CARBON PRICING LEADERSHIP REPORT 2018 |19 COPYRIGHT © 2019 International Bank for Reconstruction and Development/ The World Bank,1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. RIGHTS AND PERMISSIONS The material in this work is subject to copyright. 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The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a component of the work, it is your responsibility to determine whether permission is needed for that re-use and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. ACKNOWLEDGEMENTS THANK YOU T he Carbon Pricing Leadership Coalition (CPLC) is a voluntary partnership of national and sub-national governments, businesses, and civil society organizations aiming to expand the use of carbon pricing across the globe. The CPLC Secretariat is administered by The World Bank Group. This report acts as CPLC’s 2018/19 annual report, providing an update on CPLC’s activities over the last year. It also showcases articles from thought leaders to inspire and guide government and business leaders to increase their carbon pricing ambition. We owe a special thanks to our partners from across all spheres for their contributions to this report. The CPLC Secretariat team—including Angela Churie Kallhauge, Isabel Saldarriaga, Dominik Englert, Namrata Rastogi, Aditi Maheshwari, Ayesha Malik, Carlos Cordova, Smita Rana, and Celine Ramstein— provided further invaluable inputs, as did The World Bank’s Carbon Markets and Innovation Team. CPLC acknowledges the generous support provided by the Children’s Investment Fund Foundation, the government of the Netherlands and Germany, and The World Bank Group. The report was edited by Thomas Samuel Erb with the help of Clarity Editorial in Cape Town, South Africa. Graphic design by Clarity Editorial. ACRONYMS AND ABBREVIATIONS B.C. British Columbia BMU German Federal Ministry for the Environment, Nature Conservation, and Nuclear Safety CEBDS Brazilian Business Council for Sustainable Development CI-ACA Collaborative Instruments for Ambitious Climate Action CORSIA Carbon Offsetting and Reduction Scheme for International Aviation CPLC Carbon Pricing Leadership Coalition EBRD European Bank for Reconstruction and Development EDF Environmental Defense Fund ETS Emissions trading system EU European Union GDP Gross domestic product GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH ICAP International Carbon Action Partnership IETA International Emissions Trading Association IFC International Finance Corporation IMF International Monetary Fund IMO International Maritime Organization IPCC Intergovernmental Panel on Climate Change MEPC Marine Environment Protection Committee MO Mitigation outcomes NDC Nationally Determined Contribution PMR Partnership for Market Readiness TCFD Task Force on Climate-related Financial Disclosures UNFCCC United Nations Framework Convention on Climate Change WRI World Resources Institute Introduction CONTENTS Foreword 02 Executive Summary 08 Our Partners 10 Strategic Partnerships 57 International Emissions Trading 59 Association CPLC in 2018/19 14 The World Bank 59 About CPLC 15 Navigant 61 Our Structures and Leadership 15 Yale University and Second Nature 61 Our Work Plan 17 The George Washington University 62 Our Activities in 2018/19 18 The Environmental Defense Fund 62 CEBDS 64 Gold Standard 64 Governments and Regional International Carbon Action 64 Leadership 24 Partnership Perspectives Climate Group 28 Pembina Institute 65 Côte d’Ivoire 28 World Resources Institute 65 MÉXICO2 28 Carbon Trust Mexico 66 Belgium 31 Climate Markets and Investment 66 Association Italy 32 Shakti Sustainable Energy Foundation 66 ICF 33 Klimaatplein.com 67 International Emissions Trading 33 South Pole 67 Association Carbon Credit Solutions Inc. 34 Environmental Defense Fund 35 Québec 36 Carbon Pricing Research 69 European Union 36 New Climate Economy 70 Germany 38 Massachusetts Institute of 70 Technology Citizens’ Climate Lobby 40 Our Climate 41 The World Bank 71 I4CE 71 Private Sector 42 LafargeHolcim 45 Thought Leadership Dalmia Cement (Bharat) Limited 45 Now is the Time to Act 04 RUSAL 46 A Carbon Pricing Success Story 12 Saint-Gobain 46 Mahindra Group 46 Carbon Pricing and 13 Environmental Integrity: A Key Tata Group 47 to Climate Action Braskem 47 It’s Time to Fire Up the Collective 16 CPLC’s Banking Sector Task Team 48 Will on Carbon Pricing European Bank for Reconstruction 49 Q&A with Catherine McKenna 25 and Development International Finance Corporation 49 The Financial Case for 43 Carbon Pricing Ukrgasbank 50 Garanti Bank Construction: Seeking an Integrated 44 50 Approach to Carbon Pricing Ecosphere+ 51 Carbon Pricing on Campus: 58 Global Maritime Forum and 52 How Higher Education Can University College London Affect Public Policy EDP 53 Market Approaches Gain 72 EDF 54 Traction in Northeast Asia En+ Group 54 Youth leadership the Key to 73 Svebio 55 Successful Carbon Pricing Haga Initiative 55 Still Much Work to be Done 74 ALLCOT 56 EcoAct References 76 56 FOREWORD FOREWORD BY CHRISTINE LAGARDE MANAGING DIRECTOR, INTERNATIONAL MONETARY FUND C limate change is the greatest threat facing our planet. Accordingly, the efforts of the Carbon Pricing Leadership Coalition (CPLC) to promote dialogue and action on carbon pricing are of utmost importance. Our own message at the International Monetary Fund (IMF) continues to be: “Price it right, smart, and now.” Price it right, because carbon pricing is the most effective way to provide across-the-board incentives to conserve energy and switch to cleaner energy sources. Pricing also provides the essential signal for redirecting CARBON PRICING LEADERSHIP REPORT 2018/19 finance and private investment flows towards clean technologies, in the form of bank lending, project finance, and institutional and equity investing. Curbing fossil fuel combustion can also produce very large domestic environmental benefits, most importantly, reductions in deaths from exposure to local air pollution. But we need to be realistic about the immense In many countries, these benefits alone fully justify the challenges. The roadmap laid out by the landmark Paris economic costs of carbon pricing. Variations in pricing Agreement needs much strengthening and refining. Even can also address broader emissions sources, for example, if fully implemented, current mitigation pledges would from forestry, international transportation, extractive be consistent with allowing global temperatures to rise activities, and industrial processes. by 3°C by the end of this century, rather than the 1.5°C to 2°C target of the Paris Agreement. Pledges differ Price it smart means keeping it simple. For example, greatly in their ambition and there is substantial cross- most finance ministries routinely collect royalties or country dispersion in the emissions prices needed to excise taxes on fuel supply. Carbon charges can be implement them, implying potentially large benefits from readily incorporated into these. Smart also means international price coordination. And, despite numerous 02 making the most of the fiscal opportunities. For example, pricing initiatives at the national and sub-national level a carbon price of $70 per ton in 2030 would, on discussed in this report, the global average carbon price average, raise revenue of around 1% to 3% of gross is still only $2 per ton, a tiny fraction of what is needed domestic product (GDP). These revenues can be used for for meaningful action. lowering income and payroll taxes that distort economic activity, reducing debt, and financing the Sustainable So, how might we move forward in aligning carbon Development Goals, all of which will help to maintain pricing with the Paris goals? First, and this has been a growth as economies decarbonize. major focus at the International Monetary Fund, we need quantitative analysis of the emissions prices needed And price it now is important because we are running for countries to meet their mitigation pledges and of out of time. While 190 countries have submitted climate the resulting impacts on the economy, fiscal balances, strategies for the Paris Agreement, nearly all of them ordinary citizens, particularly vulnerable groups, and with mitigation commitments, we need meaningful tradeoffs with other instruments (such as emission progress on these commitments because the window rate standards). This information is needed to guide of opportunity for containing global warming to policy design, including the provision of assistance manageable levels is closing rapidly. for vulnerable households and firms. And at an international level it informs dialogue on countries’ mitigation commitments. Second, we need complementary investments to make carbon pricing more effective, such as research into clean technologies and infrastructure upgrades to accommodate renewable energy sources. Third, at a collective level we should consider reinforcing the Paris process through carbon price floor arrangements among large emitters. These can help to ensure a minimum level of effort, provide some protection against competitiveness impacts, and allow flexibility for those who need to price more aggressively to achieve their commitments. Even countries for which the floor price exceeds what is needed to meet their pledge might benefit from trading excess mitigation credits to other countries. The most difficult challenges, however, are those of 03 making reform happen at the domestic level. This is more art than science. A comprehensive, gradually phased, and well-communicated pricing strategy is needed, with clearly specified use of revenues and measures to assist vulnerable groups. But even this may not be sufficient. It takes dynamic leadership to push reform through, and sometimes well-designed pricing reforms might be derailed for socio-political reasons. In short, there is much to debate on how to move carbon pricing forward and we need to understand and share perspectives and experiences across a broad range of countries, industries, and stakeholders. An engaged leadership is critical. CPLC has a critical role to play. And in light of the great existential crisis of climate change, which looks more threatening with every passing year, its work has never been more important. THOUGHT LEADERSHIP NOW IS THE TIME TO ACT HELEN MOUNTFORD AND ENRIQUE LENDO (CO-CHAIRS, CPLC STEERING COMMITTEE) Climate change is a defining issue of the 21st century—one that will significantly impact the lives of future generations. T he scientific evidence for climate change is bold and undeniable. The Intergovernmental Panel on Climate Change’s (IPCC’s) recent Special Report on Global Warming of 1.5°C found that “climate change represents an urgent and CARBON PRICING LEADERSHIP REPORT 2018/19 potentially irreversible challenge to human societies and the planet.”1 The impacts of global warming can be catastrophic–sea-level rise that could lead to the United Kingdom and Egypt combined, and more than disappearance of island nations, increased frequency offset any losses in other sectors; prevent more than of extreme weather events, and structural changes in 700,000 premature deaths from air pollution compared ecosystems, among others. with business as usual in 2030; and increase women’s participation in the labor force. So how do we unlock Climate change is also a poverty multiplier; its impacts those benefits? will make the poor poorer and the total number of people living in poverty greater. Massive migrations in several regions are already taking place due to droughts, THE PARIS AGREEMENT water scarcity, and difficulties in accessing basic The Paris Agreement, one of the most progressive resources. Extreme weather is damaging infrastructure international environmental cooperation agreements such as power, roads, hospitals, clinics, and schools, to date, was adopted in 2015 and has since been exacerbating the risk to vulnerable communities. These ratified by 185 parties. Its commitments are in line with threats and impacts will continue to grow unless urgent science: to stabilize the increase in the global average 04 and collective action is taken to address climate change. temperature to well below 2°C and pursue efforts to limit the temperature increase to 1.5°C above pre-industrial The good news is that acting on climate is not only an levels. A key element of this agreement is the Nationally imperative, it is also an opportunity. The New Climate Determined Contributions (NDCs)–bottom-up, country- Economy’s 2018 report finds that bold climate action led efforts to reduce their emissions and adapt to climate could deliver $26 trillion in economic benefits through change. While the sum of all mitigation commitments to 2030, compared with a business-as-usual scenario.2 contained in NDCs is not enough to stabilize the And that is a conservative estimate. It could also increase of global temperature at 1.5°C, the agreement generate more than 65 million new low-carbon jobs is dynamic, allowing for periodic enhancement of NDCs in 2030, equivalent to the current workforces of the to reach such a target. Even though the Paris Agreement provides countries with a flexible approach to meet their targets, the devil is in the detail, or in this case, the devil is in the “doing.” Significant challenges remain for effective implementation. In the face of much broader political transitions around the world, there is a pressing need to keep parties engaged and committed to acting on climate change. As we recently witnessed, the protests in France reinforced the importance of implementing the Paris Agreement in line with the socioeconomic realities of a modern world. And there is increasing recognition of this reality. In the United States Congress, a bipartisan group of lawmakers is supporting the Energy Innovation and Carbon Dividend Act,3 under which carbon fee revenues would be allocated in equal shares every month Already, carbon pricing has significant momentum to the American public. around the world–today, 46 national jurisdictions and 28 sub-national jurisdictions are covered by initiatives that are putting a price on carbon. These cover an estimated THE ROLE OF CARBON PRICING 20% of greenhouse-gas emissions–a significant increase To meet the ambitious goals set by the Paris Agreement, from under 1% just 15 years ago.7 And as countries set all stakeholders must act. The Organisation for ambitious emissions reduction targets, more and more Economic Co-operation and Development estimates countries are including carbon pricing in their climate that infrastructure investment of $6.9 trillion a year for action plans: 57 carbon pricing initiatives have been the next 15 years is needed to limit global temperature implemented or are scheduled for implementation, and a increase to 2°C.4 Resources from public sources will not growing number of major companies around the world be enough to finance this transformation. Innovative are adopting internal carbon pricing schemes.8 financing will be key. Active engagement by the private sector through investment, innovation, and corporate social responsibility will help accelerate the global THE ROLE OF THE CARBON PRICING transition to a low-carbon future. LEADERSHIP COALITION CPLC, an international advocacy coalition of over 270 For deep decarbonization of the economy and the governments, businesses, and civil society organizations, unprecedented level of investment needed to support is playing a critical role in expanding the use of carbon this, carbon pricing offers promising opportunities to pricing schemes around the world. By bringing together mobilize support. Carbon pricing, when done right, stakeholders from across different sectors, CPLC is provides a clear incentive to governments, businesses, successfully driving action through strategic public- and consumers to shift investments and expenditures to private dialogues, knowledge sharing, and targeted more efficient, low-carbon alternatives. Carbon pricing technical analysis. provides the predictability that businesses need to drive investments and spur innovation for low-carbon solutions This last year saw a series of new, successful carbon to become a reality. pricing developments through CPLC. The growing 05 momentum of carbon pricing in Asia led to the launch Carbon pricing can also help deliver on broader of CPLC’s first local chapter in Singapore. At the 2018 government priorities by providing much needed United Nations Climate Change Conference, also government revenues. In 2017, carbon pricing systems known as COP24, CPLC hosted its annual Leadership provided $33 billion in revenues in countries around the Dialogue on carbon pricing revenues led by High-Level world.5 In the future, fossil fuel subsidy reform combined Assembly Co-Chairs Catherine McKenna (Minister of with carbon pricing could generate an estimated $2.8 trillion Environment and Climate Change, Canada) and Gérard in government revenues per year in 2030–equivalent to Mestrallet (Chair of the Board, Suez, and Honorary the total GDP of India today.6 These funds can be used Chair and former CEO, ENGIE), where ministers spoke to invest in urgent public priorities. If well designed and about how carbon revenues can be used to accelerate implemented, governments can use carbon pricing to the climate transition. Recognizing the concerns of ensure no one is left behind during the shift to a low- the private sector on competitiveness related to carbon carbon economy. Only by ensuring a well-managed and pricing, CPLC launched the High-Level Commission just transition can society–and, indeed, politicians– on Carbon Pricing and Competitiveness comprising move at the pace and scale required to bend the leaders from the private sector and government to get emissions curve. a better understanding of competitiveness issues and THOUGHT LEADERSHIP Catherine McKenna (Minister of Environment and Climate Change, Canada, right) speaks to Carlos Manuel Rodríguez (Minister of Environment and Energy, Costa Rica, middle) and George Heyman (Minister of Environment and Climate Change Strategy, British Columbia, left) at the CPLC Annual Leadership Dialogue at COP24. CARBON PRICING LEADERSHIP REPORT 2018/19 how to address them. And most recently, a first-of-its- But more is needed. Concerted efforts must still be kind international research conference was hosted by made to broaden and deepen carbon pricing in different CPLC in India, which convened over 150 researchers, sectors and regions to align policies with the conclusions policymakers, and practitioners from around the world of the High-Level Commission on Carbon Prices. And to strengthen the carbon pricing knowledge base and as more developing countries implement carbon pricing foster an improved understanding of the evolving schemes, the policies should ensure consistency with challenges to its successful implementation. “CPLC in the broader development agenda. Inclusive stakeholder 2018/19”, from page 14, contains more detail on the engagement will be vital to enable socially beneficial coalition’s recent activities. outcomes from pricing policies. There are many successful examples from around the world of how this In spite of the progress, challenges remain. In May can be done, and we need to learn from them.10 06 2017, the High-Level Commission on Carbon Prices concluded that the carbon price level consistent with CPLC will continue to advocate for carbon pricing as a achieving the Paris temperature target is at least $40 to tool–both to reduce carbon pollution and further social $80/tCO2 by 2020 and $50 to $100/tCO2 by 2030.9 and development goals. To do so, CPLC is strengthening This level is significantly higher than the average carbon its collaboration at the regional level and enhancing its price across existing systems. Higher carbon price levels engagement with the private sector to build an even will not only foster a reduction in emissions but also more robust global coalition. spur the investment required for a low-carbon economy. In the past two years we have seen some important progress, with Canadian provinces, the European Union (EU), and the United States Regional Greenhouse Gas Initiative states all agreeing to increase carbon tax prices or tighten emission allowances. Additionally, Chile, Colombia, and Singapore introduced carbon taxes, and China and Mexico are continuing their development of cap-and-trade systems. ACHIEVEMENTS IN 2018/19 High-Level Commission on Carbon RESEARCH Pricing and Competitiveness held CONFERENCE its first meeting We hosted our inaugural Research The High-Level Commission on Carbon Pricing Conference in New Delhi, India, bringing and Competitiveness held its first meeting in together over 175 researchers, practitioners, February 2019. The commission was formed and interested stakeholders from across the to get a better understanding of how carbon globe to share knowledge and learning. pricing will affect competitiveness and determine how to best address these concerns. Strengthened presence in Southeast Asia The growing momentum of carbon pricing in Asia led to us launching our first local chapter in Singapore. 