World leaders set ambitious targets for global carbon pricing

21 April 2016

Ben Lake

Major world leaders are calling for an expansion of carbon pricing to cover 25% of global emissions by 2020, double the current level with a further target of reaching 50% coverage within the next decade, according to a statement from the World Bank Group.

Those involved are all members of the Carbon Pricing Panel, convened by World Bank Group president Jim Yong Kim and head of the IMF Christine Lagarde.

It includes Canadian prime minister Justin Trudeau, Chilean president Michelle Bachelet, prime minister of Ethiopia Hailemariam Dessalegn, French president Francois Hollande, Germany's chancellor Angela Merkel and Mexico president Enrique Pena Nieto.

Carbon pricing involves charging those who emit carbon dioxide (CO2) for their emissions, the concept being that the emphasis is placed on those producing CO2 to limit or cut their own pollution levels.

Jim Yong Kim said, “There is a growing sense of inevitability about putting a price on carbon pollution.” He added: “A price on carbon pollution will be essential to help cut emissions and drive investments into innovation and cleaner technologies.”

There are two main types of carbon pricing. The Emissions Trading System (ETS) which caps the total level of greenhouse gas emissions and allows industries with low emissions to sell extra allowances, and the carbon tax which sets a price on carbon by defining a tax rate on greenhouse gas emissions or on the carbon content of fossil fuels.

The difference in carbon tax from the ETS is that the emission reduction outcome of a carbon tax is not pre-defined but the carbon price is.

The leaders insist that the quick and wide ranging adoption of global carbon pricing was vital to keep the Paris Climate conference commitment of holding the increase in the global average temperature to below 2°C above pre-industrial levels.  

In support of this statement Canada, Chile, Ethiopia, France, Germany, Mexico, California and Rio de Janeiro committed to take specific actions to strengthen and expand carbon pricing mechanisms.

Dessalegn said, “We should now follow up the Paris Agreement with adequate actions, national policies, investment schemes and regional and international initiatives and partnerships.”

Currently 40 countries, 23 cities, states and regions globally are using carbon pollution pricing schemes. This represents about 7bn tonnes of carbon dioxide and covers about 12% of global emissions.

The EU is a pioneer of the ETS and has the world’s largest system. There have been criticisms, however, that the ETS has increased energy prices, leading to the belief this system makes the EU less competitive.

A drive to bring a similar carbon pricing system worldwide may allow the EU to better able to compete with companies based outside the EU.

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