly on success stories, and especially for ways to convince governments, businesses and the public on the potential benefits of carbon pricing.
Carbon pricing: what’s next ?
IMF Chief Ms. Christine Lagarde announced that the institution would release a paper in the fall examining effective systems. She called carbon pricing “essential” to meet the Paris goals, and suggested that substantially higher prices than exist today are needed by 2030. She emphasized that while these policies are heterogenous and difficult to compare, we can examine them based on their effectiveness to reduce emissions which is likely rooted in their complementarity with infrastructure investment and tax reform.
While carbon pricing is advancing quickly, many more need to be convinced of how the mechanisms work: current pricing commitments cover only 14.6% of global emissions. The CPLC will focus its efforts over the next year to broaden and deepen understanding of carbon pricing, with the goals to have 25% of global emissions under a carbon pricing regime by 2020, and 50% by 2028.
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