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Carbon Pricing – Delivering Economic & Climate Benefits

Thomas Kerr's picture

 TonyV3112/Shutterstock

A dangerously warming planet is not just an environmental challenge – it is a fundamental threat to efforts to end poverty, and it threatens to put prosperity out of the reach of millions of people.  Read the recent Fifth Assessment Report from the Intergovernmental Panel on Climate Change if you need further evidence.

If we agree it is an economic problem, what do we do about it?  There is general agreement among economists that a robust price on carbon is a key part of effective strategies to avert dangerous climate change. A strong price signal directs finance away from fossil fuels and toward a suite of cleaner, more efficient alternatives.

This logic is not lost on governments and companies.  Momentum is building around the globe to put a price on carbon.  Consider these facts:

Adding up the Local Benefits of Climate-Smart Development

Sameer Akbar's picture

Authors Sameer Akbar | Gary Kleiman

Adding Up the Benefits report


​When President Barack Obama announced that the United States would cut CO2 emissions from its coal power plants by 30 percent below 2005 levels by 2030, he didn’t just talk about climate change – he was equally forceful about the local benefits that the regulations could bring.  He stressed that those regulations would reduce pollutants that contribute to soot and smog by over 25 percent, reductions that could avoid up to 6,600 premature deaths and 150,000 asthma attacks in children; and that the regulations would build jobs, benefit the economy, and be good for the climate. 

According to the U.S. Environmental Protection Agency, the plan will cost up to $8.8 billion annually but bring climate and health benefits of up to $93 billion per year by 2030. The economic case for the proposed regulation speaks for itself.

Demonstrating the value of multiple benefits that result from many policies and projects can provide a compelling economic rationale for action. It can speak to broad constituencies, local and global, and demonstrate the climate-smart nature of good development. A new report prepared by the World Bank in partnership with the ClimateWorks Foundation – Climate Smart Development: Adding up the benefits of actions that help build prosperity, end poverty and combat climate change – sets out to do just that.

Carbon Bubbles & Stranded Assets

Vladimir Stenek's picture
Also available in: العربية | Español | 中文

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Packing an extraordinary amount of energy in little space, fossil fuels helped propel human development to levels undreamed of before the Industrial Revolution, from synthesizing fertilizers to powering space flight. But alongside energy, they produce health-damaging air pollutants and greenhouse gases.

Today, greenhouse gas emissions are higher than at any time in at least 800,000 years and rising, causing climate changes that threaten to reverse decades of development gains. Disruption of livelihoods, loss of food security, loss of marine and coastal ecosystems, breakdown of infrastructure, threats to global security: these are just a few of the risks identified in recent scientific reports.

In the absence of technology to permanently remove greenhouse gases and restore atmospheric concentration to safe levels, there is only one realistic solution: limiting additional emissions. It is estimated that to avoid the most damaging effects of climate change, over the next few decades we can at most emit a quantity equal to about 20 percent of total proven fossil fuel reserves.

Given fossil fuels’ omnipresence in our economies and lives, leaving them in the ground will have important implications, starting with the value of the very assets.

Racing to a Competitive Economy: China Pursues High GDP, Low-Carbon Growth

Xueman Wang's picture
Also available in: 中文

 Yang Aijun/World Bank

December 2009 does not seem so long ago. The UN climate conference in Copenhagen had just come to a disappointing end, and I headed home feeling depressed.  I returned to China for holiday and was surprised to see the widespread awareness of climate change and the collective sense of urgency for action. The concept of "low carbon" was discussed in all major and local newspapers. To my amazement, I even found an advertisement for a "low carbon" wedding. I finished my holiday and went back to Washington with optimism and hope: Despite the failings of Copenhagen, China, the biggest emitter in the world and the largest developing country, was going through a real transformational change. China clearly saw action on climate change as serving its own interest and as an opportunity to pursue a green growth model that decouples economic development from carbon emissions and resource dependence.

In the past five years, the world has witnessed the emergence of China as a leader for tackling climate change.  A few weeks ago, colleagues at the World Bank Group heard an evidenced-based presentation by Vice Chairman Xie Zhenhua from the National Development Reform Commission (NDRC) of China, who showed what China had done in the past, is doing now, and plans to do in the future. He shared his candid assessment of the challenges, mistakes, and lessons learned from China's experience.

