Carbon pricing readiness to action: The PMR story

Over the last decade, the Partnership for Market Readiness (PMR) has been the World Bank’s flagship technical assistance program on carbon pricing and carbon markets, supporting carbon pricing efforts in more than 20 countries. The PMR comes to an end in June, but support for carbon pricing will be very much alive. 

A new initiative launched earlier this year -- the Partnership for Market Implementation --  aims to support at least 10 countries to go to the next level and implement carbon pricing, and another 20 new countries to prepare for a carbon pricing. The experience gained through PMR will be invaluable as countries take these next steps. 

Some key highlights from the programs include mobilizing $125 million from 13 contributing partners - Australia, Denmark, Finland, Germany, Japan, Netherlands, Norway, Spain, Sweden, Switzerland, United Kingdom, United States, and the European Commission - to help developing countries design domestic carbon pricing instruments, conduct feasibility studies, invest in institutional frameworks, and develop Paris Agreement pledges. This also supported the training of more than 15,000 professionals in carbon pricing instruments such as emissions trading schemes, carbon taxes, and offset mechanisms; as well as the development of best-practice guidebooks on key topics, 40 analytical reports, and the annual State and Trends of Carbon Pricing report. 

"The PMR comes to an end in June, but support for carbon pricing will be very much alive."

Two independent evaluations found that the PMR is perhaps the most consequential global program supporting emerging economies and developing countries in preparing for and implementing carbon pricing.  It has also been recognized for its efforts supporting climate change mitigation actions and for socializing carbon pricing broadly in countries and among different stakeholders. 

Several key factors contributed to the program’s success:

• A non-prescriptive and non-political stance: The PMR emphasized a demand-driven approach, with countries determining the type and scope of activities for themselves.  
• Adapting to evolving conditions: The PMR’s initial emphasis on “market readiness” for carbon pricing became broader in scope.  For example, after the Paris Agreement, the program supported nationally determined contributions (NDCs) and related policy analyses to assess the role of carbon pricing in meeting NDC targets.   
• Adopting a true partnership model: In addition to the program’s implementing countries and donor partners, a variety of other stakeholders (e.g., technical partner countries, multilateral and UN agencies, private sector, academia, World Bank initiatives) were brought in, thus enriching the dialogue and country experiences.    
• Contributing to the broader policy dialogue: As part of their PMR engagement, countries such as Jordan, Costa Rica and Côte d'Ivoire developed robust analytical frameworks which have contributed to advancing climate policy and mitigation policy instruments that go beyond carbon pricing readiness.

Key challenges and lessons

Given that the PMR was the first program of its kind, there was a lot of “learning by doing.”  A key challenge was building domestic capacity in carbon pricing. Early challenges, along with evolving country and international policy environments, resulted in some delays and re-adjustments as some programs were operationalized.  

The process of selection, design and implementation of carbon pricing instruments was complex and driven by the local context – i.e., a country’s policy and institutional ecosystem, technical capacity of relevant stakeholders, and political willingness. A clear political mandate, with coordination between ministries and sectors, was therefore key, as was the selection of the right counterpart agency.

Additionally, countries need to identity a champion to drive the process. A strong advocate can help to embed carbon pricing into the broader policy framework and communicate the benefits and impacts of envisioned reforms.   

International knowledge exchanges and peer-to-peer learning can also act as catalysts for the successful design and uptake of carbon pricing initiatives.

"Given that the PMR was the first program of its kind, there was a lot of 'learning by doing.'"

PMR’s legacy and the future

A lot has happened on carbon pricing since the inception of PMR in 2011. According to the 2020 State and Trends of Carbon Pricing report, over 65 national and other jurisdictions have an active carbon pricing program or are in the process of establishing one. More than $45 billion was raised from carbon revenues in 2019.   

But to achieve the full mitigation potential of carbon markets and meet net zero targets, countries will continue to need support, both to prepare for and also implement carbon pricing instruments. As countries rebuild their economies in the wake of COVID-19, there is an opportunity to adopt low-carbon sustainable measures.  Carbon pricing could play an important role in putting countries on a sustainable path.  

There is also a lot to gain from the international knowledge-sharing and partnership approach pioneered by the PMR. The Partnership for Market Implementation, PMR’s successor initiative, will help countries move towards implementing carbon pricing as part of a larger decarbonization framework. Building on the solid foundation of PMR, learning from its best practices and lessons, are key to advancing this vital tool in delivering climate action.

A longer version of this blog was published under the same title as an article in IETA’s Greenhouse Gas Market Report 2020.