3rd CPLC Held in Washington, D.C., 390 participants took part in HIGH- in April 2018, the 3rd CPLC High-Level Assembly brought Carbon Pricing Workshops that we LEVEL together leaders from all spheres ran during regional Climate Weeks in Asia-Pacific (60 participants), ASSEMBLY to discuss challenges and Latin America and the Caribbean HELD developments in carbon pricing. (80), and Africa (250). 16 New members joined the coalition in 2018/19, bringing our total number to 275: 33 national and sub-national governments, 07 162 businesses, and 80 strategic partners. 28 POSITIVE OUTCOMES IN CARBON 57 carbon pricing of them are emissions trading systems 29 initiatives implemented PRICING or scheduled to implement globally of them are carbon taxes EXECUTIVE SUMMARY released a report on how carbon pricing can reduce climate risk and encourage climate-smart construction in the construction industry value chain. In Canada, the Canadian Chamber of Commerce endorsed carbon C pricing in a report, arguing that it is the most efficient approach to addressing climate change.12 Finally, in arbon pricing initiatives continue to gain late 2018, 415 investors released a statement urging momentum across the globe. At the time leaders to advance the goals of the Paris Agreement. of writing, The World Bank’s Carbon Pricing The group, representing $32 trillion in assets, called for Dashboard indicated that there are 57 a “meaningful price on carbon” to “accelerate private carbon pricing initiatives, covering 46 national and 28 sector investment into the low-carbon economy.”13 (See CARBON PRICING LEADERSHIP REPORT 2018/19 sub-national jurisdictions.11 This number has almost “Private Sector,” page 42, for more stories from our tripled in the last decade, with momentum recently private sector partners.) building in the Americas, with Chile and Colombia introducing carbon taxes in 2017, and in Asia, with the In innovative sectors, CPLC partners encouraged development of the Chinese cap-and-trade program greater carbon pricing adoption in 2019 and will and the introduction of a carbon tax in Singapore. continue to do so. The World Bank’s Partnership for Market Readiness (PMR) and CPLC published the Guide To date, there have been several carbon pricing to Communicating Carbon Pricing to help governments success stories. After British Columbia (B.C) introduced and businesses design effective communications a carbon tax in 2008, its carbon pollution has dropped strategies. The Environmental Defense Fund teamed while its GDP has increased. A little further south, up with other partners to provide technical workshops California started its cap-and-trade program in 2012 on carbon markets to students, governments, and and recently extended the program post-2020. In interested stakeholders using its unique CarbonSim 2018, the state announced that it had reached its tool. Yale University and Swarthmore College carbon emissions reduction goals four years ahead collaborated with other colleges and universities to 08 of schedule. In 2013, the United Kingdom introduced launch the Internal Carbon Pricing in Higher Education a carbon price floor, which corresponded with a Toolkit for campuses looking to experiment with carbon significant reduction in coal use over the subsequent pricing. (“Strategic Partnerships”, page 57, contains five years. (See “Governments and Regional more detail on these and other innovations.) Leadership” on page 24 for more updates on progress in various areas across the globe.) Despite these success stories, 2018 was a year of climate wake-up calls. The IPCC Special Report on In the private sector, companies are increasingly Global Warming of 1.5℃ outlined the significant committing to climate action as they begin to negative consequences just a half-degree increase understand the risks climate change poses to their in warming could have.14 The United States’ Fourth supply chains and the financial and environmental National Climate Assessment15 detailed the negative benefits of low-carbon opportunities. At the Global economic and health impacts that climate change Maritime Forum’s Inaugural Annual Summit in Hong poses, predicting hundreds of billions in annual costs Kong in 2018, a new IMF Working Paper was launched to the U.S. economy under business-as-usual scenarios. on Carbon Taxation on International Maritime Fuels and The New York Times published “2018: The Year in dozens of shipping CEOs called for greater climate Climate Change,” which reported some of the action, including carbon pricing. Towards the end dangers of a warmer planet and the impacts that of 2018, the International Finance Corporation (IFC) are already occurring.16 Ian Parry (Principal Environmental Fiscal Policy Expert, International Monetary Fund) discusses carbon pricing at the Global Maritime Forum Summit. At the same time, new research is revealing the real economic and health benefits of climate action. The New Climate Economy’s 2018 report, as mentioned by the CPLC Co-Chairs, estimated that climate-smart growth would deliver $26 trillion in economic benefits compared to business as usual between now and 2030. South Africa is planning to implement an economy- The report emphasized the importance of carbon wide carbon tax in June 2019—the first policy of its kind pricing and climate-related financial disclosure in in Africa. The EU’s emissions trading system (ETS) is EXECUTIVE SUMMARY driving the necessary levels of low-carbon investment.17 strengthening, while European leaders have doubled Additionally, IFC published Climate Investment down on carbon pricing. Chile is considering an ETS in Opportunities in Cities, which found that “cities in addition to its existing tax on air emissions, and other emerging markets around the globe have the potential Latin American countries are looking into using to attract more than $29.4 trillion in cumulative climate- carbon pricing. related investments in six key sectors by 2030.”18 Overall, 88 countries have already mentioned carbon Innovations in carbon pricing will be critical to pricing in their NDCs, and many more will likely turn determining the world’s ability to meet the goals of to carbon pricing as a balanced approach to reducing 09 the Paris Agreement and deliver the benefits of a carbon pollution and furthering other social, economic, clean energy transition. The future looks promising: and health goals. Canada will implement its federal carbon pricing backstop, which includes a plan to tackle concerns regarding impacts on competitiveness and unfair distributional impacts. China is continuing to develop CARBON the world’s largest carbon market. U.S. states such as PRICING DASHBOARD Massachusetts, New York, and Oregon are exploring carbon pricing as a key part of their climate plans. And, nine northeastern U.S. states agreed to design Launched in May 2017, The World Bank’s Carbon Pricing Dashboard is an interactive online platform that provides up-to-date information a regional cap-and-trade program for transportation. on existing and emerging carbon pricing initiatives around the world. Singapore implemented its carbon tax in 2019 and It builds on the data and analyses of the annual State and Trends of launched the first CPLC chapter focused on engaging Carbon Pricing report series.19  Users can navigate key statistics and information on carbon pricing initiatives implemented or scheduled the business community. Côte d’Ivoire has been for implementation using the interactive maps and graphs. exploring the potential of using carbon pricing to put An updated Carbon Pricing Dashboard is available at: the country on a low-carbon development pathway carbonpricingdashboard.worldbank.org. and to reach the objectives of its NDC (see page 28). OUR PARTNERS CARBON PRICING LEADERSHIP REPORT 2018/19 10 Australia Finland Panama Bangladesh France Peru Belgium Germany Portugal Brazil Ghana Russia Canada India Senegal Chile Italy Singapore China Japan South Africa Colombia Kazakhstan South Korea Democratic Mauritius Spain Republic of Mexico Sweden Congo Morocco Switzerland Côte d’Ivoire Netherlands Turkey Denmark New Zealand Ukraine Egypt Nigeria United Kingdom Ethiopia Norway United States Fiji Islands Pakistan of America This map features the CPLC footprint of its government, private sector and strategic partners around the globe. OUR PARTNERS 11 THOUGHT LEADERSHIP A CARBON PRICING SUCCESS STORY GEORGE HEYMAN, MINISTER OF ENVIRONMENT AND CLIMATE CHANGE STRATEGY FOR BRITISH COLUMBIA O n December 5, 2018, the province of family size and net family income, up to a maximum of British Columbia announced CleanBC, our $135 per person and $40 per child in 2018. plan to put B.C. on the path to a cleaner, more prosperous future. The initiatives put Government also offers several carbon tax programs forward in CleanBC work in conjunction with the B.C. for businesses and local governments such as the carbon tax to provide an effective blueprint to build a Greenhouse Carbon Tax Relief Grant to help low-carbon economy that creates opportunities for all greenhouses cover a portion of the carbon tax paid, while making things more efficient, using less energy, and the Climate Action Revenue Incentive Program to wasting less, and making sure that the energy we use is reimburse 100% of the carbon tax paid directly by local the cleanest possible and made-in-B.C. governments that have committed to becoming carbon neutral. It’s also important that our energy-intensive, These initiatives won’t just protect our environment trade-exposed industries remain competitive–for the and clean our air–they will help create new economic good-paying jobs they provide, and for the families and opportunities for people and spur innovation to grow the communities they support. CARBON PRICING LEADERSHIP REPORT 2018/19 world-leading technology and clean energy sectors in our low-carbon economy. The CleanBC Program for Industry, a critical component of B.C.’s plan to reduce emissions while B.C. recognizes that carbon pricing is an integral growing our economy, is designed to keep industries element of a low-carbon economy. Our jurisdiction competitive as they innovate to cut emissions. The began to price carbon in 2008, the first in North program, designed for traditional industries such as pulp America with such a broad-based tax. The tax on and paper mills, large mines, or natural gas operations carbon is applied to the purchase and use of fuels in and refineries, directs a portion of B.C.’s carbon tax B.C. and covers about 70% of provincial emissions. paid by industry into incentives for cleaner operations by The tax was introduced at $10/ton in 2008 and using two approaches that work in tandem. increased $5 each year until it reached $30/ton in 2012, where it was frozen for five years. The first approach involves providing incentives for interested B.C. facilities that meet a performance In 2018, government began to increase the carbon benchmark based on the lowest-emitting facility globally– by $5/ton/year until B.C. reaches $50/ton in 2021– the cleanest in the world. The second approach, the Clean a year earlier than the timeframe mandated by our Industry Fund, invests some industrial carbon tax revenue 12 national government. Between 2007 and 2016, directly into emission reduction projects, helping to make B.C.’s net greenhouse-gas emissions declined by our traditional industries cleaner and stronger. 3.7% while at the same time real GDP grew by 19%, demonstrating that carbon pricing and economic B.C. is proud to have one of the most broad-based growth can go together. carbon taxes in the world and to stand together with other jurisdictions that have or are planning their own Making these changes cannot leave anyone behind. approaches to putting a price on carbon pollution. We While CleanBC will give people more affordable choices believe the only way for jurisdictions to fight climate to save energy over the long run by helping with the change is to fight together, and each jurisdiction has a upfront costs that come with home improvements, using responsibility to take this crisis seriously by implementing cleaner energy, and zero-emission vehicles, new revenues a plan to adequately put a price on carbon pollution. generated from increasing the carbon tax will be used to provide carbon tax relief and protect affordability. Through our experience with carbon pricing and our One way we’re doing this is by providing eligible British CleanBC plan, B.C. has demonstrated that it is possible Columbians with a Climate Action Tax Credit which to reduce emissions and grow the economy, all while helps offset the impact of the carbon taxes paid by providing support for families and industry to transition low- and moderate-income individuals or families. The as we move towards a cleaner, healthier, and more annual amount British Columbians receive depends on sustainable future for ourselves and our children. THOUGHT LEADERSHIP CARBON PRICING AND ENVIRONMENTAL INTEGRITY: A KEY TO CLIMATE ACTION CARLOS MANUEL RODRÍGUEZ, MINISTER OF ENERGY AND ENVIRONMENT, COSTA RICA O ur house is on fire and our civilization all preferred to finalize the guidance for cooperative is at risk. We must step up to ensure we approaches with the rest of the Rulebook, I am avoid the worst of the climate catastrophe. encouraged by the clear signal that the international Science tells us that we need to achieve community is committed to doing this right. a global net carbon neutrality no later than 2050, which implies halving global emissions by around With market mechanisms, rules that are insufficient 2030. Anything short of that is simply not acceptable. to incentivize the scale of transformation that science These are scientific facts that should not need repeating tells us the world requires are completely unacceptable, as thousands of children remind us through the and I have no doubt that parties made the right choice #FridaysforFuture movement led by Greta Thunberg. in Katowice, deciding to take the time to come up with the right set of rules. Rules that guarantee robust There is a general global consensus among economists accounting of every mitigation outcome, regardless and policymakers that effective, environmentally of the mechanisms and the party from which they integral carbon pricing instruments are necessary come. Rules that ensure strict limits on pre-2020 units to achieve this goal. Costa Rica is already a clear and incentivize additional action, while recognizing example of how this might work. Our payment for the the efforts of early movers from previous mechanisms environmental services scheme, created more than 20 as much as possible. In short, rules that are firmly years ago, uses a portion of our fuel tax to pay land grounded in the best available science and that hold owners for water, scenic value, biodiversity, and carbon environmental integrity as their core principle, that sequestration services. This tropical carbon pricing promote the necessary ambition, and that will policy has been instrumental in reversing deforestation mobilize the private sector with an unequivocal and achieving the 55% forest cover we currently signal for decarbonization and zero deforestation enjoy. During this time we have invested more than and degradation. $400 million in rural areas and impacted 1,122,311 hectares of land and 15,735 families. Of this amount, Nature-based solutions will need to be a core strategy $60 million has been directed to indigenous territories to meet the required scale of transformation. Our with relevant socioeconomic benefits. ecosystems could reduce the level of greenhouse- gas emissions by as much as 30% and are critical Looking forward, our recently launched National to generate resilience and guarantee the livelihoods Decarbonization Plan 2018–2050 identifies green of vulnerable communities in the developing world. 13 fiscal reform and carbon pricing as one of the cross- Currently, investments in nature receive less than 3% cutting strategies necessary to achieve an economic of climate finance, which is not acceptable. Nature development model that is compatible with our planet’s cannot continue to be the forgotten solution and cannot physical limits. Costa Rica aims to prove, once again, be treated as the cheapest one. This sector has other that we can achieve economic growth and social technical challenges and conditions, and we need to progress while being responsible stewards of our natural work with the economic and financial sector in order to environment. What’s more, it is the only way to sustain catalyze investments in our natural capital. them in the long term. I have no doubt the Chilean COP Presidency will These dual experience-based convictions—that effective navigate COP25 to a successful outcome with ambition carbon pricing is absolutely necessary, and that carbon and environmental integrity as its guiding principles. pricing is effective only when it is uncompromisingly In this endeavor they can count on our unwavering committed to environmental integrity—guide our commitment to action and, I am sure, yours as well. internal policies and our positions abroad. I was For, as the wise Ms Thunberg has taught us, “The one personally involved in the Article 6 negotiations during thing we need more than hope is action. Once we start COP24 in Poland, as were many other ministers. to act, hope is everywhere.” Although there is no denying that we would have CPLC IN 2018/19 CARBON PRICING LEADERSHIP REPORT 2018/19 CPLC intensified its advocacy role, facilitated new opportunities for sharing between carbon pricing researchers and knowledge creators, and responded to knowledge gaps to strengthen 14 the argument in favor of climate action through carbon pricing. ABOUT CPLC Climate change is the greatest challenge humanity has To secure the place of carbon pricing on the global encountered, and it is one that no single jurisdiction, agenda, the CPLC was launched in 2015 with the business, or organization can address alone. Effective support of 21 governments and more than 90 climate action requires jurisdictions, businesses, and businesses and strategic civil society partners. Since organizations across the globe to make a concerted then, 275 national and sub-national jurisdictions, effort to work towards one goal: that of limiting businesses and civil society organizations have joined atmospheric carbon emissions in order to rein in global us, benefiting from opportunities to learn about carbon warming and lessen the effects of climate change. pricing, staying up to date with new developments and research in the field, and sharing experiences relating Carbon pricing is a powerful policy tool to align the to the challenges involved with implementing carbon international will towards this one common purpose. pricing mechanisms. OUR STRUCTURES High-Level Assembly Chairs Catherine McKenna Gérard Mestrallet The High-Level Minister of Chair, Suez; and Assembly meets once Environment and Honorary Chair a year to provide vision Climate Change, and Former CEO, and strategic direction Canada ENGIE for CPLC’s activities. Steering Committee The Steering Committee brings together leaders from CPLC IN 2018/19 government, business, and the nonprofit CO-CHAIR CO-CHAIR sector. The committee meets six times a Left to right: Helen Mountford, Vice President, Climate & Economics, World year to: monitor the Resources Institute & Program Director, New Climate Economy; Enrique Lendo, progress of the CPLC Former Head of the Unit of International Affairs, Ministry of Environment and Secretariat; ensure Natural Resources, Mexico; Jen Austin, Policy Director, We Mean Business 15 that its activities align coalition; Femke de Jong, Policy Director, Carbon Market Watch—until Jan 2019. with the High-Level Assembly’s vision and direction; and recommend new initiatives. Left to right: Dirk Forrister, CEO and President, International Emissions Trading Association; Marina Grossi, President, Brazilian Business Council for Sustainable Development; Silke Karcher, Head of Division, EU Climate and Energy Policy, European Climate Initiative, Carbon Markets, Federal Ministry for the Environment, Nature Conservation, and Nuclear Safety, Germany; Derya Yalgı, Sustainability Manager, Garanti Bank. THOUGHT LEADERSHIP IT’S TIME TO FIRE UP THE COLLECTIVE WILL ON CARBON PRICING GOH SWEE CHEN, PRESIDENT, GLOBAL COMPACT NETWORK SINGAPORE C limate change is a pressing issue faced today. into business operating costs or investment decisions. Its effects are already having measurable When carbon emissions are factored into companies’ impacts worldwide, in the form of global profit-and-loss statements, it can help to uncover and warming or extreme weather events. This reduce existing inefficiencies and encourage low-carbon has, and will, bring about disruption to daily lives, cause innovations, in turn cutting companies’ emissions and adverse health impacts, and affect business operations. energy costs. As the impacts of climate change become increasingly CARBON PRICING LEADERSHIP evident, so do the obstacles that lie ahead. Three years COALITION TAKING ROOT IN after 195 countries pledged in the Paris Agreement to SINGAPORE keep global warming below 2°C relative to pre-industrial The first official chapter of the Carbon Pricing Leadership levels, global emissions are rising.20 There are signs that Coalition, CPLC Singapore, is a joint effort by Global some nations may fail to live up to their pledges made Compact Network Singapore, the local chapter of the in Paris. To meet the Paris goal of keeping rising global United Nations Global Compact, and CPLC, a coalition CARBON PRICING LEADERSHIP REPORT 2018/19 temperatures in check, global emissions need to reach net convened and supported by The World Bank Group. zero around 2050. We must act, and we must act now. The coalition aims to reduce greenhouse-gas emissions worldwide through widespread carbon pricing. This THE NEED TO POWER UP PRIVATE initiative is supported by Singapore’s National Climate SECTOR PARTICIPATION Change Secretariat, which is housed within the Prime Yet, there is some progress, as we witness the growing Minister’s Office. Through this unique partnership, CPLC efforts of governments globally to tackle climate change. Singapore will encourage businesses to use internal carbon Regionally, the Association of Southeast Asian Nations pricing as a mechanism to guide investment choices and, aims to have renewable energy comprise 23% of the importantly, to run enduring and responsible corporations. total primary energy supply by 2025: a significant increase from approximately 10% in 2015.21 Locally, CPLC Singapore seeks to emphasize the business Singapore designated 2018 as the Year of Climate case for carbon pricing and will assist companies in Action and has implemented a carbon tax from 2019, two ways. First, the initiative helps the private sector making it the first Southeast Asian country to do so. manage challenges related to carbon pricing, through a deliberative space for companies to raise concerns, Putting a price on carbon–through a tax or alternative share best practices, and propose sustainable solutions. 