Carbon pricing – and the consequent elimination of fossil fuel subsidies – would have the immediate effect of discouraging investment in environmentally damaging assets and polluting activities in favor of renewable energy sources and other clean technologies. In a context where solar and wind power have already become the lowest cost sources of power generation in many parts of the world, putting a price on each ton of carbon emitted would enable renewables to compete for investment on a level playing field in which the full environmental impact of carbon-intensive investments would be clear.
To help raise awareness of the issue and stimulate wider debate about how to price carbon emissions in a way that creates win-win solutions, the Global Solar Council today announced it has joined Worldwide Carbon Price as a founding member. The two organizations held a webinar with international experts and economists explaining why this is the perfect time to expand carbon pricing in the world, how such systems might work and the benefits to fiscal regimes, trade, investment as well as climate policy.
“The Global Solar Council is taking the initiative in launching a global dialogue on carbon pricing because it would be a transformative measure towards accelerating global decarbonization efforts and the rapid adoption of solar energy,” said Gianni Chianetta, CEO, Global Solar Council, and President, Worldwide Carbon Price. “We call upon all those in the renewable energy industry, environmental associations and other relevant stakeholders in joining WCP and supporting the adoption of carbon pricing policies at a global level in the run-up to the COP26 climate summit in November.”
While some carbon pricing initiatives already exist, over half (55%) of emissions in OECD and G20 countries are completely unpriced, according to the OECD, and 90% are not priced at a level that reflects a low-end estimate of their climate costs at around EUR 30 per metric ton of CO2. At the same time, putting a global price on carbon emissions presents a unique solution for overcoming post-pandemic fiscal stress and boosting the transition to green technologies.
“Carbon pricing is more than good climate policy,” commented Jonas Teusch, Economist, OECD Centre for Tax Policy and Administration. “In addition to incentivizing cost-effective emission reductions, carbon pricing helps to tackle local pollution and mobilizes domestic revenues needed to finance vital government services. Revenues from carbon pricing could be used to provide targeted support to improve energy access and affordability, enhance social safety nets, and support other economic and social priorities.”
Worldwide Carbon Price, a non-profit association based in Bruxelles, is promoting discussion based on a position that any carbon tax should be progressively introduced in all sectors not currently covered by other carbon pricing mechanisms but that any such policy should generate zero net additional overall tax revenue. Carbon taxes, moreover, should be accompanied by measures that allow individuals and companies keen to change their behavior to get economic advantage from doing so in the near term. Carbon taxes should also be introduced as homogeneously among countries as possible. All these points are key elements in ensuring a “just” energy transition.
Although many countries have introduced carbon pricing mechanisms, factoring in fossil fuel subsidies mean that net carbon prices are currently negative, globally, said Paul Ekins, Professor of Resources and Environmental Policy and Director of the UCL Institute for Sustainable Resources, University College London. Putting a price on carbon presents the most efficient way of reducing carbon emissions.
“In many countries solar electricity is cheaper than the alternatives – and will become cheaper still,” Professor Ekins commented. “Carbon pricing will signal this to investors and prevent investments into high-carbon fuels or assets that will become stranded.”
In the European Union, the emissions trading system (ETS) covers around 40% of the EU's greenhouse gas emissions. Reforms to the free allocation mechanism have helped lift prices from about €10 per metric ton of carbon to about €40 recently. The European Commission is looking to strengthen the system in light of the recently decided increase in the EU 2030 Greenhouse gas reduction target under the Green New Deal to at least 55% from 40%, by adjusting the existing ETS and possibly by extending ETS to sectors such as road transport and building heating.
“The EU-ETS already today generates lots of revenues and, if we extend it to these two sectors, we could potentially generate much more, which could be used in various ways to address social aspects,” said Hans Bergman, Head of Unit, ETS Policy Development & Auctioning, Directorate-General Climate Action, European Commission. “With its increased price and increased credibility from financial markets, the renewables market and all those who need carbon pricing to get better incentives for their investments, ETS works: it’s pricing out some fossil fuels in the short term and in the longer term helps investments in the right direction.”
Much of the current debate around carbon pricing is focusing on developments in the U.S. in light of the renewed attention given by President Joe Biden to climate policy. Carbon pricing proposals are facing political headwinds, however.
“The Senate is where climate policy will live or die,” said Marc Hafstead, Fellow and Director, Carbon Pricing Initiative, Resources for the Future. “While the Biden administration has not come out opposed to carbon pricing, it hasn’t come out fully embracing carbon pricing. It may be a piece of the climate policy puzzle but without the Biden administration making a clear declaration in favor it’s hard to see right now how it could the primary or only climate policy being passed at this time in the U.S.”
“CAN urges the world to reduce global carbon pollution from fossil fuels by 50% in this decade as suggested by science to avoid dangerous climate change impacting vulnerable communities and nature,” commented Dr Stephan Singer, Senior Climate Science and Global Energy Policy Advisor, Climate Action Network International. “CAN supports a full global move to 100% sustainable renewable energy by 2050 latest with solar power and wind being the crucial components. Solid national, sectoral carbon pricing and credible, ambitious CO2 emissions trading systems are fundamental contributors like other renewable energy financing and policy tools.”