China’s progress is impressive. Between 2005 and 2013, average economic growth has been above 8 percent while the country’s emissions intensity has decreased by 28.5 percent compared with 2005 levels. This equates to emissions reductions of 23 million tons of CO2. These reductions were achieved through massive closures of inefficient coal fire plants, aggressive energy efficiency programs, expanding the renewable energy program, and large investments in clean technology.

While these numbers are impressive, sustaining them will be harder. Over the last 10 years, China has targeted its "low-hanging fruit" for mitigation options. The challenge today is how China will sustain annual GDP growth of more than 7 percent while continuing to reduce its economy’s emissions intensity.

Putting A Price on Carbon: Nations Opt For Market-Based Solutions

Xueman Wang's picture

 Curt Carnemark/World Bank

Climate change is a threat to global development and to poverty alleviation. And yet, reducing greenhouse gas emissions is proving difficult because all players in an economy contribute to the problem. To make a difference, we must reduce our emissions in a coordinated manner.

This is no easy task. So where do we go from here?

One approach involves pricing the “externalities” that are contributing to climate change. Pricing externalities into the costs of production is nothing new. A classic textbook example is the paper mill that sits upstream from a fishing village.

Discharge from the mill pollutes the river, diminishing the fishermen’s catch. The mill freely uses the water of the river in its production of paper, but does not pay for the damage of the negative externality that it causes. To remedy the situation, regulations can be put in place to stop waste from going into the river – or the mill can pay a fine equivalent to the loss of the fishermen’s revenue.

The latter is an example of an externality priced into the cost of production. The same can be done to combat climate change.

In this case, carbon emissions are the externality that must be priced. Doing so provides a cost-effective and efficient means to drive down greenhouse gas emissions as the cost of such pollution goes up.

With an Eye Toward the Future: Building Resilience in a Changing World

Habiba Gitay's picture

 Chatchai Somwat/Shutterstock

Typhoon Haiyan, the Category 5 super storm that devastated parts of the Philippines and killed thousands late last year, continues to remind us, tragically, of how vulnerable we are to weather-related disasters.

As the images of destruction and desperation continue to circle the globe, we’re also reminded that those most at risk when natural disaster strikes are the world’s poor – people who have little money to help them recover and who lack food security, access to clean water, sanitation and health services.

Over the last year, as one major extreme weather event after another wreaked havoc and claimed lives in the developing world, terms such as "resilience" and "loss and damage" have become part and parcel of our efforts here at the World Bank Group – and for good reason.

Developing countries have been facing mounting losses from floods, storms and droughts. Looking ahead, it’s been estimated that up to 325 million extremely poor people could be living in the 49 most hazard-prone countries in 2030, the majority in South Asia and Sub-Saharan Africa.

These scenarios are not compatible with the World Bank Group’s goal to reduce extreme poverty to less than 3 percent by 2030, or with our goal to promote shared prosperity.

Celebrating Success, Ongoing Challenges, and Opportunities that face the Montreal Protocol

Karin Shepardson's picture

New air conditioning units manufactured in a factory.

Today (September 16) is International Ozone Day. This day offers the international community the opportunity to laud the achievements of the Montreal Protocol on Substances that Deplete the Ozone Layer. Since 1987, the Protocol has worked to reduce the production and consumption of ozone-depleting substances (ODS), man-made industrial chemicals that damage the earth’s ozone layer.

Yet, as has become clear over the past few years, International Ozone Day is about more than just successful ozone layer protection. Given that many substances that deplete the ozone layer also have global warming potential (GWP), the transition to the use of substances with lower or no GWP has contributed important climate co-benefits over the years. As a result, the Protocol’s agenda has increasingly focused on cross-cutting themes linked with climate mitigation and energy efficiency. From both ozone and climate perspectives, the Protocol is widely recognized as a success.