16 mechanisms–captures externalities that help improve It will also facilitate multilogues between the public carbon efficiency. If such externalities are not factored and private sectors, as well as academia, to contribute financially, the public often ends up paying through other towards national climate change mitigation policies. means such as increasing health care costs from extreme Second, CPLC Singapore plans to provide tools that weather swings or loss of property from natural disasters. could help businesses assess and manage their climate While Singapore is already among the 20 most carbon- risks and opportunities. efficient countries in the world,22 reducing carbon emissions requires collective, sustained action from the government, TAKING THE LEAD civil society, and the private sector. Singapore is home to To be successful and sustainable in the medium to long major manufacturing hubs, which alone contribute 60% of term, businesses can take the lead in preparing for a Singapore’s greenhouse-gas emissions.23 Tackling emissions low-carbon future through mechanisms like internal reduction requires commitment from the private sector, carbon pricing. On its part, CPLC Singapore will whether through investments in innovative solutions or continue convening like-minded businesses to create setting an internal price on carbon. progress towards actualizing the ideals of a low-carbon Singapore, and perhaps spur similar chapters in other CARBON: THE NEW LINE ITEM? parts of Asia. By working together as a community with Internal carbon pricing refers to the factoring of an a resolute purpose, we can build a more sustainable assumed (or projected) cost per ton of carbon emissions future for generations to come. Secretariat The Secretariat is responsible for executing the strategic direction provided by the Steering Committee on a day-to-day basis. It is based at The World Bank Group in Washington, D.C., and facilitates the delivery of the CPLC Work Plan, including coordinating the activities of three regional Working Groups (Africa, Asia, and Latin America) and four sector-focused Task Teams (focusing on the construction value chain, the banking sector, the maritime sector, and higher education). The Secretariat also supports partner recruitment and engagement, and provides a communications hub for the latest developments, research, and thought leadership. Left to right: Dominik Englert, Smita Rana, Liberty Espiritu, Left to right: Marissa Santikarn, Chandni Dinakaran, Carlos Angela Churie Kallhauge, Aditi Maheshwari, Suneira Rana, Cordova, Namrata Rastogi, and Mercedita Garcia Cano. Ayesha Malik, and Tom Erb. Not pictured: Isabel Saldarriaga, Celine Ramstein, Oluwafemi Faleye, and Dirk Heine. CPLC IN 2018/19 OUR WORK PLAN In 2018/19, our Work Plan was restructured around the the banking sector, the maritime sector, and higher following separate but interrelated pillars: Regional education, providing support and advice to decision- Advocacy; Private Sector Leadership; Fostering makers within these sectors as they investigate and Partnerships; Knowledge Creation; and Outreach and implement internal carbon pricing in their respective Communications. The Regional Advocacy pillar is linked organizations and advocate for carbon pricing externally. to three regional Working Groups, while the Private CPLC also has partners outside of these sectors that 17 Sector Leadership is supported by the work of four Task show leadership in their own industries. Teams, as discussed in the next section. Fostering Partnerships Regional Advocacy CPLC facilitates partnerships between regional, CPLC has formed regional Working Groups in Africa, private sector, and nonprofit stakeholders with the Asia, and Latin America to create opportunities for understanding that such relationships foster cross- decision-makers, researchers, and influencers to share pollination of knowledge, skills, and the will required to their findings and develop approaches to carbon put a price on carbon. pricing. Knowledge Creation Private Sector Leadership Carbon pricing is a powerful mechanism for reducing The Paris Agreement’s ambitious goals will not be greenhouse-gas emissions, but the form it should take, achieved through political will alone. Any chance of the methods for implementing it, and its likely effects stabilizing global warming at 1.5˚C above pre-industrial once in place often require additional research. With this average temperatures depends on the private sector in mind, CPLC and its strategic partners strive to produce taking a leadership role in climate action. CPLC’s four knowledge and research outputs that enable leaders to Task Teams focus on the construction value chain, make practical, informed, and data-driven decisions. Outreach and Communications ■ The Asia Working Group hosted two calls with Achieving the goals above rests on our ability to public and private sector stakeholders from various communicate with, and facilitate dialogue between, countries in the region to stimulate debate about the our partners and other stakeholders. Using all the policy challenges faced as decision-makers consider communication tools available to us, we strive to make carbon pricing schemes. connections, maintain open channels of communication, and disseminate knowledge products to those who have Private Sector Leadership a need for them. Even though we work to promote carbon pricing across all sectors, our four Task Teams focus on supporting their particular target sectors by producing knowledge, OUR ACTIVITIES IN 2018/19 engaging with stakeholders, and organizing capacity- Our key achievements for 2018/19, as assessed in terms building activities. See the box on page 19 for progress of the pillars of our Work Plan, are set out below. highlights from our Working Groups. Regional Advocacy Knowledge Creation Our regional Working Groups created several Together with our partners, we produced several opportunities for partners and interested stakeholders publications and policy briefs to stimulate informed to discuss topics relating to carbon pricing and climate discussions about climate change, carbon emissions, change: and carbon pricing policy. ■ The Latin America Working Group, which was Knowledge Products and Briefs formed in November 2018, convened two calls to Guide to Communicating CARBON PRICING LEADERSHIP REPORT 2018/19 GUIDE TO discuss areas of interest. Topics covered ranged from Carbon Pricing COMMUNICATING CARBON PRICING capacity building to engaging the private sector to Published by: Partnership for Market monitoring and evaluation. Readiness (PMR) and CPLC Date published: December 2018 ■ The Africa Working Group convened three calls to discuss, among other issues, lessons learned from Broad support from stakeholders the South African carbon tax initiative; Article 6 of and the public is necessary for the Paris Agreement; the carbon pricing initiative an enduring, robust carbon in Ethiopia; and the East and West Africa Carbon pricing policy. How jurisdictions Market Alliances. The group aims to expand communicate their carbon pricing policy plays a key participation in Africa. role in creating and maintaining this support. To help governments, businesses, and other stakeholders design 18 The regional working groups in action. and implement effective communications strategies The guide was presented at COP24 by authors George around carbon pricing, the PMR and CPLC developed Marshall (Co-Founder and Director of Projects, Climate the Guide to Communicating Carbon Pricing. Key Outreach)24 and Darragh Conway (Lead Legal messages from the guide include: Counsel, Climate Focus),25 together with Daniel Besley (Senior Climate Change Specialist, The World Bank). ■ Communication needs to be part of the A webinar with the authors was also held in January policymaking process. 2019, drawing the highest participation numbers to ■ Communications strategies should be research- date for a World Bank-hosted webinar.26 The guide has based and tailored to each country’s needs. received enormous interest from stakeholders since ■ Strong communications can only be built on good, its release, with a renewed call to the PMR and CPLC fair, and effective (carbon pricing) policy. to deepen this work to support governments as they ■ Emphasizing non-climate-related benefits of carbon build the capacity of policymakers to better integrate pricing may be more powerful than focusing on communications in their policies. climate change. ■ Visible use of carbon price revenues is often key. ■ Good communications are built around values. Task Teams: 2018/19 highlights The Construction Value Chain Task Team explores ways to consistently implement carbon pricing across the construction value chain. In 2018/19, the team published a report titled Construction Industry Value Chain: How Companies Are Using Carbon Pricing to Address Climate Risk and Find New Opportunities. The report explores industry perspectives on carbon pricing and proposes an integrated approach to carbon pricing across the value chain. See page 44 for more detail. CPLC IN 2018/19 The Banking Sector Task Team works with commercial and multilateral banks across the world to help them understand the financial implications of climate change and how carbon pricing could affect their portfolios and risk assessments. The team also helps banks develop and apply internal carbon pricing to their operations. Among other activities, in 2018/19 the team produced a brief titled Carbon Pricing and the TCFD (discussed in the next section, “Knowledge Creation”). 19 The Maritime Task Team works with governments, the private sector, and other stakeholders to chart a journey to a decarbonized shipping sector. Through general outreach, stakeholder engagement, and knowledge production, the team complements and informs the political decision-making processes of the International Maritime Organization. As a result of CPLC’s maritime engagement, in 2018 IMF released a Working Paper titled Carbon Taxation for International Maritime Fuels, which assesses policy options and makes the case for a carbon tax. The Carbon Pricing in Higher Education Working Group was founded to help tertiary education institutions implement an internal carbon price on campus. The group comprises colleges and universities from Canada, England, and the United States. Despite only being formed in 2018, the group has already produced the Internal Carbon Pricing in Higher Education Toolkit to guide higher education campuses towards implementing an internal carbon price (see page 62 for more detail). State and Trends of Carbon Pricing on Climate-related Financial Disclosures (TCFD) by Published by: The World Bank and CPLC assessing the materiality of climate risk at the portfolio Date published: May 2018 level. While banks and other financial institutions tend The State and Trends of Carbon Pricing is an annual to apply carbon pricing primarily at the operational World Bank publication on the status of carbon pricing level, they are most vulnerable through their financed around the world. This widely cited report, which is emissions and should expand pricing accordingly. available online,27 is considered one of the leading publications on carbon pricing data. Fostering Partnerships Among other highlights relating to this pillar, CPLC Brief: Carbon Pricing and the TCFD launched its first official chapter in Singapore in Published by: CDP and CPLC November 2018 to encourage collaboration on carbon Date published: May 2018 pricing between the government and private sector, and to support businesses as they comply with, and This brief28 discusses the value of carbon pricing as a hopefully exceed, the targets under Singapore’s metric to meet the recommendations of the Task Force recently implemented carbon tax. CARBON PRICING LEADERSHIP REPORT 2018/19 April 2018: CPLC High-Level Assembly June 2018: Innovate4Climate 20 September 2018: Global Climate Action Summit December 2018: COP24 Outreach and Communications Key events attended or hosted CPLC used the communications tools at its disposal CPLC routinely hosts, or takes an active part in, to raise awareness about, and support for, carbon international events that create opportunities for pricing and CPLC’s work. Noteworthy outreach and engagement with partners and other stakeholders on communication activities during 2018/19 include: carbon pricing. Some of the key events on our calendar during the year are discussed below. ■ Taking part in, hosting, or co-hosting various international events (see below). CPLC High-Level Assembly, April 2018 ■ Producing videos on topics such as Article 6 of the The CPLC High-Level Assembly took place in Paris Agreement. Washington, D.C. The President of The World Bank used ■ Hosting various webinars, including one on the the opportunity to launch the High-Level Commission Guide to Communicating Carbon Pricing. on Carbon Pricing and Competitiveness to address ■ Facilitating communications between partners by competitiveness concerns. The commission, co-chaired providing an online platform for them to publish by Feike Sijbesma (CEO, Royal DSM) and Anand blogs, news, and events.29 Mahindra (Chair, Mahindra Group), brings together nearly 20 executive-level representatives from the private CPLC IN 2018/19 September 2018: Global Climate Action Summit September 2018: Global Climate Action Summit 21 February 2019: CPLC Research Conference March 2019: Africa Climate Week sector and governments to provide strategic guidance First meeting of the High-Level Commission on Carbon on how to address competitiveness concerns among Pricing and Competitiveness, February 2019 industry partners in the context of carbon pricing. The first meeting of commissioners provided strategic guidance and insights on the issue of competitiveness. Sustainable Solutions Expo, June 2018 CPLC will be hosting a series of regional consultations We hosted an event with business, financial, and with private sector actors in 2019 to better understand government leaders titled “Addressing Risks and the challenges around competitiveness and carbon Finding Opportunities in a Changing World,” which pricing, and how best to address them. The commission explored tools such as carbon pricing to help will present its findings and key messages at the United stakeholders prepare for a changing climate. Nations Secretary-General’s Climate Summit in New York in September 2019. Innovate4Climate, June 2018 At Innovate4Climate, CPLC and the PMR co-hosted a technical workshop on effectively communicating carbon pricing. Global Climate Action Summit, September 2018 Together with California, the European Commission, the International Emissions Trading Association, and other partners, we organized a carbon pricing day entitled Carbon Pricing Driving Climate Ambition. CARBON PRICING LEADERSHIP REPORT 2018/19 To present the Internal Carbon Pricing in Higher Education Toolkit we co-hosted, together with Yale, Second Nature, and other partners in the Carbon Pricing in Higher Education Working Group, a side event with former U.S. Secretary of State John Kerry. COP24, December 2018 In addition to launching the Guide to Communicating Carbon Pricing and providing coverage of the conference, we convened world leaders for a Leadership Dialogue on Carbon Pricing Revenues, and teamed up with the Belgian, French, Swedish, and German governments for a conversation on carbon taxation in the EU’s non-ETS sectors. 22 Regional Climate Weeks, July 2018 (Asia-Pacific), August 2018 (Latin America and Caribbean), and March 2019 (Africa) CPLC hosted carbon pricing workshops at three regional Climate Weeks, attracting 390 participants in total. CPLC Research Conference, February 2019 We hosted the world’s first international Research Conference on Carbon Pricing in New Delhi, India. The conference attracted participants from diverse sectors across the globe to take stock of carbon pricing research and experiences to date and build a greater High-Level Assembly discussions understanding of the emerging trends and best practices. See box for more detail.30 CPLC hosts inaugural Research Conference Collaboration between carbon pricing researchers and practitioners is critical to addressing common concerns about carbon pricing policies, such as competitiveness, social impacts, and revenue distribution. To facilitate collaboration, CPLC, together with The Energy and Resources Institute, hosted the first Carbon Pricing Leadership Coalition Research Conference in New Delhi, India, in February 2019. More than 30 researchers and dozens of high-level Members of the CPLC Research Conference Scientific Committee at the end of the conference. practitioners presented on six carbon pricing themes: Learning from Experience, Carbon Pricing Design, Concepts balanced strategies—which added: “We all need to join and Methods, Political Economy, should importantly include forces to ensure an effective Decarbonizing the Economy, and carbon pricing—to meet both carbon pricing design. Emerging Frontiers. their climate and development Solid evidence of effective goals.” Susanne Åkerfeldt, a carbon pricing will help give Prior to the conference, John member of the CPLC Research policymakers the courage to Roome (Senior Director for Conference Scientific Committee introduce such measures.” Climate Change, The World and a Senior Adviser to the Bank) said: “Policymakers need Swedish Ministry of Finance, The conference emphasized the ongoing need for carbon pricing research, especially at country level, to improve the environmental and economic effectiveness of carbon pricing 23 policies and measures. It also highlighted the importance of creating platforms to facilitate communication between researchers and practitioners— as CPLC remains committed to doing. John Roome (Senior Director for Climate Change, World Bank) delivers a passionate speech at the CPLC Research Conference. GOVERNMENTS AND REGIONAL LEADERSHIP CARBON PRICING LEADERSHIP REPORT 2018/19 We partner with decision- makers on all continents to develop and roll out evidence-based policies that support carbon pricing and other climate actions while still supporting 24 economic development and competitiveness. THOUGHT LEADERSHIP Q & A WITH CATHERINE MCKENNA CATHERINE MCKENNA, CPLC HIGH-LEVEL ASSEMBLY CO-CHAIR AND MINISTER OF H ENVIRONMENT AND CLIMATE CHANGE, CANADA ow has Canada advanced carbon pricing since April 2018? April 2019) and the Northwest Territories (carbon tax in The government of Canada made significant July 2019). advances in 2018. As a result, carbon pollution pricing will be in place throughout Canada in 2019, a major step The federal pricing system for large industry took effect in the government’s plan to protect the environment and on January 1, 2019, in Ontario, Manitoba, New grow the economy. Brunswick, Prince Edward Island, and partially in Saskatchewan (to cover industrial sectors not covered in In 2018, the government of Canada and provincial its output-based system). and territorial governments—along with numerous stakeholders—continued their efforts to implement Starting in April 2019, the federal fuel charge will apply in the Pan-Canadian Approach to Pricing Pollution (the Saskatchewan, Ontario, Manitoba, and New Brunswick. federal benchmark). Their goal was to ensure that carbon The federal carbon pollution pricing system will also pollution pricing applies at a stringent level to a broad set apply in two territories—Yukon and Nunavut—starting of emissions sources throughout Canada either through on July 1, 2019. the implementation of a provincial/territorial system or the federal system (see map overleaf). In December 2018, the government of Canada released for comment draft regulations on the federal carbon The Pan-Canadian Approach gave provincial and pollution pricing system for industry. The government will territorial governments the flexibility to develop their own finalize those regulations this spring, and they will apply carbon pollution pricing system. It outlined criteria that retroactively as of January 1, 2019. This represented all systems must meet to ensure they are stringent and another important step in an ongoing engagement process apply broadly. The federal government also committed with the Canadian public and stakeholders to design and to implementing a carbon pollution pricing system in implement a federal carbon pollution pricing system that W provinces and territories that requested it or did not have a works for the entire country. system that met the federal benchmark. hat advice do you have for other In June 2018, the Canadian Parliament adopted the governments that are considering Greenhouse Gas Pollution Pricing Act. The federal carbon using carbon pricing? 