This weekend, the leaders of the G7 committed to a series of actions that mark their first serious recognition of the economic transformation that is ahead of us.
Collectively, they recognized the need to decarbonize the global economy, enshrining in economic cooperation what the scientists in the IPCC told us last year in their Fifth Assessment Report. They called for ambition at the Paris climate talks this year – not new, but they recognized that they, individually and collectively, need to be in the upper part of the ambition bracket and that that means at least a “transformation of the energy sector by 2050.”
They talked about the mobilization of capital for this transformation, as well as ending the increasingly profligate use of harmful fossil fuel subsidies. Recognizing the need for an orderly transition to low-carbon growth as quickly and as smoothly as possible, they took on some degree of leadership around the pledge to provide $100 billion in climate finance for developing countries from public and private sources before 2020. More on that in a moment.
Over the past two weeks, hundreds of global business and government leaders meeting in Paris and Barcelona demonstrated the growing support for ambitious climate policies.
At the Business & Climate Summit in Paris, François Hollande, the president of France, echoed a key message from the private sector in his keynote address, saying, “Carbon pricing is essential to move to a low-carbon economy.” Business leaders repeatedly asked governments to put a price on carbon to enable them to scale up investment in low-carbon solutions. Eldar Saetre, chief executive of Norway’s Statoil described a carbon price as “the single most efficient measure.”
The messages carried into Barcelona and Carbon Expo the following week, as market traders and officials from from multinational companies and governments discussed carbon pricing tools and options to finance a transition to sustainable economic growth. The Expo saw a 30 percent uptick in attendance this year, due in part to the growing interest in carbon pricing and the upcoming climate negotiations. The World Bank Group released its Carbon Pricing Watch, reporting that about 40 national and over 20 sub-national jurisdictions, representing almost a quarter of global greenhouse gas emissions, are now putting a price on carbon. Carbon pricing instruments have increased their coverage threefold in the past decade and now represent 7 gigatons of CO2.
A learning journey
With the growth of carbon pricing instruments and rising interest from the private sector, governments are increasingly learning from one another and experimenting with different carbon pricing solutions. Whether they use taxes or emissions trading systems, there is now an emerging evidence base of how to successfully price carbon. Three jurisdictions are leading the way: the European Union, California and China.
British Columbia Premier Christy Clark spoke at the World Bank Group about the effectiveness of her Canadian province's carbon tax and the role of subnational governments in setting policies that can address climate change.
"We’ve had a pure carbon tax for seven years in BC. It covers 72 percent of emissions in the province, so it is very broad. It is now at about 30 dollars a tonne. So we have seen it operating for a long time.
I don't know if we are unique in the world, but we are proud of the fact that we have taken 100 percent of the revenues that we have collected through the carbon tax, which is over 6 billion dollars, and we have invested that plus some in tax cuts.
Five months after the UN Climate Leadership Summit, with its unprecedented call to action for putting a price on carbon, low oil prices have provoked governments to look again at whether they have prices right and to consider how to exploit a golden opportunity to reset signals within their economies for lower-carbon growth.
Business leaders in closed-door and public sessions in Davos last month talked of the inevitability of effective prices on carbon and the need for an orderly transition to lower-carbon growth. There was a sense that business, not normally reticent when pointing out how policy can negatively affect operations, needs to use its voice to urge smart, early policy action on carbon pricing. The bottom line was that this price signal will be essential, if insufficient on its own, to steer economies closer to a pathway that can keep warming below 2 degrees Celsius.
The voices were CEOs, from all sectors of the economy and all regions of the world. They recognize the risks climate change poses to their supply chains and businesses.
Last week, we heard those arguments again as organizations that have come together since the summit into a Carbon Pricing Leadership Coalition (CPLC) met to assess progress and plan for 2015.
Three trends in the global financial market are converging to make sukuk, the Islamic financial instrument most similar to a conventional bond, a potentially viable form of finance for green investments: (1) banks are reluctant to finance infrastructure due to stricter capital requirements; (2) an increasing number of investors are interested in ‘environmentally sustainable investing’ (in other words, investing to promote activities seen as positive for the environment); and (3) the market for sukuk is growing significantly. While these three trends are distinct and not obviously related, taken together, they create a market opportunity for sukuk to be used as a tool to finance environmentally sustainable infrastructure projects.
The need for significant infrastructure spending is obvious in both developed and developing countries. From crumbling transportation infrastructure in the United States to inadequate power generation capacity in India, the evidence is clear that improving infrastructure is a global priority. At the same time, popular concern about climate change and the detrimental impact of increasing greenhouse gas emissions has also made improving infrastructure in an environmentally sustainable manner a priority.
By Jeff Swartz, Director of International Policy at the International Emissions Trading Association (IETA)
With carbon pricing policies emerging around the world and the recent show of public support for carbon pricing from 74 national governments and more than 1,000 businesses, one piece of the puzzle that needs to be solved is how to connect systems to create an international carbon pricing framework.
In the lead up to the Paris negotiations this December, governments from around the world – including China, South Africa and Russia – have signaled their willingness to apply a price on carbon, yet businesses and civil society know that we will not be able to move towards a fully functional low-carbon global economy by operating under a fragmented system of international carbon pricing policies. Furthermore, the IPCC’s verdict on the need to increase international cooperation on climate mitigation policies highlights the need for an international carbon pricing framework.
Barbara Buchner is senior director at the Climate Policy Initiative and lead author of the Global Landscape of Climate Finance reports.
In December 2015, countries will gather in Paris to finalize a new global agreement to tackle climate change. Decisions about how to unlock finance in support of developing countries’ low-carbon and climate-resilient development will be a central part of the talks, and understanding where the world stands in relation to these goals is a more urgent task than ever.
Climate Policy Initiative’s Global Landscape of Climate Finance 2014 offers a view of where and how climate finance is flowing, drawing together the most comprehensive information available about the scale, key actors, instruments, recipients, and uses of finance supporting climate change mitigation and adaptation outcomes.
This week in London, the Prince of Wales brought together representatives from government, the private sector, and civil society around the goal of protecting and restoring tropical forests. The gathering took stock of forest commitments made at the UN Secretary-General's Climate Summit last September and identified priority actions for 2015 – a critical year for advancing progress on the inseparable issues of development, poverty, and climate change.
With all eyes on a new climate agreement in Paris later this year, healthy forests and landscapes are seen as critical to cutting greenhouse gas emissions to net zero before 2100. The key underlying question is how to best achieve a true transformation in how we manage our forest landscapes, which are still degrading at a rapid rate.
In the corridors and sessions at the UN climate talks in Lima over the past two weeks, there has been extraordinary power and energy. We’ve seen material action as the financial sector starts to transform how it thinks about long-term risk. Coalitions are working together on tax reform, regulatory reform, and putting a price on carbon, and country after county is saying that they have been able to clean up their regulatory framework and put themselves in a position to grow.