By Sharon Atieno
There is need for a global price on carbon pollution if global warming is to be limited to 1.5 degrees, world leaders say at the twenty-sixth Conference of Parties (COP 26) event in Glasgow.
In his opening remarks during the round table on carbon pricing, Justin Trudaeu, Prime Minister Canada, said carbon pricing is one of the most powerful ways of reducing emissions and encouraging private sector and individual citizens to make smarter choices around reducing emissions.
He noted that strong carbon pricing which is well designed drives the burden of paying for climate action from the citizens to the private sector and supports citizens in encouraging them to make better choices.
Calling for a global standard on putting a price on pollution, Trudeau said, there are many approaches of putting a price on pollution but “what matters is to establish a principle of stringency and equity that makes sure everyone is pricing at the same level.”
“This will encourage innovations, giving a clear price signal to the private sector that making the right capital investment to transform lower emissions make sense,” he said, while also ensuring that those leading on pricing pollution don’t get unfairly penalized.
He urged governments to be more ambitious by tripling the global emissions covered by price on pollutions to 60% by 2030, from the current 20%.
Increase global average carbon prices
To make a dent on emissions in a meaningful way, Kristalina Georgieva, Chair and Managing Director of the International Monetary Fund (IMF), said there is need to move the global average carbon pricing from USD 3 to USD 75 and more.
To achieve this, Georgieva said the IMF is proposing to introduce an international carbon price floor. The floor will use a differentiated price depending on level of development with rich economies paying more than the middle and lower income economies.
“We would also like to build a tent that is bigger than tax and trade, and allow for a regulatory equivalency to a carbon price for those jurisdictions that are not possible today, to move forward,” she added, noting that the work to be done is creating equivalency of development and instrument to use.
With the EU planning to introduce a carbon boarder adjustment mechanism – will require people coming in with ‘dirty’ products to the EU market to pay a price as if they were in the emission trading system- to avoid carbon leakages, Georgieva said that boarder adjustment tax will be much less efficient than if all countries adopt a carbon price regime with equivalency that makes it work.
Carbon pricing is profitable
Ursula Von der Leyen, President of the European Commission, affirmed that carbon pricing is effective proven by their emission trading system.
“It helped us decouple growth from greenhouse gas emissions, so you can prosper while cutting emissions,” she said, noting that since 1990, the European Union has reduced emissions by 30% while growing by 60% through putting a carbon price in energy and industry sectors as from 2005.
Emissions in the two sectors was reduced by 45%, Von der Leyen stated, adding that the emission trading system contributed in surpassing their overall economic goal in 2020 from 20% to 31%.
She noted that the instrument on carbon pricing should be market driven, nurturing the business sector to find alternatives through innovation, cost-efficient and a socially fair design.
According to Stefan Lofven, Prime Minister Sweden, it is time to change the narrative from describing green transition as blurry, unachievable and worse economy to a movement towards “a better society not only when it comes to emission but also the economy.”
Affirming the statement, he said Sweden introduced carbon pricing in 1991 and since then emissions have reduced by at least 30% and the average growth is above 2% on average yearly.
“It does not hurt the economy but it requires that you do it in a slow way. You have to introduce and increase so people get adjusted to it,” Lofven said, adding that incentives and tough legislation is also crucial.
Fragmentation is an issue
Ngozi Okonjo-Iweala, Director-General, World Trade Organization (WTO) said that fragmentation of the carbon prices is an area of concern. There are 69 carbon pricing regimes in different countries and the businesses are finding these regimes difficult to navigate thus resulting in higher prices for consumers, she said.
Also, Okonjo-Iweala noted that some members of WTO have raised concerns that the regimes are disguised protectionism to prevent them from selling products abroad.
The fragmented carbon price regimes are challenging for developing countries and their businesses to navigate, she disclosed calling for a need to move to a global carbon price which is more transparent, fairer, easier to administer and manage as well as monitor.
She urged world leaders to task the WTO, IMF, the Organisation for Economic Co-operation and Development (OECD) and World Bank to work together to come up with approaches that will deliver the carbon price.
Emphasizing the need of inclusivity, Okonjo-Iweala said: “Developing countries need time, they need to be brought into the dialogue, their issues need to be respected and taken into account as we develop these systems.”