25 pollution pricing system contained in the act has two parts: A wide range of stakeholders agree that putting a price ■ A trading system for large industry, known as the on carbon pollution works. It is an efficient and effective output-based pricing system. tool to mitigate emissions, trigger innovation, and support ■ A regulatory charge on fuel (fuel charge). a country’s transition to a low-carbon economy. Canada welcomes sharing its experience with interested parties, Alberta, B.C., and Québec continued to implement their including through forums such as CPLC. Any country existing carbon pollution pricing systems. B.C.’s carbon tax considering carbon pollution pricing can benefit from an increased to $35 per ton in April 2018 and will rise to $40 exchange of lessons learned, policies, and best practices. per ton in April 2019. The Canadian approach may provide useful lessons about how to develop a coherent pricing regime while allowing W New provincial systems started in January 2019 in for different system designs. Newfoundland and Labrador (carbon tax and output- based pricing system), Nova Scotia (cap-and-trade), and hy does carbon pricing make sense for Saskatchewan (output-based pricing system for some Canada, both as a climate policy and as industrial sectors). Carbon pollution pricing systems are on a key component to fulfilling Canada’s track to take effect in Prince Edward Island (carbon levy in economic and social agenda? THOUGHT LEADERSHIP CARBON PRICING LEADERSHIP REPORT 2018/19 Simply put, because it works. Pricing carbon pollution to choose cleaner options. It is not about raising is the most efficient way to reduce greenhouse-gas revenues, but recognizing that pollution has a cost, emissions and stimulate investments in clean innovation. and encouraging cleaner growth and a more sustainable future. Canada has a plan—the Pan-Canadian Framework on Clean Growth and Climate Change—that protects the All direct proceeds from the federal carbon pollution environment while growing the economy. According to pricing system will be returned to the province or Clean Energy Canada, a think tank that studies climate territory of origin. All households in the four Canadian change, an average of 118,000 annual jobs will be provinces where the federal carbon pollution pricing 26 created between now and 2030 due to economic activity system is being imposed (Ontario, Manitoba, New associated with energy efficiency measures. The three Brunswick, and Saskatchewan) will get a Climate Action provinces that already have carbon pollution pricing Incentive payment when they file their taxes this year. systems—B.C., Alberta, and Québec—were also among the top producers in GDP growth across Canada in 2017. Together with many federal and provincial programs, the Climate Action Incentive will mean Canadians will For Canadian families, climate change means worrying have more money to make clean choices: renovate their about what kind of planet we are leaving for our kids. homes, buy a smart thermostat, or switch to a more fuel- T Canadians know pollution isn’t free. They are paying efficient car. that price today in terms of record storms, wildfires, floods, and heat waves—all of which carry real here are a number of different economic costs. climate policies. What role does carbon pricing play? Canadians tell us they don’t want more carbon pollution. They want to be able to support their families while also A price on carbon pollution is an essential part of protecting the environment. Pricing carbon pollution Canada’s plan to fight climate change and grow the works for the environment and the economy. It creates economy. Pricing carbon pollution is the most efficient incentives for individuals, households, and businesses way to reduce greenhouse-gas emissions and stimulate investments in clean innovation. A price on carbon As committed to in Canada’s climate plan, the Pan- pollution creates incentives for individuals, households, Canadian Framework on Clean Growth and Climate and businesses to choose cleaner options. Change, the government will also continue its commitment to conduct reviews. Federal, provincial, and While pricing carbon pollution is key, it is not the only territorial governments will complete an assessment of thing Canada is doing to fight climate change. The carbon pricing approaches and best practices. This will country’s clean growth and climate plan includes more address competitiveness and carbon leakage risks for than 50 concrete measures to reduce carbon pollution, emissions-intensive, trade-exposed sectors. This will help help us adapt and become more resilient to the impacts of inform the broad assessment of carbon pricing across a changing climate, foster clean technology solutions, and Canada in 2022 as well as the interim report in 2020. W create good jobs that contribute to a stronger economy. Also, as part of ongoing collaborative work through the hy is CPLC important to advancing Canadian Council of Ministers of the Environment, carbon pricing around the world? federal, provincial, and territorial governments worked together to look at options for a pan-Canadian CPLC is a forum for governments, greenhouse-gas offsets framework. In 2018, the council businesses, non-governmental organizations, and civil worked to support governments in the development society leaders to share knowledge. Whether potential and implementation of their offset programs. It members are experienced or new to carbon pricing examined specific elements of offset program design and or simply considering the measure as a tool to achieve encouraged opportunities for shared infrastructure, with emissions reductions, they can gain valuable knowledge a view to enabling greater alignment and transferability by becoming part of the CPLC initiative. Membership of offsets across Canada. The council developed can inform decisions and policy design, as well as guidance and recommendations for consideration by advance research related to key carbon pricing issues. jurisdictions in developing offset programs or refining their existing programs. Jurisdictions will consider those At COP24 in Katowice, Poland, I joined members recommendations in the coming years. of CPLC for an in-depth discussion on how proceeds from carbon pollution pricing can play a powerful role in fighting climate change and supporting sustainable development. Canada’s climate change policy has benefited from CPLC. Major Canadian businesses are longtime supporters of the initiative. On December 12, 2017, at the One Planet Summit in Paris, France, the 27 government of Canada, and the governments of Alberta, B.C., Nova Scotia, and Québec, joined other CPLC members in announcing the creation of the Declaration on Carbon Pricing in the Americas (see page 40). These steps bring CPLC members from business and governments together to promote the use W of effective carbon pollution pricing. hat is next for carbon pricing? In Canada, the coming year will be about implementing carbon pollution pricing throughout the country. This will include implementing the federal carbon pollution pricing system in provinces and territories where it applies, and returning all direct proceeds to the jurisdictions where they originated. PERSPECTIVES CLIMATE CÔTE D’IVOIRE GROUP Côte d’Ivoire is exploring the potential of a carbon [Senegal] With the support of the United Nations tax to put the country on a low-carbon development Framework Convention on Climate Change’s pathway. With the support of the PMR and CPLC, (UNFCCC’s) Collaborative Instruments for Ambitious Côte d’Ivoire held an inter-ministerial dialogue on a Climate Action (CI-ACA), Perspectives Climate Group carbon tax31 in October 2018. The event showcased and Dakar-based Afrique Energie the political will to consider carbon pricing as a cost- Environnement engaged effective policy instrument in West Africa. Since with key stakeholders then, three key sectors that are particularly to identify the most critical for the country’s NDC targets have appropriate types been identified: energy, transport, and of carbon pricing land use/forestry. instruments for Senegal. Studies analyzing various options Between August to incorporate sustainable and December development considerations within 2018, the team fiscal policies in these key sectors conducted a are starting in spring 2019. This study evaluating fiscal policy approach, which is the various also being explored in Ethiopia and carbon pricing Senegal, has the potential to become CARBON PRICING LEADERSHIP REPORT 2018/19 options. An analysis a game changer as it will be the first of the generic time that carbon pricing is applied in a strengths, weaknesses, lower-middle-income country. The coming opportunities, and threats year will show whether the unique potential of related to the introduction of carbon pricing to both curb emissions growth and a carbon tax, a baseline and credit yield significant benefits such as clean air can also be system, a cap-and-trade scheme, or fiscal reform was leveraged in low- and lower-middle-income countries. linked to an in-depth assessment of the characteristics of emissions in the key sectors of the Senegalese economy. Based on this information, various sector- MÉXICO2 specific working groups, consisting of public and [Mexico] The Mexican Carbon Markets Platform, private sector representatives, then ranked the different MÉXICO2, helps public and private entities in Mexico, carbon pricing instruments. Latin America, and the Caribbean transition towards a low-carbon economy, increase their productivity, and Due to the small number of large emitters in Senegal, address climate change. MÉXICO2 is at the forefront of 28 a national cap-and-trade scheme was ruled out; promoting the adoption of carbon pricing mechanisms at best, such a scheme could be introduced at the in different countries, which last year included Mexico, regional level. Fiscal reform was regarded as politically the Dominican Republic, and Peru. challenging. The discussions thus focused on a carbon tax and the way revenue recycling should be From December 2017 to June 2018, MÉXICO2, undertaken. Private sector representatives favored in partnership with the Mexican Stock Exchange and PHOTO PROVIDED BY PERSPECTIVES CLIMATE GROUP. redistributing the revenue to companies carrying the the Ministry of Environment and Natural Resources, carbon tax burden, while public sector representatives and with technical assistance from the Environmental preferred redistributing the revenue to the population Defense Fund, ran the Mexican Carbon Market or earmarking it for emission reduction projects. To Simulation Exercise to encourage emissions reductions deepen these discussions, the study recommends in the public and private sector. This exercise, which defining the tax base (ideally, electricity and fossil replicates a real-life ETS, runs through a digital platform fuel production as well as solid and liquid waste and simulates all the elements of a real market, management institutions) and discussing the applicable including auctions, regulated exchange markets, tax rates, revenue recycling, and enforcement. A over-the-counter markets, flexibility, and price baseline and credit system was also viewed positively, control mechanisms. especially if it can generate revenues from selling carbon credits abroad. Mexico More than 200 people, representing 24 subsectors and more than Dominican Republic GOVERNMENTS AND REGIONAL LEADERSHIP 100 private and public organizations, as well as non-governmental organizations, and academia participated in the exercise. Together, the companies accounted for over 67.8% of the greenhouse-gas emissions of the country.32 The results of the simulation were presented at a closing ceremony, where the participants with the best performance were awarded prizes. [Peru] Between July and November 2018, MÉXICO2 worked together with the British Embassy in Lima Following its success, the Carbon Market Simulation and other public and private stakeholders to identify Exercise was presented at the Latin American Carbon the most suitable carbon pricing options for Peru Pricing Forum hosted in São Paulo in June 2018. within the framework of the country’s Climate Change Law. Activities included a review of carbon [Dominican Republic] Developed by MÉXICO2, taxes implemented in Latin America and a review of the CI-ACA Dominican Republic project, a UNFCCC public policies and other environmental actions that initiative, aimed to provide the government of the have been implemented or are under consideration 29 Dominican Republic with a solid understanding of the by the Peruvian government related to reducing theory and experience of carbon pricing worldwide emissions and carbon pricing. Based on this work, and to explore the feasibility of implementing the most a brief roadmap for the adoption of carbon-related widely used carbon pricing market-based mechanisms market mechanisms—as well as recommendations and (namely, carbon taxes, ETSs, and hybrid schemes), considerations for the implementation of a monitoring, as well as other instruments related to renewable reporting, and verification system, a carbon tax, an ETS, energy use like green certificates, to contribute to the or hybrid schemes—was presented to public sector achievement of the country’s NDCs. stakeholders. In November 2018, the consulting team presented In November 2018, a dialogue on establishing a PHOTOS PROVIDED BY MÉXICO2. the results of the project in a validation session held carbon price in Peru was held with the government, in Santo Domingo. This included an assessment of the businesses, independent advisers, and other technical and political feasibility of each mechanism; stakeholders. All participants agreed on the need to an assessment of the acceptance from the public establish carbon pricing instruments and expressed and private sector for each of the mechanisms; their interest in continuing to learn about the subject. and recommendations regarding the possible Notably, Peruvian government officials spoke in favor implementation of each mechanism. of promoting these mechanisms internally. Regional carbon pricing study in East and Southern Africa UNFCCC The UNFCCC Regional to implementation, gaps, and This study will also act as a decision- Collaboration Centre in Kampala, solutions; and analyzing links to making guide for donors interested Uganda, in partnership with the NDC mitigation targets, economic in supporting the implementation United Nations Environment priorities, and sustainable growth. of carbon pricing instruments in line Programme and GIZ, is conducting with country needs and priorities a regional carbon pricing study As carbon pricing is rooted in to achieve their NDC targets and that explores the feasibility a jurisdiction’s legal framework Sustainable Development Goals. and readiness of implementing and relies on the quantification of different carbon pricing emissions, assessing the readiness The study is being conducted instruments in Ethiopia, Kenya, of carbon pricing will largely focus under the CI-ACA work stream, Mauritius, Rwanda, and Uganda. on existing monitoring, reporting, which helps parties develop ideas This includes identifying elements and verification infrastructure and build capacities to explore of carbon pricing and related and legal and policy frameworks. collaborative instruments for instruments that are already in Potential scenarios and use of accelerating climate action. For place; spotting opportunities carbon pricing revenues to more information on the CI-ACA for implementing various reduce adverse impacts may work stream, please go to the approaches; identifying barriers also be analyzed. UNFCCC website.33 CARBON PRICING LEADERSHIP REPORT 2018/19 30 GOVERNMENTS AND REGIONAL LEADERSHIP 31 BELGIUM From January 2017 to June 2018, the Belgian Federal This participative approach was unanimously Climate Change Service organized a national debate praised and helped build a large consensus around to discuss the design and implementation of carbon the measure in the country. In 2019, the Belgian PHOTO PROVIDED BY GOVERNMENT OF BELGIUM. pricing in Belgium. This debate focused on the government will continue working on implementing sectors not covered by the European ETS (mainly the this important measure. This includes finding transport and housing sectors). solutions to identified barriers and conducting research on, for example, the potential impact on The final report integrates the results of the social justice and how to communicate on carbon discussions and the feedback received from pricing. This work will feed the Belgian political stakeholders during workshops and suggests debate with fact-based analysis.35 options for implementing a carbon price in the Belgian non-ETS sectors. The results were also presented34 at COP24. Italy: Eliminating environmentally harmful subsidies To design ambitious and subsidies is represented by fossil G20 peer review on fossil efficient climate and fiscal fuel subsidies, totaling €12 billion. fuel subsidies policies, information on both In 2009, G20 partners decided environmentally harmful and The catalogue of environmentally to start phasing out fossil fuel environmentally friendly subsidies, relevant subsidies is part of a subsidies as they encourage with particular emphasis on general effort to analyze and wasteful consumption and fossil fuel subsidies, is needed. evaluate fiscal erosion, tax undermine efforts to deal with Removing fossil fuel subsidies expenditures, and existing tax the threat of climate change. helps restore fair carbon prices breaks and incentives. Moreover, The impact of eliminating fossil and eliminates privileged it supports the attempts of fuel subsidies on carbon prices treatment, which distorts the reform for a “fairer, transparent, is direct and immediate; their market and hides the true cost and growth-oriented tax system.” removal would help restore fairer of carbon and climate change. carbon prices on the market. Countries such as Italy, France, Other countries have launched and Germany have compiled similar inventories. In 2011, China and the United States were analytical reports (such as France compiled a catalogue on the first two countries to be peer inventories) of environmentally biodiversity harmful subsidies. reviewed just after the ratification harmful subsidies to help inform The report identifies and of the Paris Agreement. The CARBON PRICING LEADERSHIP REPORT 2018/19 the drafting and adoption of classifies subsidies harmful to commitment of two of the largest policies by decision-makers. biodiversity according to their polluters to transparently report drivers of pressure (such as their plans on phasing out fossil Inventories of environmentally subsidies encouraging habitat fuel subsidies in the medium term harmful subsidies destruction, overexploitation sent out a strong signal to the The Italian Parliament asked the of natural resources, and rest of the world. This paved the Ministry of Environment to prepare climate change). way for two other G20 partners, an annual national catalogue Mexico and Germany. Their peer of environmentally harmful In 2016, the German Federal reviews were released in 2017. subsidies and environmentally Environment Agency In 2018, it was Indonesia and friendly subsidies. The Parliament (Umweltbundesamt) published an Italy’s turn (reports are expected adopted a broad definition of updated report on environmentally to be published in spring 2019). subsidies, including “among harmful subsidies in Germany, Argentina and Canada have others, incentives, tax benefits, worth over €57 billion. In addition, announced that they will be peer preferential financial treatments, the Federal Nature Agency is reviewed in 2019. It is possible and exemptions.”36 The first edition preparing a report on biodiversity that other countries may join the 32 of the catalogue classifies subsidies