A Call for Countries & Companies to Support a Price on Carbon

The debate over carbon pricing has shifted, with the focus moving from whether to have carbon pricing to how to put an effective price on carbon. The change comes in the face of scientific warnings, clear evidence of countries acting to spur low-carbon development, companies moving to develop business strategies for a carbon-constrained world, and a groundswell of interest in how to use economic policy and business planning to transition to low-carbon and resilient development.

In the run-up to the UN Secretary-General's Climate Summit in September, the World Bank Group, together with other partners, is calling for countries and companies to get behind this effort and support a proposed statement that will demonstrate the global support and action toward pricing carbon that is necessary to tackle climate change.

“We are encouraging countries, sub-national jurisdictions, and companies to join a growing coalition of first movers to support putting a price on carbon,” said Rachel Kyte, World Bank Group vice president and special envoy for climate change. “A carbon price provides a necessary signal for investment in low-carbon and resilient growth and, regardless of the mechanism used, should be part of any package of policies to scale up mitigation.” 

Kyte was speaking at a session on carbon pricing during the Abu Dhabi Ascent, a preparatory meeting for the UN Secretary-General’s Climate Summit, to be held in New York on Sept. 23. Together with senior representatives from China, Morocco, the European Commission, European Investment Bank, IKEA, the Carbon Disclosure Project and the International Emissions Trading Association, she drew attention to a proposed public statement that reflects a sense of urgency and inevitably for carbon pricing.

Public and private sector leaders are invited to support the proposed statement, which could be released at the UN Summit. In the statement, they agree to work together toward the long-term goal of a carbon price applied throughout the global economy by:

• Strengthening carbon pricing policies to redirect investment commensurate with the scale of the climate challenge;

• Bringing forward and strengthening the implementation of existing carbon pricing policies to better manage investment risks and opportunities; and

• Enhancing cooperation to share information, expertise and lessons learned on developing and implementing carbon pricing through various “readiness” platforms.

A carbon price can be achieved through markets or taxes, and different instruments will be appropriate in different countries for different sectors of the economy. Market-based mechanisms are likely to deliver large-scale emission reductions more efficiently and quickly. 

The good news is that a growing number of countries, provinces, and cities are already designing carbon pricing solutions. 

About 40 national and 20 sub-national jurisdictions have adopted emissions trading schemes or carbon taxes, with Chile most recently announcing plans for a carbon tax. Together, these countries and regions account for 22 percent of global emissions. Many more are developing systems that will put a price on carbon. Altogether, these actions will encompass almost half of global CO₂ emissions.  

At the same time, the private sector is responding. Many companies are already operating in countries that have a carbon pricing system in place and are developing expertise in both managing their emissions and incorporating a real or shadow carbon price in their planning and investments. Others have called for a price on carbon.

According to the investor group Ceres, 96 of the combined 173 companies in the Fortune 100 and Global 100 have gone further to set voluntary greenhouse gas reduction targets, leading them to accelerate their investment in energy efficiency, renewable energy and sustainable forestry.

Last month, World Bank Group President Jim Yong Kim urged governments to take on the issue of carbon pricing as they develop solutions equal to the challenges created by climate change.  

“Taking action now will not only solve the problems of protecting the planet, but it will be a tremendous boost for economies,” President Kim told the press before a closed-door meeting with finance ministers. Despite the fact that it is controversial, we have to tackle the issue of carbon pricing.  Some countries are working very hard on this; others know that it is a direction that we have to go.”