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Pension fund CEO: Pricing carbon fixes a market failure

Philippe Desfossés's picture
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Philippe Desfossés is the CEO of ERAFP, the French Public Service Additional Pension Scheme. He spoke about carbon pricing from an investor's perspective.

“I support putting a price on carbon because it fixes a market failure. Without carbon pricing, the market has no way to address the costs associated carbon emissions. These costs end up being borne by everyone, including companies and societies.

This is why the IIGCC has been engaging policymakers on a strong and stable price. With a carbon price in place, the market redirects investments. When conventional fuel carries an appropriate price for its emissions, low-carbon and renewable energies are able to compete over time on an increasingly level footing, making it more attractive as an investment. And new energy investment fuels innovation, creates jobs and drives growth.

But to ensure carbon pricing works effectively to reduce emissions and stimulate investment, it must deliver a strong price signal. A weak price without long-term certainty hampers low-carbon investment.

As well as helping deliver investment in low-carbon energy projects, a stable and robust carbon price provides investors with a clearer view of the economic costs and the future risk of holding carbon-intensive assets. A carbon price therefore provides investors with an incentive to pursue other low-carbon activities, such as tilting portfolios away from high-carbon investment.

Carbon pricing is the most cost-effective way of reducing emissions and directing investment away from high-carbon to low-carbon energy projects.

But to be effective, the price must be meaningful. Nevertheless, we can already kick-start the transition, which is the reason why ERAFP has released the carbon footprint of its equities portfolio. It shows that by implementing its best-in-class policy, ERAFP has reduced its carbon intensity by 19 percent compared to its benchmark.

To go one step further, ERAFP is about to decarbonize a $1 billion euro equities portfolio by adding an active carbon filter to its current best-in-class filter.”

Comments

Submitted by Yoshi Nishimura on

I totally agree with this gentleman. Question is when and how such robust, stable and meaningful carbon price will be provided to the satisfaction of all those business leaders.

Carbon pricing within a jurisdiction is not efficient. Carbon pricing must be globally done for it to function as a tool to redirect energy investment. We have been proposing an upstream global carbon market(as below) which we believe is capable to stop global warming before 2C most cost-effectively. We would look forward to starting a new discussions with an aim to establish carbon pricing system that would satisfy well-intended business leaders like M. Phillipe Desfosses.

“A new market-based climate change solution achieving 2°C and equity”
onlinelibrary.wiley.com/doi/10.1002/wene.131/abstract

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