harmful subsidies. exercise in 2019 as well. in five sectors: agriculture, energy, transport, value-added tax, and In February 2018, the Organisation The exercise aims to involve as “other,” considering both tax for Economic Co-operation and many countries as possible and expenditures and direct subsidies, Development published an updated highlight the efforts of countries with reference to the financial Inventory for Support Measures that have already undergone peer effect in 2016. for Fossil Fuel Subsidies37 applied review to track progress towards on a global scale. This unique the 2°C goal and the phasing- The total estimates for 2016 suggest database, developed together with out of fossil fuel subsidies. This that environmentally harmful the International Energy Agency, process is essential to increasing subsidies and environmentally provides data on tax expenditures the effectiveness and efficiency of friendly subsidies have a yearly and direct subsidies related to fossil carbon pricing mechanisms.39 financial effect of €16.2 billion and fuels for 76 countries around the €15.7 billion, respectively. The world that contribute 94% of bulk of environmentally harmful global emissions.38 ICF [China] China’s government is just over a year into a three-year staged introduction of its national ETS for the power sector. ICF is actively engaged in helping In conjunction with the 2018 survey, the project team the Chinese government and industry stakeholders convened three industry roundtable events to share prepare for the rollout of the ETS across the nation. views from key stakeholders and industrial sectors. The Once established, China’s ETS will be the world’s topics were “Monitoring, Reporting, and Verification largest carbon market. in the Power Sector,” “Preparing to Join the ETS” for other key greenhouse-gas emitting sectors, and To prepare environmental protection agencies for “Monitoring, Reporting, and Verification in the Cement the introduction of the ETS, Chinese consultancy and Aluminum Sectors.” SinoCarbon, which is implementing the EU-China ETS Platform together with ICF, conducted training On November 15, 2018, the EU-China ETS Platform, for provincial and city-level Ministry for Ecology and together with the China Carbon Forum, hosted a public the Environment officials and representatives from event in Beijing on “The Future of Emissions Trading the power sector in December 2018. In particular, in China and the EU” to coincide with a visit by a the training aimed to improve their knowledge of the delegation from the EU’s Climate Action Department. carbon market, its principles, design, and operation, as well as the role and function of government in the INTERNATIONAL ETS. It also involved trial allocation training for power companies to support the Climate Change Department EMISSIONS TRADING ASSOCIATION (IETA) GOVERNMENTS AND REGIONAL LEADERSHIP in testing and improving the national allocation plan. At the same time, the training was intended to engage [Canada] For over a decade, Canada has solidified the companies required to comply with the ETS and its reputation as a leader in carbon pricing. Since prepare for the future allocation of allowances. 2007, provinces such as Alberta, B.C., and Québec have introduced various carbon pricing mechanisms. The EU-China ETS Platform has launched joint research Overlaying these active sub-national carbon pricing work, involving Chinese and European experts, to activities is Canada’s new federal carbon pricing provide practical advice to the Chinese government backstop program. on transitioning from pilot carbon markets to a fully functioning national ETS, as well as on market Canada launched the Pan-Canadian Framework on oversight. At the launch meeting on November 16, Clean Growth and Climate Change in 2016. Pricing 2018, three expert subgroups were created to lead carbon pollution is a central component of the on the transition of allowances from the regional framework, which required every province and territory markets to the national ETS; the supplementary role of to have a carbon pricing system in place by January 1, pilots to the national ETS during the transition period; 2019, otherwise a federal “backstop” system would be and the proposal of a feasible roadmap and associated applied. This federal system includes a carbon levy on 33 policy recommendations. fossil fuels and an output-based pricing system for large industrials, defined as those emitting more than 50,000 In July 2018, ICF, together with the China Carbon tons of CO2e per year (smaller emitters can opt in). Forum, launched the report of the 2018 China Carbon Pricing Survey. Conducted regularly since 2013, the The price of the federal program started at C$20 survey represents the most in-depth and extensive per ton of CO2e and will increase by C$10 per ton of summary of stakeholder views on China’s carbon CO2e each year until reaching C$50 per ton of CO2e market development. The project provides useful in 2022, at which point the program will be reviewed. insights for policymakers and market participants about Canada’s federal program is “carbon neutral,” meaning the development of China’s carbon market. that revenue from the mechanism will be returned to Canadians living in the province or territory of origin. It is important to highlight that Canada’s backstop output-based pricing system is a federally mandated and administered emissions trading and offsets program to ensure economic competitiveness across major industrial and power sectors. Through the output-based pricing system, covered entities can pay into a fund or use tradable units (that is, surplus and offset credits) to meet annual compliance obligations. Although elements of the output-based pricing system are still being developed, the compliance system came into force on January 1, 2019, and the fuel levy will come into effect across most jurisdictions CARBON CREDIT on April 1, 2019. SOLUTIONS INC. [Alberta] Alberta’s carbon market is undeniably IETA has been working closely with the Canadian one of the best in the world. Other jurisdictions are government and other stakeholders to support flexible, replicating Alberta’s model at a rapidly growing fair, and well-designed pricing measures, underpinned rate—from Brazil and Colombia to Oregon and by environmental integrity, for two decades. In 2019, China. Alberta’s market has resulted in technological it will continue to support the federal government as innovation and millions of measurable greenhouse-gas it continues to design and implement its innovative reductions. Today, the value of tradable compliance hybrid approach to carbon pricing. IETA will also units active in the Alberta market exceeds $680 million. continue to advocate for Canadian business and clean Its success is impressive but unheralded. export opportunities through smart operationalization of Article 6, the market provisions under the Paris Alberta’s emission reduction market, the first Agreement. Despite the absence of a formal decision at compliance market in the Americas, is reducing COP24 in 2018, Article 6 continues to be a priority for greenhouse-gas emissions while increasing investment both Canadian business and governments, which will in technological innovation. Since its inception the CARBON PRICING LEADERSHIP REPORT 2018/19 work together in 2019 to support a successful Article 6 market has generated 50 million verified emission decision at COP25. reductions;40 25 million emission performance credits;41 and investment of $375 million in 128 emission Carbon Market Platform reduction technology projects that have added The Carbon Market Platform brings together a $1.8 billion to Alberta’s GDP.42 This has occurred diverse group of countries and non-state actors to because Alberta has an effective, results-oriented, discuss how to develop and implement market-based market-based climate policy that builds wealth, creates approaches to reducing greenhouse-gas emissions, jobs, and diversifies the region’s economy, while including by putting a price on carbon pollution. In respecting citizens’ quality of life, the environment, September 2018, Canada hosted, and co-chaired and its economy and industrial competitiveness. This with Germany, the third annual Strategic Dialogue of has created tremendous opportunities for project the Carbon Market Platform in Halifax, Nova Scotia. developers that have invested in Alberta. Participants shared knowledge and best practices on implementing carbon pricing and explored solutions Carbon Credit Solutions is helping Alberta lead the to common political, technical, and institutional way in reducing emissions from two of Canada’s most 34 challenges. Participants identified the need to promote important business sectors: oil and gas, and agriculture. the opportunities of carbon pricing, expand economic It started as an aggregator developing verified modeling, and enhance carbon pricing coordination emission reductions on behalf of Albertan farmers in among governments. This year, France will host the 2008. Its first project had 16 participants and generated fourth Strategic Dialogue and co-chair with Canada. 7,265 verified emission reductions for the 2008 crop Both countries will work to develop an agenda that year. Since then, it has generated over $44 million complements the outcomes from last year’s meeting in revenue for 3,156 clients, who have generated and reflects current trends in carbon pricing. 4,077,348 verified emission reductions. In 2018, it was ranked 28th on Deloitte’s Technology Fast 50 list in Canada and 140th on Deloitte’s North America Fast 500 list, demonstrating that it is possible to create a highly successful business in an efficient carbon market. Carbon Credit Solutions is also helping oil and gas CALIFORNIA producers profit from greenhouse-gas emission California’s cap-and-trade program is a key element reductions by providing them with mechanical to ensuring that the state meets its greenhouse-gas chemical injection pumps and controllers that eliminate reduction targets and does so in a cost-effective methane emissions, which are paid for with their manner. In AB 398, the legislature clarified the role of verified emission reductions. Once the equipment is the cap-and-trade program in achieving the emissions paid for, it can continue to generate verified emission reduction target of 40% below 1990 levels by 2030 reductions and a new revenue stream for its owners. and added specific requirements for aspects of the program. In December 2018, the California Air Tetra Tech, a multinational engineering firm, received Resources Board adopted amendments to define funding from Emissions Reduction Alberta to pilot a the program through 2030 and provide investment new landfill cap technology called Evapotranspirative: certainty to business. Key amendments include: Landfill Biocover. This innovative landfill cover creates an environment that favors the growth of ■ Establishing a hard price ceiling that escalates methanotrophs, a naturally occurring bacteria that each year, reaching $91 in 2030. “eats” methane and turns it into carbon dioxide. A pilot ■ Adding two reserve tiers below the hard project in Alberta is reducing methane emissions by price ceiling. 90%. Carbon Credit Solutions is developing a joint ■ Reducing the offset usage limit. venture with Tetra Tech to implement these caps on ■ Establishing criteria so that at least half of the landfills and generate verified emission reductions.43 allowable quantitative offset usage limits after 2020 The credits will cover the cost of the cap and produce result in direct environmental benefits in California. a healthy return for the landfill owners. This project is a ■ Delinking the program from Ontario’s program, GOVERNMENTS AND REGIONAL LEADERSHIP great example of Alberta’s market success. Compliance which has been revoked. revenues collected by the government were used to create this new technology that reduces greenhouse- California Air Resources Board staff also began public gas emissions. The same market framework made the discussions on achieving carbon neutrality by mid- implementation of the technology economically viable. century, as called for in Governor Brown’s Executive Order B-55-18 signed in September 2018. Carbon Credit Solutions and its partners are committed to supporting Alberta’s success and, in doing so, In 2018, California also: sharing these best practices with other provinces and jurisdictions. It is only through committed collaboration ■ Hosted the successful Global Climate Action for mutual benefit that long-lasting greenhouse-gas Summit in September, which generated over 500 emission reductions will occur. commitments to international climate action. ■ Announced an enhanced bilateral collaboration with the EU on carbon pricing. ■ Continued implementing over 50 partnership agreements with international jurisdictions. 35 ■ Co-chaired the U.S. Climate Alliance and America’s Pledge efforts—aimed at elevating California and state leadership abroad. ■ Took over co-chair of the International Climate Action Partnership (ICAP). ■ Recruited additional members to the Under2 Coalition—now representing over 1.3 billion people and 43% of the global economy. ■ Highlighted its effective programs and policies through multilateral forums, international conferences, and over 100 visiting delegations to the California Air Resources Board. ■ Collaborated with international partners on carbon markets, zero-emission-vehicle policies, and short- lived climate pollutant strategies, among other California Air Resources Board priorities. QUÉBEC Emissions Trading Phase 4: Implementing the Québec’s cap-and-trade system, which has been EU’s NDC linked to California’s for the past five years, is going On February 27, 2018, the European Council formally strong. On November 1, 2018, all of the system’s 118 approved the reform of the EU ETS after 2020. The covered emitters fulfilled their compliance obligation revised ETS directive is a significant step towards for the second compliance period (2015–17)—a 100% the EU reaching its target of cutting greenhouse-gas success rate identical to the one registered at the emissions by at least 40% by 2030, as agreed under the end of the first compliance period (2013–14). Despite EU’s 2030 climate and energy framework, and fulfilling steady economic growth, the annual greenhouse-gas its commitments under the Paris Agreement. emissions from the industrial sector in the second compliance period decreased by an average of The revised ETS introduces the following elements: 2% compared with the first period. The Québec government interprets this positive result as meaning ■ The cap on the total volume of emissions will be that Québec’s largest emitters are fully engaged in the reduced each year by 2.2%. carbon market and considers it an effective economic ■ The number of allowances to be placed in the instrument to reduce greenhouse-gas emissions. market stability reserve will be doubled temporarily until the end of 2023 (feeding rate). To date, the system has generated more than ■ A new mechanism to limit the validity of allowances C$2.9 billion in revenue, which has all been deposited in the market stability reserve above a certain level in the Québec Green Fund, a fund dedicated to the will take effect in 2023. protection of the environment. All cap-and-trade revenues are invested in mitigation and adaptation The revised ETS directive also contains several new CARBON PRICING LEADERSHIP REPORT 2018/19 measures to fight climate change. At the November provisions to protect industry against the risk of carbon 2018 joint auction with California, the price of leakage and the risk of applying a cross-sectoral allowances reached C$20 for the first time, more than a correction factor. For example: dollar above the minimum price, sending the strongest carbon price signal ever recorded throughout the ■ Revised free allocation rules will enable better Québec economy. Moreover, for the first time, Québec alignment with the actual production levels of businesses emitting between 10,000 and 25,000 tons companies, and the benchmark values used to of CO2e per year were allowed to voluntarily register in determine free allocation will be updated. the system. This measure added an element of fairness ■ Sectors at the highest risk of relocating their to the system in favor of medium-size emitters. production outside the EU will receive full free allocation. The free allocation rate for sectors less In 2019, Québec plans to draft its post-2023 free exposed to carbon leakage will amount to 30%. allocation rules and, along with California, will continue A gradual phase-out of the free allocation for the to look for opportunities to expand the Western less exposed sectors will start after 2026, with the Climate Initiative carbon market to include jurisdictions exception of the district heating sector. with similar ambitions to put a price on carbon. ■ Member states can continue to provide 36 compensation for indirect carbon costs in line EUROPEAN UNION with state aid rules. Reporting and transparency provisions are also enhanced. Long-Term Strategy and Carbon Neutrality On November 28, 2018, the European Commission Florence Process called for a climate-neutral Europe by 2050. The In May 2018, the Carbon Market Workshop, organized commission presented its strategic long-term vision for by the European Commission and the European a prosperous, modern, competitive, and climate-neutral University Institute, brought together policymakers economy by 2050. The strategy shows how Europe from carbon markets worldwide—California, can lead the way to climate neutrality by investing in Canada, China, the EU, and New Zealand—as well realistic technological solutions, empowering citizens, as academics and non-governmental organizations and aligning action in key areas such as industrial to exchange experiences with ETSs and enhance policy, finance, and research—while ensuring social collaboration. fairness for a just transition. The commission’s vision for a climate-neutral future covers nearly all EU policies The workshop falls under the Florence Process, and is in line with the Paris Agreement44 objective of which aims to collect and disseminate empirical limiting global temperature increase to below 2°C. knowledge and information on the functioning of ETSs worldwide, establish a network of ETS experts, California and create a forum enabling interaction among The EU and California have a successful track record policymakers and ETS experts. of technical exchange and mutual support on climate action and carbon markets. Commissioner Arias Cañete Jos Delbeke, the European Commission’s Senior and Governor Jerry Brown renewed and deepened their Adviser for Relations with the Florence European joint commitment and confirmed their view that greater University Institute, said of the Florence Process: alignment of carbon markets is in the interests of both “There is a lot of scope for exchange, mutual learning, regions. Aligning carbon markets could maximize and and enhanced cooperation between carbon markets.” leverage climate action for economic transformation while ensuring real progress in reducing greenhouse- Beatriz Yordi, the director responsible for European gas emissions. The leaders also emphasized the need and international carbon markets at the European to engage other jurisdictions with similar and emerging Commission’s Directorate-General for Climate Action, programs to foster broader dialogue. added: “The Florence Process offers a unique forum for such exchange with a view to fully exploit the In 2019, officials from the EU and California will increase potential for further development, strengthening, and the frequency of exchanges, including on principles for convergence of carbon markets worldwide.” alignment and the role of carbon pricing in: The EU’s International Collaboration on ■ Sending near- and long-term investment signals for Emissions Trading transformative technologies. In 2018, the EU explored further bilateral cooperation ■ Addressing economic competitiveness. with major economies also pursuing emissions trading, ■ Maximizing the public benefits of using program GOVERNMENTS AND REGIONAL LEADERSHIP built on its existing relationship with China, and revenues. forged new collaborations with California and New Zealand. It also participated in various conferences and They also agreed to review and report on progress in meetings: the European Commissioner co-hosted a these exchanges in 12 months. major conference on carbon pricing with California as an official affiliate event of the Global Climate Action New Zealand Summit in San Francisco. The EU also continues to host Regarding the collaboration between the EU and an informal meeting of senior administrators of the New Zealand, Commissioner Arias Cañete said: “Both ETSs through the Florence Process (see above). the EU and New Zealand are committed to ambitious action on climate change and to a low-carbon Following a breakdown in negotiations at United economy. We both have successfully put in place Nations level at COP24, the EU is planning a ETSs since many years. Our respective systems are conference to look at how to