Putting a price on carbon, one jurisdiction at a time

This week, the World Bank Group released the latest version of our annual State and Trends of Carbon Pricing report. It reports that today,39 nations and 23 cities, states or regions are using a carbon price. 

​This represents the equivalent of about 7 billion tons of carbon dioxide, or 12 percent of annual global greenhouse gas emissions.

​China and the United States host the two largest national carbon pricing initiatives in terms of volume covered. Since 2011, China has been quietly - and successfully - running 7 regional carbon trading pilots in places like Beijing and Guangdong Province that cover the equivalent of 1 billion tons of CO2. 

And the government is putting the building blocks in place to knit these pilots together into a national ETS that may launch as early as next year.

In the US, programs in California and the Northeast cover the equivalent of half a billion tons of CO2. California’s ETS is now delivering 6.6% less climate pollution for every dollar of GDP as compared to 2009; a recent report on the Regional Greenhouse Gas Initiative showed the system found similar positive benefits, estimating that RGGI has generated $1.3 billion in economic benefits and 14,000 job-years in the last three years for its nine member states in the Northeast. 
 
And let’s not forget the world’s pioneer emissions trading system – the European Union’s ETS.  It is now sending a more stable signal to investors and businesses, due in part to the establishment of a Market Stability Reserve. 

The EU is not stopping there: this week, the European Commission announced an agreement with the Republic of Korea - currently the world’s third-largest carbon market - to explore linking their ETS in 2016. 
This follows last spring’s announcement by the Province of Ontario to launch their own ETS and link with Québec and California . 

Why is this happening?

There are a number of reasons we are seeing accelerating momentum to price carbon. 

First, with a global climate agreement on tap for the Paris Climate Summit in December, national governments are announcing their climate action plans. 
In addition to China, a number of jurisdictions - such as Korea, Switzerland and Norway - explicitly reference carbon pricing as important elements of their plans to decouple economic growth from growth in emissions. 

Second,governments are becoming more confident in designing and running effective carbon pricing systems.  

This is evident in the new FASTER Principles for Successful Carbon Pricing report issued this week by the World Bank Group and the OECD. 

These Principles capture the dynamic learning that we have seen over the past decade, and show that governments are building from one another’s success to develop a common set of elements that address key political challenges such as competitiveness, impact on the poor and productive use of revenues.

This body of evidence on well-designed and run carbon pricing systems is inspiring other jurisdictions to follow. 
Finally, business is moving beyond simple calls to “put a price on carbon” in two important ways. 
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First, they are preparing for carbon constraints by initiating internal carbon pricing systems. This week, CDP announced a nearly threefold jump in the number of global companies disclosing the use of an internal carbon price. 

The largest growth was in Asia, due in part to the growing use of ETS by China and Korea. 
Second, businesses are constructively engaging in dialogue with governments about how to design effective carbon pricing systems that they can support. 

​Last week, the World Bank Group hosted the inaugural Design Meeting for the Carbon Pricing Leadership Coalition. 

How can we take this to the next level?

The Carbon Pricing Leadership Coalition grew out of the movement to support carbon pricing seen at last year’s Climate Summit, involves more than eighty global businesses, governments and non-governmental organizations working together to advance effective carbon pricing around the world, one jurisdiction at a time. 

At last week’s meeting, Partners agreed to three key work pillars: 
 

1. Building a strong evidence base—through the Principles and other synthesis around key political issues that often prevent action on carbon pricing;
2. Mobilizing business support for carbon pricing, through corporate ‘readiness’ activities like the use of internal carbon pricing and policy advocacy;
3. Convening leadership dialogues globally and in key jurisdictions that need assistance in advancing their carbon pricing policies.  

The Carbon Pricing Leadership Coalition expects to finalize its Work Plan and governance in the coming month, and begin to host a series of Leadership Dialogues in key countries - with the first stop South Africa in November. 

The creation of this new international initiative will also send a clear signal leading up to and beyond the COP 21 Climate Conference in Paris this December: this signal is thatcarbon pricing is here to stay, and there is a growing set of leaders that are ready to work together  to raise our collective climate ambition through successful carbon pricing implementation for years to come.