The World Bank–China Montreal Protocol partnership is a testament to this success. Over the past two decades, it has phased-out more than 219,000 tons of ozone depleting substances from sectors as varied as refrigeration, air-conditioning, foam manufacturing, aerosol production, and fire extinguishing. Since these substances have GWP, the phase-out also avoided the equivalent of 885 million tons of carbon dioxide (CO2) or having the effect of taking 184 million cars off the roads.

Domestic Carbon Markets Draw Attention at the Carbon Expo

Neeraj Prasad's picture

Mary Barton-Dock, director of the Climate Policy and Finance unit of the World Bank, welcomes the participants to the 10th Carbon Expo in Barcelona
Some 2000 visitors from more than 100 countries are leaving Barcelona today at the end of Carbon Expo. The meeting, now in its 10th year, got off to a great start on Wednesday with the director of the World Bank´s Climate Policy and Finance unit, Mary Barton-Dock, welcoming the participants, followed by stimulating opening remarks from Christiana Figueres, executive secretary of the UN Framework Convention on Climate Change (UNFCCC).

Figueres urged the audience to continue building carbon markets and not wait for policy perfections. She also encouraged participants to continue making the case for carbon markets to policy makers, who have committed to a global agreement on emissions by 2015. She emphasized the importance for the private sector to more loudly voice their willingness and ability to move to a low-carbon growth trajectory and compared the carbon market to a tree planted just a few years ago, not possibly imagining that today it would have sprouted 6,800 projects registered with the UNFCCC in 88 countries, representing 215 billion dollars of investment.

However, Figueres also acknowledged the importance of domestic initiatives that were putting a price on carbon, at a time when a global agreement continued to challenge policy makers.

China Phase-Out of Ozone Damaging Chemicals Brings Climate Benefits

Karin Shepardson's picture

A slew of air conditioning units in a building. - Photo: Shutterstock

Also available in Chinese

Last month, China was granted US$95 million to reduce its production of hydro-chlorofluorocarbons (HCFCs), substances that are used primarily for cooling, refrigeration, and the manufacture of foam products. The funding comes from the Multilateral Fund (MLF) of the Montreal Protocol, because HCFCs deplete the ozone layer and are controlled under the Protocol. With access to these funds, between now and 2015 China will reduce its production of HCFCs by 10%, or 47,000 metric tons from 2010 levels, allowing it to meet the first reduction targets set by the Protocol.

This alone is worth celebrating because China is the world's largest producer of HCFCs. Nearly 50% of its production is consumed by other developing countries, all of whom also face HCFC consumption reduction targets under the Protocol. Herein lies one secret to the Protocol’s success: its ability to regulate both production and consumption worldwide simultaneously, putting into practice an economist’s dream to tackle both supply and demand in tandem. By addressing the supply side of the problem through support to China’s production phase-out, the demand side - in China and in developing countries around the world - can build a sustainable HCFC consumption phase-out response. The ozone layer, and human and environmental health, will all be the better for it.

China Gets Ready for a New Carbon Era

Wang Shu's picture

 Rush hour traffic on a road in Beijing, China. - Photo: Shutterstock

Also available in Chinese

The 5th Assembly of the World Bank’s Partnership for Market Readiness (PMR) is coming to an end after rich and rewarding meetings in Washington DC this week. I had the opportunity to present China’s final Market Readiness Proposal (MRP) (pdf), or in more simple language, China’s proposal to build a national emission trading system (ETS). Together with China, the PMR also received proposals from Chile, Costa Rica and Mexico on their initiatives. (Also read: Can Carbon Taxes Be Effective?)

From the Chinese perspective, our MRP serves as a summary of the Government’s initial thoughts on how a domestic ETS would be established to cover the whole country. For this to happen, a lot of work needs to be done, and this proposal provides a framework and roadmap to guide us on our journey. We are expecting domestic and international institutions, experts and stakeholders from different levels to be involved in this design process. Above all, we hope to draw on the experience of existing carbon markets around the world as well as from the seven pilot ETSs - comprising five cities and two provinces - set to start this year in China. Facilitating continuous technical dialogues, PMR serves as a knowledge exchange platform for our team from China and all the participant countries. This is a unique and valuable experience. 

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