deliver robust rules and key pillars of our climate policies, and we are keen to standards for international carbon markets, in an effort intensify our cooperation on carbon markets to best to resolve the deadlock. contribute to the objectives of the Paris Agreement and together contribute to the promotion of emissions 37 China trading as a climate mitigation policy.” The memorandum of understanding on EU-China cooperation on emissions trading establishes a policy New Zealand Minister for Climate Change James dialogue and foresees the joint organization Shaw acknowledged the importance of developing of seminars and workshops, as well as joint high-integrity carbon markets and the value of research activities. cooperation, saying: “Cooperation with other partners takes on even greater importance following COP24. Commissioner for Climate Action and Energy Miguel We have enormous respect for the EU’s experience Arias Cañete said: “Further developing cooperation and expertise and look forward to deepening our between the two largest ETSs of the world is not only connections as we implement our commitments under in our mutual interest but also necessary to tackle the Paris Agreement.” common challenges in the mid and longer term. The newly established policy dialogue will be instrumental in this context.” GERMANY Global Carbon Market The German Federal Ministry for the Environment, The Global Carbon Market program,61 implemented Nature Conservation, and Nuclear Safety (BMU) on behalf of BMU by the German development agency supports partner countries in developing and GIZ, supports public and private stakeholders in partner implementing domestic mitigation instruments and is countries to effectively use existing and new market- involved in the technical design of international climate based instruments for the implementation of their policy instruments. To this end, the German federal national climate change activities. Through capacity government, together with its partners, has launched building and innovative exchange and networking numerous initiatives in the area of international market- formats, the program helps partner governments based cooperation and carbon pricing. Germany also develop new market instruments for climate change supports research activities and forums to spur the mitigation and exploit the opportunities that are likely development of innovative approaches in the carbon to arise from Article 6 of the Paris Agreement. It helps market. Below is an overview of the diverse initiatives private sector stakeholders to participate in market- supported by BMU. based approaches to tackle climate change and to set an internal price on carbon. Program partners Further Development of New Market Mechanisms are Chile, India, Tunisia, and Uganda/East Africa. The Wuppertal Institute for Climate, Environment, and Through this program, BMU is reinforcing cooperation Energy supports BMU through scientific advice and with developing countries. In addition, the program public relations work related to cooperative climate supports BMU in the UNFCCC negotiations on Article action. It develops policy papers and reports on 6 and in its international outreach activities concerning UNFCCC negotiations and meetings. In addition, it carbon pricing and market-based mechanisms. designs and organizes workshops to discuss selected CARBON PRICING LEADERSHIP REPORT 2018/19 topics with experts.45 Linking Market Mechanisms and Climate Finance in Africa The Wuppertal Institute also helps BMU disseminate Through its International Climate Initiative, BMU information and network with the professional is promoting a climate finance initiative62 from public. This includes the publication of the Carbon Perspectives Climate Group. The initiative is piloting Mechanisms Review, a specialist journal focusing on replicable climate finance models in Ethiopia, Senegal, cooperative market-based climate action. The journal’s and Uganda that can support the countries in achieving website46 provides information on the German federal their NDC targets. The project team works with the government’s initiatives, presents the findings of other governments and the private sector to formulate research projects supported by BMU, and provides climate finance proposals that leverage the potential information on current developments in the field.47 of the host countries’ existing climate policies and activities. German Federal Authorities Travel Climate Neutral63 38 The German government aims wherever possible not Market development initiatives to fly but to use video conferencing or to go by train instead. Where this is not possible, all greenhouse- gas emissions from car journeys and air travel of the Carbon Market Platform48 • Partnership government’s 121 ministries and federal authorities for Market Readiness49 • Carbon Pricing are offset. In 2017, credits for about 300,000 tons of Leadership Coalition50 • Pilot Auction CO2 emissions were bought and cancelled. The credits Facility51 • Transformative Carbon Asset come exclusively from projects that have been certified Facility52 • Nitric Acid Climate Action Group53 according to United Nations rules under the Clean • International Carbon Action Partnership54 Development Mechanism and meet additional quality • PoA Working Group55 • Foundation “Future criteria. By voluntarily offsetting unavoidable emissions, of the Carbon Market”56 • Emissions offsetting the government hopes to motivate the private sector to for the German government’s business travel57 follow suit. • Innovate4Climate58 • West African Alliance on Carbon Markets and Climate Finance59 Nitric Acid Climate Auctions Program • Article 6 Support Facility60 In 2015, BMU launched the Nitric Acid Climate Action Group, which provides technical and financial assistance to countries to incentivize the installation of effective nitrous oxide abatement technology in nitric acid plants across the globe. The initiative provides funding to projects that abate nitrous oxide from nitric acid production in countries that have signed a letter of commitment with the Nitric Acid Climate Action Group, thus committing to effectively regulate nitrous oxide emissions in the future. The initiative offers two types of financial support: grants for plant operators to buy and operate greenhouse-gas abatement technology and the Nitric Acid Climate Auctions Program. The program will allow private sector companies to compete in an auction to buy price guarantees that will give them the right but not the obligation to deliver eligible nitrous oxide emission reductions to the program in the future at a predetermined price. GOVERNMENTS AND REGIONAL LEADERSHIP The program is based on the experiences of The World Bank-implemented Pilot Auction Facility for Methane and Climate Change Mitigation, the first auctioning program of the broader Climate Auctions Program. Along with other countries, Germany provided funding including stakeholders from Uganda, Ethiopia, to the facility. Climate auctions offer and competitively Burundi, Rwanda, and Tanzania—in the run-up to allocate price guarantee contracts to companies for COP24 in Poland. The aim of the workshop was to reducing greenhouse-gas emissions. The auction prepare negotiators and public and private sector winners buy contracts that allow them to be paid a representatives for Article 6 negotiations during guaranteed price, determined by the auction, for COP24, and to discuss carbon pricing. eligible future mitigation outcomes. Workshop participants shared their insights on carbon The price guarantees offered by the Nitric Acid pricing approaches, expected benefits, and the Climate Auctions Program will help finance abatement possible role of carbon pricing in implementing NDCs. projects and help companies build capacity ahead Even though most of the participants viewed carbon 39 of regulations. They can reveal the incremental cost pricing as important, they felt their countries were of mitigation activities and thereby help companies poorly equipped to implement it. The types of carbon become familiar with pricing mitigation investments. pricing mostly under consideration in the sub-region Furthermore, repeated auctions and greater uptake of are Clean Development Mechanism-type crediting mitigation activities will reduce the cost of the mitigation schemes, taxation of high-emission products and technology, paving the way for further investments. sources, and subsidies for low-emission alternatives. As more countries move towards regulating emissions, In a welcome development, the East African countries the early financial and technical incentives provided by embraced the idea of an East African Alliance on BMU-supported initiatives can help remove some of the carbon markets and climate finance and are currently, industry’s resistance to carbon pricing and help countries with GIZ’s support, working on refining this concept achieve and increase the ambition of their NDCs. and how it might be structured. Once these steps have been finalized, a work program to strategically guide Carbon Markets and Carbon Pricing in East Africa the alliance’s activities will be developed. Once in A workshop organized by the GIZ's Global Carbon place, an alliance could create an avenue for additional Markets program in Uganda and East Africa brought carbon pricing activities while promoting a low- together more than 40 participants from East Africa— emissions, green-development pathway for the region. Regional collaboration on carbon pricing in the Americas The Declaration on Carbon Pricing in the The platform also recently completed its Americas reaffirms members’ support for the Governance Guidelines and Progress Report. Paris Agreement and commits national and sub- The Governance Guidelines will enhance the national government members to implement legitimacy and structure of the platform’s carbon pricing as a central economic and work by outlining roles and responsibilities for environmental policy instrument for reducing members, partners, observers, and endorsers, as greenhouse-gas emissions. Over the past year, well as decision-making authorities. The Progress the declaration’s collaborative platform focused Report highlights the platform’s work to date on expanding visibility and membership, and outlines next steps for each of its five work solidifying its governance structure, and refining streams. In 2019, the platform will continue its work streams. Canada and other members to engage with national and sub-national of the platform participated in several panel jurisdictions across the Americas to expand discussions to promote the declaration, including membership and promote carbon pricing as at the Global Climate Action Summit and at a cost-effective tool for reducing greenhouse- COP24. The Mexican state of Sonora joined as gas emissions. By working together under the the newest member and the Citizens’ Climate declaration, members can achieve targets more Lobby joined as the newest partner. efficiently and enhance ambition. CARBON PRICING LEADERSHIP REPORT 2018/19 CITIZENS’ CLIMATE LOBBY of Representatives on November 26, 2018. [United States] Citizens’ Climate Lobby is a 64 It was the first bipartisan carbon tax bill introduced nonpartisan, nonprofit organization that educates and in the U.S. House of Representatives. In December, empowers citizen volunteers to establish ongoing it was introduced in the U.S. Senate, again with working relationships with their lawmakers to build bipartisan support. political will for carbon pricing. These citizen volunteers 40 have had about 5,000 meetings with members of the The bill puts a fee on carbon-emitting fuels at the U.S. Congress in the past 11 years. point where they enter the economy, making it administratively simpler and creating economy-wide In 2017 and 2018, Citizens’ Climate Lobby volunteers coverage. The fee starts at $15 per ton and rises by published 7,244 letters to the editor in U.S. newspapers $10 per ton per year. All net revenues are returned as well as 1,228 full-length op-eds. In addition, to households in equal shares, as monthly dividend volunteers secured 158 editorials from newspaper checks. The plan is projected to reduce U.S. emissions editorial boards. by 40% by 2030 and by 90% by 2050. The lobby’s volunteers also worked with members From November 2018 to January 2019, Citizens’ of the U.S. House of Representatives to launch the Climate Lobby volunteers sent 9,359 personal Bipartisan Climate Solutions Caucus, which expanded messages to members of Congress and published to 90 members (45 Republicans and 45 Democrats) 824 letters to the editor and 123 full-length op-eds in before the November 2018 midterm elections changed the U.S. Twenty-one newspaper editorials have also the makeup of Congress. endorsed the bill. On January 24, 2019, the Energy Innovation and Carbon Dividend Act was reintroduced All this work led to the introduction of the Energy as H.R. 763, again with bipartisan co-sponsorship, in the Innovation and Carbon Dividend Act65 in the U.S. House U.S. House of Representatives. OUR CLIMATE [United States] Our Climate is a U.S. millennial-led organization that empowers young leaders to effectively advocate for science-based and equitable climate policies. In 2016, Our Climate partnered with the National Geographic documentary series Years of Living Dangerously to launch the national Put A Price On It campaign, which mobilizes youth support for carbon pricing policies at the state, regional, and federal level. Over the past two years, proposed carbon pricing policies have advanced significantly in several U.S. states. Our Climate is an active member of six state coalitions that are backing these policies; its leaders energize coalition efforts through legislative advocacy, media engagement, and campus organizing. In 2018, its 170 student leaders mobilized 10,000 students, organized 135 outreach events, and published 45 media pieces to build public GOVERNMENTS AND REGIONAL LEADERSHIP support for carbon pricing and advance proposed policies. 2019 promises to be an exciting year for carbon pricing in the United States. In the Northwest, lawmakers in Oregon have made carbon pricing a legislative priority, while Washington State continues to consider the best path forward for comprehensive climate action. In the Northeast, 65 House members in the Massachusetts legislature have signed on as co-sponsors for carbon pricing legislation, while regional cap-and-trade programs continue to welcome new states and expand their scope to cover transportation emissions. Various states are considering policies to price carbon, 41 including Colorado, New Mexico, and Utah. Our Climate leaders aim to solidify concrete state-level wins this year. They have hired teams of paid fellows in each priority state—Massachusetts, New York, Oregon, and Washington—and plan to hold a series of Youth Lobby Days that draw hundreds of students to state capitols. To amplify youth support for immediate climate action, student leaders are publishing media pieces, creating social media content, and organizing creative initiatives that build a larger and more inclusive movement to #PutAPriceOnIt. Follow Our Climate’s work on its website, www.ourclimate.us.66 PRIVATE SECTOR CARBON PRICING LEADERSHIP REPORT 2018/19 Our partners in the private sector are taking a leadership role in climate action by implementing internal carbon pricing and other mitigation actions within their organizations while advocating 42 for broader climate action within their industries and countries. THOUGHT LEADERSHIP THE FINANCIAL CASE FOR CARBON PRICING GÉRARD MESTRALLET, CPLC HIGH-LEVEL ASSEMBLY CO-CHAIR; CHAIR, SUEZ; AND HONORARY CHAIR AND FORMER CEO, ENGIE A s a business leader, I support carbon pricing because it is the most cost-effective way to reach the desired environmental outcome and achieve the low-carbon transition. A carbon price also stimulates clean technology and that everybody understands the why and the how and market innovation, fueling new, low-carbon drivers of can contribute to the effort. Carbon pricing makes sense economic growth. ENGIE has implemented an internal for businesses both as a climate policy and as a key carbon pricing system that reflects a medium- to long- component of fulfilling their financial goals. Carbon term assessment of forthcoming regulatory changes, as pricing creates a level playing field between competitors well as switching to low-carbon power generation and but also between all economic players. At the company developing renewables. To do so, the strategy division level, carbon pricing helps factor in the long-term risks draws up sensitivity analysis to carbon pricing for the to company activities and assets in relation to climate company. Businesses use these analyses as part of their change. Additionally, it reduces the risks linked to studies on investment projects that are presented to the decarbonizing investments, increases the profitability investment committee. The adoption of these internal of clean projects, and reduces the use of fossil fuels. carbon pricing systems eventually led to our ceasing of coal development capacities in late 2015. Carbon pricing is a decision-making tool: it helps companies assess the resilience of their projected For companies that are considering using carbon pricing, investments against the risk of future domestic and here is my advice: it is key to be clear on why a carbon regional regulations related to climate change. It also price is set and what the purpose of it is. The company reassures investors by making them more confident that needs to understand where their emissions are coming the company is indeed testing its choices in a climate- from and which sources have the highest potential affected future. emissions reduction. This is where an internal price might be applied. It is then important to review the The private sector is particularly in favor of carbon policies and strategies that are already in place and are pricing as a policy instrument because instead of targeting these sources because overlapping policies and dictating who should reduce emissions where and how, measures might be counter-effective. a carbon price gives an economic signal that allows companies to decide for themselves where/when/how 43 Before setting and deciding to apply an internal price, to invest and develop activities, reduce emissions, or it is important to communicate the idea internally, so continue emitting and pay for it. In this way, the overall environmental goal is achieved in the most flexible and least-cost way to society. For all these reasons, I believe that CPLC is critical to advancing carbon pricing around the world. We need to execute the low-carbon transition now. We should do this in a collaborative coalition advocating for an instrument that gives a level playing field, avoids transfer of polluting activities, and pushes for decarbonized solutions. THOUGHT LEADERSHIP CONSTRUCTION: SEEKING AN INTEGRATED APPROACH TO CARBON PRICING CPLC'S CONSTRUCTION VALUE CHAIN TASK TEAM T he construction industry is hugely fragmented, standardize the implementation of a carbon price and with a variety of actors, and accounts for 25% were interested in learning from the experiences of their to 40% of global emissions. Individual actors peers. A key concern was the need for a level playing are making commendable efforts to reduce their field, and companies saw jurisdictional carbon pricing as own carbon emissions: a recent CPLC report67 highlights a preferred solution. Companies also acknowledged the that of the 1,400 companies implementing or looking to need for an integrated approach to carbon pricing in the implement a carbon price before 2019, about 100 are industry at large, so that sustainability efforts could be from sectors along the construction value chain, including coordinated to maximize effectiveness. infrastructure, construction services, and materials. However, the lack of coordination and consistent The analysis has highlighted the need to bring together application across the industry reduces their effectiveness. decision-makers operating within the value chain to Realizing industry-wide emissions reductions requires an influence and help implement carbon pricing at the integrated approach to sustainability that will influence design and project structuring phases to reduce use- CARBON PRICING LEADERSHIP REPORT 2018/19 decision-making across the value chain, CPLC partners phase emissions without adverse welfare impacts. The such as Acciona, LafargeHolcim, and Rusal supported Construction Value Chain Task Team has begun to work the Construction Value Chain Task Team in developing with organizations such as the World Business Council such an integrated approach through an analysis piece in for Sustainable Development to find effective synergies 2018/19. between carbon pricing in the construction industry and other tools such as Science-Based Targets, thus assisting The research aimed to develop a shared understanding the industry’s transition to a low-carbon future. of what the construction value chain is, discuss broad approaches to sustainability from sectors along the value The work of some of our partners in