LONDON/WASHINGTON DC, 21 April – A bold new global goal for expanding carbon pricing around the world, announced today by the High-Level Carbon Pricing Panel, will require new policies – but could be accomplished through multiple scenarios, an analysis from Environmental Defense Fund (EDF) and the International Emissions Trading Association (IETA) shows.
In its Vision Statement released today, the Carbon Pricing Panel – convened by the heads of the World Bank Group and International Monetary Fund – called for efforts to double the share of global greenhouse gas emissions covered by carbon pricing by 2020, and double coverage again within the next decade. The Panel – featuring the leaders of Canada, Chile, Ethiopia, France, Germany, and Mexico, along with California, Rio de Janeiro, and the OECD – committed to pursuing actions to broaden, deepen, and enhance cooperation among carbon pricing systems around the world in support of the goal.
“The leaders that have joined the Carbon Pricing Panel understand that the world must go further, faster to turn the corner on global emissions and to meet the goals of the Paris Agreement – and that putting a price on carbon is central to realizing that vision. Simply put, market-based policies make it possible for countries not only to meet the targets they announced prior to Paris, but to go beyond them – to cut climate pollution at the scale and pace the science demands,” says EDF President Fred Krupp.
“As the vision statement recognizes, to realize the full promise and potential of carbon pricing, we need to broaden it into new jurisdictions, deepen it where it already exists, and connect systems over time. The Paris Agreement gave countries all they needed to move ahead and cooperate through markets. Now the diverse leaders of the Carbon Pricing Panel have supplied a roadmap for action, a milestone to measure our progress – and a commitment that they will lead the way,” Krupp says.
Putting a price on carbon, through policies such as an emissions trading system (ETS) or a carbon tax, can be an attractive tool for countries to implement the emissions reductions targets they pledged in the lead-up to December’s Paris climate talks.
“The Panel’s visionary leadership is exactly what is needed if we are to achieve the goals set out in the Paris Agreement,” says Dirk Forrister, IETA’s President and CEO. “Carbon pricing is key to enabling nations to proceed with confidence – and in turn could significantly increase ambitions. Already, 90 governments have indicated their interest in using international and domestic markets to fulfil their pledges under the Paris Agreement.”
“The Panel’s goals are ambitious, but achievable – especially if business responds constructively,” Forrister adds. “We pledge to do our part by helping to build business coalitions in support of carbon pricing policies that harness market forces to address the climate challenge. We also plan to support international market linkages that can drive down costs and enable greater ambition over time.”
The EDF-IETA report, “Doubling Down on Carbon Pricing: Laying the Foundation for Greater Ambition”, illustrates a number of possible routes for achieving the dramatic expansion of carbon pricing envisioned by the Panel. The report presents four scenarios for meeting both of the Panel’s targets, to increase carbon pricing coverage from the current level of 12% of global emissions to 25% in 2020, and doubling to 50% coverage in the next decade. The scenarios show that the Panel’s goals are ambitious, in the sense that they will require action beyond what is currently anticipated — especially to reach the 50% goal. At the same time, the report finds that the goals are achievable, given the existence of multiple plausible scenarios to meet them.
Carbon pricing creates a powerful economic incentive to reduce emissions at the lowest possible cost, generating momentum and impetus for more ambitious climate action. As a result, carbon pricing can play a critical role in meeting the objectives of the Paris Agreement by helping countries to implement their targets and cut emissions even more in the future. Nonetheless, simply expanding the coverage of carbon pricing will not meet long-run climate goals: the underlying policies must be sufficiently ambitious. The ultimate test of any climate policy is the emissions reductions it achieves.
A 14 April report, also by EDF and IETA, found countries see great potential in carbon pricing as a tool, and can surpass their Paris pledges by carbon pricing through carbon markets. In fact, 90 countries included some mention of market-based policies in their pledges.
EDF and IETA are partners of the Carbon Pricing Leadership Coalition. The Coalition brings together leaders from across government, the private sector and civil society to share experience working with carbon pricing and to expand the evidence base for the most effective carbon pricing systems and policies.