Carbon Pricing

World Bank / IMF Meetings Highlight Carbon Pricing as Climate Solution

By Shantanu Agrawal

The Carbon Pricing Leadership Coalition (CPLC) High-Level Assembly (HLA) was held alongside of the Spring Meetings of the World Bank Group and the International Monetary Fund (IMF) in Washington, DC, earlier this month. The CPLC is one of those unique, voluntary, multilevel, multilateral strategic partnerships of governments, intergovernmental agencies, businesses and civil society organizations (CSOs). Its aim is to galvanize and mobilize a climate policy that makes other climate solutions to the climate crisis easier to achieve, and more cost effective: carbon pricing. As of November 2018, 46 national and 28 subnational jurisdictions were putting a price on carbon, thereby covering around 11 GtCO2 equivalent emissions representing about 20% of global greenhouse gas (GHG) emissions.

These conversations around carbon pricing are critical for creating an enabling environment for large-scale investment in climate solutions. According to the 2016 New Climate Economy Report, the world is expected to invest around US$90 trillion in infrastructure by 2030. Carbon pricing policies help to ensure everyday market prices reflect the true cost of burning carbon-emitting fuels. The right carbon pricing approach will positively influence financial investment decisions to account for interacting, compounding risks and prioritize climate-smart choices, sooner rather than later.

CPLC 4th Annual High Level Assembly

During the CPLC annual high level assembly, both Kristalina Georgieva (CEO of the World Bank Group) and Christine Lagarde (Managing Director of the IMF) stressed that unlocking the carbon pricing potential is critical for everyone’s future as it is the most effective way to provide sweeping and all-embracing incentives to be energy efficient and become carbon neutral by 2050. In May 2017, the report of the High-Level Commission on Carbon Prices concluded that in order to meet the Paris temperature target, a carbon price level of at least $40 to $80 per tonne of CO2 by 2020 and $50 to $100 per tCO2 by 2030 is required. But as of now, the global average carbon price is only $2 per tCO2, representing only a fraction of the required level of carbon pricing.

According to the 2018 New Climate Economy Report, fossil fuel subsidy reforms and carbon pricing alone can generate an estimated US$2.8 trillion in government revenues per year in 2030 – equivalent to the total GDP of India today. While it is absolutely clear that higher carbon price levels foster faster emissions reduction and faster low-carbon economy transition, stakeholder engagement and capacity building will be critical to bolstering the needed public support.

The Case for Internal Carbon Pricing

While governments around the world are slowly trying to come around the idea that carbon pricing—either through an emissions trading system (ETS) or through carbon fee/tax system—is actually good for the economy in the long run, the optimal pathway to consolidated nationwide climate policy structures remain, for many, unclear. But then here’s the thing: you don’t need a policy to tell you to do the right thing.

The private sector has started to implement and further spread the idea of internal carbon pricing. It begins with placing an actual or shadow monetary value on GHG emissions and factoring that cost into investment decisions, business operations and general management decisions. Internal carbon pricing is being increasingly used as a tool to help companies manage low-carbon energy transitions and manage climate-related business risks. Per CDP, in 2017, almost 1400 companies were factoring an internal carbon price into their business plans, representing an 8-fold increase over 4 years. Internal carbon pricing makes perfect sense because:

  • It reveals the hidden costs and climate associated risks, including those in the supply chain.
  • It incentivizes accounting for the external returns on investments besides traditional return on investments metrics.
  • Improves the business case for emissions reduction targets and climate-smart investments.
  • Provides a first mover advantage and helps in assessing the impacts of upcoming climate policies on business models, thus avoiding creation of stranded assets.
  • It furthers the case for exemplary corporate social responsibility by a company and also engages the employees in meaningful climate change dialogues.

Carbon Fee and Dividend based Policy is EQUAL to Capacity Building and more

Engaged stakeholder participation is quintessential for success of any climate policy. The term ‘stakeholder’ does not only allude to governments, business and CSOs who are lobbying and formulating climate policies, but it also includes that common person who has no idea what climate change is and yet, he is at the forefront of facing its most severe repercussions. The people who are most affected by climate change are often the ones who are least dependent on carbon emissions, simply because they don’t have access to those energy resources at all. So, in order to channel that political will of stakeholders for enhanced climate action, they need to be a part of the dialogue and solution.

Climate policies and bills like the Energy Innovation and Carbon Dividend Act, a bipartisan bill presently in the US House of Representatives with 32 co-sponsors as of April 22nd 2019, are championing the idea of brilliant stakeholder engagement while driving down carbon emissions in line with the Paris Agreement targets. By returning the fees collected on carbon emissions to all American households on an equal basis, it basically aims to stimulate increased public participation through climate-smart spending, creation of millions of jobs, and most importantly, enhanced capacity building and public participation in the climate-smart future. A dividend would weave together the scattered, unheard and unknown voices of the common public and channel it to provide the political backing for a strong, climate-smart, climate-action policy.

Shantanu Agrawal is a Resilience Intelligence Fellow for Citizens’ Climate Education and a volunteer with Citizens’ Climate Lobby’s Chicago North Chapter.