the construction chain, and showcase approaches to carbon pricing by value chain is highlighted in this section. CPLC partner companies in the industry. Twelve CPLC member companies from sectors across the value chain, including aluminum, cement, glass, steel, infrastructure, construction services, and equipment manufacturing, were interviewed, and their attitudes, initiatives, and plans for carbon pricing were documented in the report, Construction 44 Industry Value Chain: How Companies Are Using Carbon Pricing to Address Climate Risk and Find New Opportunities. There are currently no forest and wood production companies that are part of CPLC, hence wood products are missing from the discussion, even though these are a core part of the industry’s value chain. This report outlines some of the unique approaches to carbon pricing and supply chain emissions management that firms are currently taking, as well as common experiences and concerns. Most companies initially faced the challenge of “socializing” executives to mainstreaming the concept of climate change and carbon pricing into their financial considerations, but a change in culture has been brought about by developments such as the Paris Agreement and the recommendations of the TCFD. Companies lack clarity on how to operationalize and LAFARGEHOLCIM and CEO Mahendra Singhi recently announced that the LafargeHolcim, the leading global building materials company aims to become carbon negative by 2040. and solutions company, is committed to reducing Dalmia Cement is the only company from the heavy carbon emissions from its production activities and manufacturing sector to set such an ambitious goal. It is throughout the entire lifecycle of its products and also the only company in the world to commit to both services. It also develops and provides solutions EP 100 and RE 100 initiatives. to reduce the carbon emissions of buildings and infrastructure. Although carbon pricing can be a Carbon pricing is one of the tools in Dalmia Cement’s powerful tool for transitioning towards carbon-neutral strategy to increase electric and thermal energy construction, existing regulatory frameworks need efficiency. Explicit carbon pricing regulations are not to evolve towards more integrated carbon pricing available in India. However, there are other implicit mechanisms that apply across value chains to achieve carbon pricing mechanisms applicable to the industry, larger-scale results. including cement. Dalmia Cement is participating in Perform Achieve Trade, an energy efficiency scheme,69 The fragmented nature of the construction value and a renewable purchase obligation for solar energy,70 chain leads to a disconnection between immediate among others. These regulations, coupled with project-based priorities and long-term lifecycle membership in CPLC, encouraged Dalmia Cement impacts. Carbon pricing mechanisms can address to develop an internal shadow carbon price that is both short- and long-term prerogatives, leading to a applied on a project-by-project basis depending on stronger connection between the providers of carbon- their greenhouse-gas-saving potential. performant products and solutions and their valuation, and thus demand, further down the chain. Mechanisms This shadow price was piloted on a waste-heat recovery that enable carbon prices to become relevant across plant, earlier considered financially unviable due to a value chain (versus a sole focus on the supply side) cheap access to energy from Dalmia Cement’s captive become effective demand-pull levers. power plants. However, the application of a shadow price increases the viability of the waste-heat recovery LafargeHolcim fully supports carbon pricing policies plant, which was then approved as an alternative to that are transparent, simple, and send a stable price another fossil fuel-based captive power plant. The signal while ensuring a level playing field across company’s internal shadow carbon price has paved geographies and between sectors. Furthermore, it the way for the development of two more waste-heat supports a more comprehensive integration of carbon recovery plants and a line of green cement, which PRIVATE SECTOR pricing across value chains in order to accelerate the comes with a commitment to produce only blended demand for climate-efficient products and solutions. cements with a low carbon footprint. DALMIA CEMENT The ultimate goal is to apply carbon pricing to (BHARAT) LIMITED every project. The current level, $11 per ton, was calculated using scenario analysis that considered Dalmia Cement (Bharat) Limited, a subsidiary of Dalmia the expected cost of regulatory compliance as well as 45 Bharat Limited, is a major cement group in India, with competitiveness concerns in the short to medium term. a production capacity of over 27 million tons. CDP68 Re-evaluating and increasing this price will depend has rated Dalmia Cement as the world’s best performer on a favorable future policy environment, including in low-carbon cement manufacturing. To reduce the market-based mechanisms and incentives that will company’s carbon footprint and climate risk exposure, make low-carbon projects such as the waste-heat Dalmia Cement applies the following strategies: recovery plant more economically viable. ■ Substituting clinker. In addition to applying a carbon price, Dalmia Cement ■ Increasing electric and thermal efficiency. engages its supply chain on sustainability using ■ Using pharmaceutical, rubber, and other industrial guidelines developed in collaboration with the Cement waste material as fuel for its cement kilns. Sustainability Initiative. Given that the construction ■ Researching and developing carbon capture, use, industry in India comprises both the organized and and storage technologies. unorganized sector, Dalmia Cement is conducting awareness campaigns on climate impact for its In addition, the company regularly monitors suppliers and stakeholders at large. This sensitization progressive targets and is open to piloting new is essential before tools such as carbon pricing can be technological solutions at its plants. Managing Director applied to the construction value chain. RUSAL Aluminum is a crucial component of the eco-friendly buildings of the future. It is high time for manufacturers to develop basic materials such as steel, cement, primary aluminum, and glass with a low carbon footprint and for governments to take measures to stimulate the consumption of such materials on a Saint-Gobain is also working together with other global scale in order to combat climate change. stakeholders to set up a recognized methodology to assess its products’ sustainability by including To this end, RUSAL has launched a new low-emission the carbon emissions over the value chain, as well product, ALLOW. This new type of aluminum uses clean as the benefits of using the products in terms of the hydroelectricity to deliver the metal to market with a reduction in carbon emitted during the building’s lower carbon footprint. As a result, less than 4 tons operation, in particular for heating and cooling. of CO2e per ton of aluminum created accounts for all Indeed, once they have been in use for an average scope 1 and 2 emissions from the smelter process. This of three months, Saint-Gobain’s insulation solutions is far lower than the average carbon footprint in the offset the emissions linked to their entire lifecycle. global aluminum industry. This methodology will also be translated into carbon Moreover, since 2017, RUSAL has applied an internal pricing: this is the goal of Saint-Gobain’s collaboration carbon price when assessing new investment projects. with CPLC. The internal carbon price is set at $20 per ton. Should the cost make a project unprofitable, RUSAL will either MAHINDRA GROUP CARBON PRICING LEADERSHIP REPORT 2018/19 find a low-carbon alternative to make the project more Mahindra & Mahindra Limited, a utility vehicle and profitable or reject it altogether. The carbon price farm solutions provider, is the flagship company of the is also used to evaluate strategic decisions such as Mahindra Group. It became the first Indian company expansion, acquisitions and mergers, new buildings, to announce an internal carbon price of $10 per ton of decommissioning, and divestments. RUSAL presented its carbon emitted. It has committed to reduce its carbon approach to carbon pricing at the International Research intensity by 25% by 2019 against 2016 levels and the Conference on Carbon Pricing in February 2019. investments through the company’s carbon pricing mechanism will help it achieve this goal. In addition, RUSAL is implementing the Aluminum Stewardship Initiative Standard and the ASI Chain of Determining the carbon price required understanding Custody Standard to be independently audited and the carbon price that was embedded in the business; certified. The company also recently developed and what it would cost to buy more renewable energy put in place a Business Partner Code to encourage and implement measures to become more energy suppliers to consider sustainability in their operations. efficient; and what were accepted carbon prices across the world, the company discovered that an 46 SAINT-GOBAIN implicit carbon price of about $7 was embedded in To reduce the building sector’s contribution to the business, but Mahindra scaled up its ambition by worldwide greenhouse-gas emissions, Saint-Gobain declaring a $10 carbon price. manufactures and distributes building materials— including glass, insulation, and plasterboard—that The process of adopting and implementing a carbon improve energy efficiency in existing and new price involved extensive consultations between buildings. experts, senior management, and individuals who would play a key role in implementing the carbon In 2016, an internal carbon price was set up within price. Workshops, dialogues, webinars, and other the company, helping to refocus investments in forms of engagement helped the company get clarity manufacturing and research and development towards on possibilities and processes. Key partners in this a lower-carbon economy. The first price is fixed at capability-building journey included CPLC, the World €30 per ton and applies to industrial investments Resources Institute (WRI), and the Environmental above a certain threshold. The second price level of Defense Fund. €100 per ton is used for researching and developing breakthrough technology. The company is still Mahindra made the carbon price commitment receiving feedback on this initiative and will assess on October 7, 2016. Capital budgeting for green how it should evolve in the future. projects has been completed and the company is on course to meet its commitment. The company is also using a shadow carbon price along with the “real” price announced as it plays a complementary role in reducing the business’s carbon footprint. Mahindra is happy to share its perspective and experience to enable other corporations to enhance their competitiveness by using carbon pricing appropriately. The carbon pricing primer on CPLC’s website is a good place to start for someone trying to unravel the mystery of carbon pricing. TATA GROUP In August 2015, the Tata Group formed a cross- sectoral working group to explore internal carbon pricing. The working group subsequently presented its recommendations to the Tata Group Sustainability Council (consisting of CEOs of 15 major Tata companies) and came out with a primer on internal carbon pricing for its companies. Since then, two of its largest companies (Tata Steel and Tata Chemicals) have adopted an internal carbon price to evaluate large, capital-intensive projects. As of 2017/18, Tata Steel is using a carbon price of $15 per ton of carbon emitted. In addition, Tata Motors is piloting an internal carbon price and will review and revise the price every year. BRASKEM In 2016, the petrochemical company Braskem started PRIVATE SECTOR using an internal carbon price in its operations in Brazil. The price was based on the shadow price method and became a criterion when making investment decisions after a revision of project evaluation procedures. All the leaders and professionals involved in the process of calculating the economic attractiveness of each project were trained in the new methodology, as an emission 47 impact assessment is a prerequisite for a project to be implemented. To support stakeholders and avoid any process deviation, an annual audit is carried out to ensure that all the submitted projects used the methodology. The initial price value was set at a level that allows and improves the eligibility of projects that reduce emissions. Every year, Braskem reviews the effectiveness of the price value based on the amount of reduced emissions from the approved project. Between 2016 and 2018, 37 projects that reduce greenhouse-gas emissions were approved using the new methodology, corresponding to 136,738.96 tons of CO2e emissions avoided. CARBON PRICING LEADERSHIP REPORT 2018/19 48 CPLC'S BANKING SECTOR TASK TEAM called on governments at COP24 to bridge the Following the Paris Agreement in 2015 and the launch ambitious gap between countries’ targets and the Paris of the Financial Stability Board’s TCFD in 2017, there has Agreement’s goals and help accelerate private sector been a significant push from investors and regulators investment in the low-carbon transition by putting a for companies to assess their carbon footprint and meaningful price on carbon. exposure to climate risk. The Bank of England’s directive to commercial banks to appoint a senior executive to Carbon pricing has emerged as a preferred tool for manage climate risk and disclosure to the board is just banks to quantify a company’s carbon risk exposure. one in a spate of new and expected policies across the Only 25 financial institutions reported using an internal globe that will mandate greater awareness of systemic carbon price in 2014; this number grew to 69 in 2017 financial risks posed by climate change. and is expected to reach 147 in 2019. Banks are building this momentum in various ways. For example, Recognizing the need to reduce and manage climate Crédit Agricole, which is committed to being carbon risk through well-developed carbon regulation, 415 neutral by 2040, has developed a methodology to investors managing over $32 trillion worth of assets quantify and map the carbon footprint of its corporate investment banking through a risk index, using carbon pricing as a variable for scenario analysis and a proxy for risk. BNP Paribas incorporates carbon risk in the financial analysis of corporate and project finance transactions using quantitative and qualitative approaches. Its carbon price band of $25 to $40 per ton of CO2 is based on three factors: the median of price levels reported by the CDP; the social cost of carbon; and the price at which power plants will be motivated to switch from coal to gas. Itaú Unibanco uses carbon pricing as a tool for both risk management and innovation, and applies prices ranging from $10 to $60 per ton of CO2 differently in each of its three units: EUROPEAN BANK FOR credit, investments, and operations. RECONSTRUCTION AND Despite these initiatives and the framework for DEVELOPMENT carbon risk management provided by the TCFD The European Bank for Reconstruction and recommendations, financial institutions still lack clarity Development (EBRD) updated its approach to carbon on standardizing and institutionalizing these measures. pricing in December 2018 following the release of its The Banking Sector Task Team has brought together Energy Sector Strategy 2019–2023. From January 2019, both observer and CPLC partner commercial and the EBRD will undertake an economic assessment of multilateral banks to understand how carbon pricing projects with high greenhouse-gas emissions. The can be implemented in and applied to investment results of the assessment will help senior management portfolios in addition to operations. In the past year, decide whether to approve a project and share it with CPLC partner CDP released a series of executive briefs the board. They can also provide useful information in collaboration with the Banking Sector Task Team that on better alternatives or different designs that would discuss the challenges faced by financial institutions maximize impact. as they contend with carbon pricing and the TCFD recommendations. In a recent brief, banks such as The EBRD will use the range of shadow carbon prices Crédit Agricole, TD Bank, Itaú Unibanco, Yes Bank, and recommended by the High-Level Commission on Garanti Bank discuss their approach to implementing Carbon Prices: a range of $40 to $80 per ton CO2e PRIVATE SECTOR a carbon price and the issues they have faced. This in 2020, rising to $50 to $100 per ton CO2e by 2030. can serve as a guide to other financial institutions Beyond 2030, the prices will be increased by 2.25% per considering applying similar approaches. year, leading to a range of $78 to $156 per ton CO2e by 2050. The EBRD will test the economic viability of As banks prioritize identifying a broader set of tools projects against the low and the high value and will that will enable them to meet either regulatory or also calculate a “switching value” carbon price to better internal carbon risk management requirements, it understand what level would change the economic 49 is important to partner with initiatives that provide merits of the project. The EBRD’s approach will also ongoing support on TCFD implementation. In this account for other environmental externalities (such as air regard, CPLC can help to bring an emphasis on pollution impacts) and other relevant assumptions (such carbon pricing. CPLC’s ability to support regional as the price of input and taxes/subsidies). convenings and engage with banks in different geographies can help such initiatives extend the INTERNATIONAL FINANCE reach of their conversations on TCFD in different regions and combine this with carbon pricing, thus CORPORATION Since May 1, 2018, IFC has been implementing its own enabling localized solutions to managing carbon risk internal carbon pricing measures and reporting these and directing credit towards low-carbon investments. in board papers. Its initial pilot on pricing carbon in This approach would help banks with their efforts to select investments demonstrated that it can do this develop internal carbon pricing approaches for their successfully to better inform investment decision-makers lending portfolios to prioritize greener investments, within the institution. IFC has moved beyond the pilot projects, and companies, as well as advocate for well- and is now applying a carbon price to all project finance designed policies to build a predictable regulatory investments in the cement, chemicals, and thermal environment that manages risk and incentivizes power sectors. climate action. The price is applied to the economic rate of return calculations and the analysis is included in the board papers for all project finance deals in the three high- emitting sectors. The price levels being applied are in line with the 2016 report of the High-Level Commission on Carbon Prices and are consistent with those used by The World Bank, with both the low and high carbon price values being used in project analysis. The low value will start at $40 in 2020 and increase to $78 in 2050. The high value will start at $80 in 2020 and reach $156 by 2050. For IFC projects these carbon price levels are adjustable within specified bands, depending on the host country income grouping as classified by The World Bank. In addition, IFC is piloting extended application to other sectors and deal types to better understand how carbon pricing could be applied. Environmental Risks’s main task is to assess the environmental and social risks of providing loans to IFC is also the first multilateral development bank to eco-projects and identify any potential liability for the disclose how it handles climate-related financial risk bank. In addition, the division analyzes and identifies using the TCFD guidelines. Understanding how to possible ways to reduce the identified risks and CARBON PRICING LEADERSHIP REPORT 2018/19 address climate-related financial risk is a process and provides advice to customers on limiting their effects. IFC joins other financial institutions in their collective journey to understand the risks, as well as develop ■ Since the end of 2018, the bank has incorporated ways to mitigate them and disclose what they are into its annual reporting a report on the social and doing. As such, IFC’s disclosure in its FY2018 annual environmental risk management of its activities. report is a first step and it will continue this work next year. IFC is working with CPLC to engage other ■ The bank has begun implementing measures to financial institutions and share IFC’s experience with reduce the impact of the bank’s activities on the the broader private sector group. environment and raising the level of environmental awareness among employees. UKRGASBANK Ukrgasbank was the first Ukrainian partner of CPLC ■ The share of green loans in the total loan portfolio when it joined in May 2018. It is the leading eco- increased from 13% in 2017 to 25% in 2018, on the bank in Ukraine according to the State-Owned Bank back of 20.5% profit growth. Development Strategy, approved by the government 50 in February 2018. In order to provide institutional These activities have enabled the bank to call for support to the strategy, the bank has established a financial institutions to facilitate internal carbon specialized green-finance department. In cooperation pricing and to help customers adapt to carbon with IFC, criteria for eco-projects have been pricing conditions. implemented. The department confirms compliance with the eligibility criteria and then calculates emission GARANTI BANK reductions for each project. In addition, the bank has Carbon pricing is a material indicator that is easier to made several changes to decrease emissions and understand than environmental and social risk more better evaluate environmental and social risks: broadly. The new Turkish Monitoring, Reporting, and Verification Law that came into force in 2014 and Turkey’s ■ Since January 2019, the bank has started reducing active membership in the PMR have helped raise lending rates depending on the efficiency of credit awareness of carbon pricing. Yet determining the cost facilities. This will increase the volume of lending of carbon in the absence of a regulatory framework has and direct them to finance emission reductions. been difficult for Garanti. The bank has thus been using an internal carbon price for carbon-intensive projects ■ Launched in April 2018, the Division for in order to reflect the cost of carbon in project finance the Assessment and Analysis of Social and since 2011. While the bank had to convince customers of the value of managing climate risk in a highly competitive market, it has also managed to strengthen its relations with many of its customers through positioning itself as a partner in managing their non-financial risks. As severe environmental and climate impacts and transition risks occur over longer periods, carbon pricing is not Institutional investors are also beginning to decarbonize quite applicable to corporate loans, which have short their portfolios. Investment manager Mirova developed maturity timelines. Therefore, beyond project finance a method to calculate the carbon footprint of investors’ Garanti manages these risks through its newly adopted portfolios, finding76 most are not in line with the 2°C sector norms, which are used to screen carbon- goal. That will need to change as more countries intensive sectors. The norms were established based on consider passing laws that require institutional investors a heatmap that takes into account the bank’s exposure to disclose and reduce their climate-related risks in line to climate-sensitive sectors. with the TCFD recommendations. ECOSPHERE+ Whether demand comes from airlines, investors, or Ecosphere+,71 the sales and marketing platform that other emitting sectors, adding a price on carbon enables brings the environmental assets of the Althelia Climate forests left standing to have a value through climate Fund to market, has been highlighting how carbon finance. This makes a difference on the ground as the pricing can mobilize the protection of critical landscapes. financing mechanism encourages a transition away from According to a peer-reviewed study,72 natural climate unsustainable activities such as slash and burn agriculture solutions could equate to 37% of the emissions or illegal mining. For example, at an Ecosphere+ project reductions needed to achieve the goals of the Paris in Peru, locals can now join a farmers’ cooperative to Agreement. It will not be possible to meet these goals sustainably grow cocoa and then process the raw cocoa without making significant progress to protect or restore beans into value-added products at the cocoa processing natural sinks (forests, grasslands, wetlands, peatlands, facility—all made possible through a combination of agricultural land, and coastal ecosystems). The lowest- impact investment paired with climate finance. cost option is to prevent the conversion or destruction of our natural tropical forests in the first place. One-third A price on carbon, coupled with adequate market of this natural mitigation can be delivered at or below demand for emissions reductions, will be a critical element PRIVATE SECTOR $10 per ton of CO2e, with many positive benefits73 for in unlocking the potential of natural landscapes, forests, communities and ecosystems. This is the same as taking and oceans, to deliver the climate solutions necessary to more than 600 million cars off the road, making this a securing a future of less than 1.5°C to 2°C of warming. compelling commercial, environmental, and social value case, as argued in the booklet, The Case for Forests.74 One of the future large anticipated sources of demand 51 for carbon credits is the system covering international aviation emissions (Carbon Offsetting and Reduction Scheme for International Aviation, or CORSIA75) that starts in 2021 for those countries that have opted in to the first phase. Airlines must offset emissions above the baseline set in 2019–20, with additional emissions forecasted at 142–174 Mt per year by 2025. Ecosphere+ has been advocating for the inclusion of forest-based carbon credits in CORSIA. It also worked with Delta Air Lines, which acted early to achieve a goal of carbon-neutral growth compared to its total 2012 emissions, starting in 2013. CARBON PRICING LEADERSHIP REPORT 2018/19 Maritime CEOs and stakeholders discuss carbon pricing at the Global Maritime Forum’s Inaugural Annual Summit. GLOBAL MARITIME FORUM AND UNIVERSITY COLLEGE LONDON In April 2018, the International Maritime Organization (IMO) committed to reducing greenhouse-gas emissions from international shipping by at least 50% by mid- At the same time, progressive maritime stakeholders, century (compared to 2008 level). In IMO’s initial mobilized and guided by the Global Maritime Forum strategy,77 carbon pricing is among the mid- to long- and University College London, have continued 52 term measures being considered for the final strategy, working on this agenda. Supported by the CPLC, these which will be adopted in 2023. players organized two shipping expert workshops—in May 2018 in Cologne and in November 2018 in Geneva—where carbon pricing played a major role. As The 73rd meeting of the Marine Environment a result of CPLC’s maritime engagement, IMF released Protection Committee (MEPC73) and the 4th meeting a working paper titled Carbon Taxation for International of the Intersessional Working Group on Reduction of Maritime Fuels, which assesses policy options and Greenhouse Gas Emissions from Ships were the first makes the case for a carbon tax. Ian Parry, a fiscal meetings held after IMO’s climate breakthrough. Yet, policy expert at IMF, presented this research paper they mainly focused on the action plan to 2023, with to numerous shipping CEOs at the Global Maritime some discussion on short-term measures such as the Forum’s Inaugural Annual Summit78 in Hong Kong in possibility for slow steaming (that would be, mandating October 2018. At this high-level event, more than 30 vessels not to exceed a certain speed). Nevertheless, maritime CEOs launched a call to action79 urging the some IMO member countries made two submissions industry to contribute to the sector’s decarbonization proposing market-based measures as part of IMO’s efforts and referring to carbon pricing as a core strategy to at least halve emissions. More submissions principle of the way forward. related to carbon pricing are expected at the upcoming meetings in May 2019. Filling enormous knowledge gaps is a key political challenge of implementing carbon pricing in shipping. IMO’s initial strategy stipulates that any measures to reduce greenhouse-gas emissions should be considered in terms of its impacts on states. “Disproportionately negative impacts” should be assessed and addressed as appropriate. Consequently, The World Bank released the research paper Understanding the Economic Impacts of Greenhouse Gas Mitigation Policies on Shipping80 in January 2019. The paper concludes from the existing literature that the economic impacts from an increase in shipping transport costs might be small to modest. A month later, a webinar jointly organized by The World Bank, the United Nations Conference on Trade and Development, and University College London discussed the EDP EDP is a vertically integrated utility company, with paper’s findings in more detail as well as suitable operational activities in power generation, distribution, economic modeling approaches with policymakers and supply of electricity (Brazil, Portugal, and Spain) and in international maritime transport. gas (Portugal and Spain). EDP has a significant presence in the world energy scene, supplying electricity to Given the rather long timeframe between the 9.9 million customers and gas to 1.6 million customers. upcoming MEPC74 in May 2019 and IMO’s Through its subsidiary EDP Renewables, EDP is also one MEPC75 in April 2020, it will be crucial to continue of the largest wind power operators worldwide, with collaborating with maritime stakeholders. Additional plants in Europe and North and South America. shipping expert workshops, knowledge products such as joint impact assessments, and outreach A carbon price is used company-wide to assess the activities in major climate and transport forums impact of current and future carbon regulation—namely PRIVATE SECTOR are being planned. A carbon pricing mechanism ETSs and carbon taxes—on energy prices, energy whose revenues enable serious research, volumes, and existing assets’ value, as well as to evaluate development, and deployment of zero-emissions capital investments in building or acquiring new vessels81 and compensatory measures for specific electricity generation assets across the globe. countries can significantly contribute to the sector’s decarbonization, but a long journey remains ahead. Price ranges are set by the Energy Planning Department and are updated yearly. Price forecasts currently range 53 from €10 to €50 per ton of CO2, depending on the scenario, year, and geography. For the timeframe 2018 to 2030, the average price for the base scenario is about €25 to €30 per ton of CO2. Meaningful carbon prices strongly benefit EDP’s business strategy, fully align with the Paris Agreement, and contribute decisively to its commitment to be carbon neutral well before 2050. Carbon pricing should preferably be set up at the more global levels to safeguard economic competitiveness. Its revenues should be adequately recycled to support low-carbon growth and social cohesion. EDF consumers and educating all actors on the need for a EDF is among the world’s 10 largest global power carbon-neutral economy. suppliers and produces the smallest amount of CO2 per kilowatt-hour (CO2/kWh), with direct emissions EDF believes what is next and what should be first in currently at 82 gCO2/kWh, which is far less than the carbon pricing is to use the pricing tool as a means for a world average for the sector (506 gCO2/kWh in 2015). just transition. EDF group’s decarbonization strategy is focused on low-carbon generation with a balanced mix of nuclear EN+ GROUP and renewable energy. Aluminum and power producer En+ Group conducted a comprehensive in-house study of the approaches EDF is a vocal advocate for the implementation of the taken by leading international energy companies to Paris Agreement and considers carbon pricing as the introduce an internal carbon price. Companies included most desirable and effective means to decarbonize the E.ON SE (Germany), EDP (Portugal), Iberdrola SA economy. The challenge is to achieve decarbonization (Spain), ENEL SpA (Italy), Centrais Eletricas Brasileiras while protecting purchasing power, especially of the most S/A (Brazil), American Electric Power (United States), vulnerable people in society. Public policies could target Exelon Corporation (United States), Abengoa (Spain), smart recycling of the benefits of carbon pricing and give and Eskom (South Africa). Based on its conclusions, priority to those impacted by fuel poverty. En+ Group formulated its own best scenario for internal carbon pricing to create incentives for increasing energy A predictable and paced rise in carbon pricing, with efficiency. Secured funds will be used for researching a floor to ensure a minimum price at all times, is key and developing clean technologies, for greenhouse-gas to securing the economic environment for all actors. CARBON PRICING LEADERSHIP REPORT 2018/19 emission reduction projects on existing hydropower Public policies can play a major role in creating an plants, and for investments in renewables projects. enticing environment for investments in the right Projects that reduce greenhouse-gas emissions or zero- technologies, while securing the purchasing power of emissions projects will be prioritized for implementation. 54 SVEBIO in Bioenergy Europe and the World Bioenergy The Swedish carbon tax reduction for industries Association to encourage its partners and associates outside the EU ETS was entirely removed on January in other countries to promote carbon pricing. It does 1, 2018. This reduction has been in place almost this at meetings and conferences, but also through its since the carbon tax was introduced in Sweden in magazine Bioenergy International, which has subscribers 1991 and was set at 79% until 2011, but has gradually in 60 countries. been reduced over the years. As a result, the price of heating oil, propane, natural gas, and coal has increased considerably for the industries concerned. HAGA INITIATIVE Founded in 2010, the Haga Initiative consists of 14 For industries belonging to the ETS, the carbon price is Swedish companies committed to reaching net zero about $25 to $30 per ton, whereas the Swedish carbon greenhouse-gas emissions by 2030. The Swedish carbon tax is about $140 per ton. Many of these companies tax was implemented in 1991, so the companies have are reducing their use of fossil fuels and, in many cases, been operating under carbon pricing for many years, and removing them entirely. for some of them the EU ETS is now the most important incentive for climate change efforts. Since their respective The Swedish Bioenergy Association (Svebio82) promotes base years, the companies have increased their turnover the increased use of bioenergy as a renewable energy by 10% on average, while their emissions have decreased source. It is making the companies affected by the by 47% (scope 1, 2, and business travel in scope 3). removal of the subsidy aware of the changed conditions and suggesting fossil-free alternatives. These include The Haga Initiative explores the business benefits of different kinds of biofuels, like wood pellets and acting on climate change. They are: woodchips, bio-oils, and biogas. Many enterprises can connect to district heating, which in Sweden is almost ■ Brand value and customer loyalty. entirely fossil-free. The tax increase also promotes energy ■ Cost savings. efficiency measures in companies that still use fossil fuels. ■ Attractiveness as an employer. ■ New products and business areas. Industries where fuel switching now takes place ■ Proactive risk management. include breweries, dairies, other food industries, ■ Improved financing opportunities. asphalt preparation companies, and textile industries. Greenhouses and laundries are also examples of A survey of 300 Swedish companies confirmed these industries where the high carbon tax has reduced the benefits, emphasizing the importance of brand values, PRIVATE SECTOR use of fossil fuels. In addition to the tax, the Swedish customer loyalty, and attractiveness as an employer. government can give investment grants to help these During 2018, the Haga Initiative collaborated with companies adapt to the higher fuel cost. actors outside of its network and collected insights from companies in the Nordic region and in Eastern Europe. Svebio’s role is also to inform the public about these Together with four other Nordic climate organizations, developments. Because of the high carbon tax, many it interviewed CEOs and chairs of 38 large Nordic Swedish products have a much lower carbon footprint companies about their view of business climate efforts 55 than imported products. One example is tomatoes and what it means for competitiveness and growth. or flowers produced in Swedish greenhouses. Today, The Haga Initiative received strong support for its Swedish greenhouses are almost entirely heated with hypothesis that climate efforts are good for profitability biomass fuels or residual hot water from nearby industries, and competitiveness, and that the companies welcome thanks to the carbon tax. This fuel-switch has taken place carbon pricing, because it creates a level playing field. during the last 10 years. Imported greenhouse products The results were published in April 2018. have often been produced using gas. Svebio is not against trade and imports, but the public needs to be In a follow-up project, 22 Polish and Baltic business better informed about the climate impact and benefits of leaders were interviewed during the fall of 2018—and different products. Certification and labeling are two ways the findings are strikingly similar. Even though Poland to do this, and Svebio tries to convince certification bodies and the three Baltic states are in a very different position to include climate aspects in their schemes. to the Nordic countries, several CEOs and other business leaders expressed the necessity of climate At the national level, Svebio encourages member efforts in companies. Acting under the EU ETS, most of companies to join its effort to promote carbon pricing. them believe that carbon pricing is an important part of Many of these companies work worldwide. At an climate policy and think that it should be global instead international level, Svebio works through its membership of regional. The 22 interviewed companies together employ about the same number of people as there are understand the financial impacts from the transitional risk coal miners in Poland. of carbon pricing policies is, and will continue to be, a core part of EcoAct’s work. Having connected with companies in the Nordic countries, Poland, and the Baltics, the initiative is Voluntary Carbon Pricing to Anticipate Future Regulation now looking at engaging with other countries. The A growing number of its clients voluntarily implement Haga Initiative aims to bring companies together that internal carbon pricing to guide the transition of their demand more action on climate change and a quicker business strategy in terms of operations and investments. pace towards zero emissions. These companies tend These actions are motivated by their anticipated climate to believe that carbon pricing is an important tool to change risks, which are under more scrutiny by investors. make this happen. By letting companies express their One of the key challenges is integrating carbon pricing view and sharing it with policymakers and the public, into investment decision-making, which would help understanding grows that carbon pricing can be a accelerate the transition to a low-carbon economy and business-friendly policy. therefore better manage transition risks. ALLCOT Carbon Pricing to Accelerate the Transition Beyond its During the last year, ALLCOT has consolidated itself Scope of Activities as one of the global leaders in reducing carbon A price on carbon can make emission reduction emissions and combating climate change. Among or carbon sequestration projects more financially other geographies, ALLCOT has grown its portfolio attractive for investors and companies committed to of projects in Colombia, where the carbon tax decarbonization. EcoAct works with clients committed to action beyond their core scope of business to CARBON PRICING LEADERSHIP REPORT 2018/19 implemented by the finance ministry has proven to be a powerful tool to achieve large-scale emission develop carbon offset projects and portfolios—voluntary reductions through carbon markets. actions that reduce emissions, build carbon sinks, and help accelerate the transition to a low-carbon world. Using its experience gained developing emission These carbon offsets projects also increase companies’ reduction projects for existing carbon markets, ALLCOT contribution to the United Nations Sustainable will be implementing projects in new geographical Development Goals through relevant co-benefits, such areas like Chile, Mexico, or South Africa. Moreover, it as health improvements and gender equality. has supported businesses looking to contribute to the achievement of the Sustainable Development Goals and To date, carbon pricing has been a tool to drive climate to improve the outcomes of the carbon markets and their action. However, it is also a powerful economic tool to applications to the circular economy. drive sustainable development, innovation, and growth. To continue to scale carbon pricing across more companies In 2019, ALLCOT will celebrate a decade of “changing and regions, the ability to demonstrate the decarbonization the Change” in the climate change market. It will continue impacts and the development and performance impacts of to be a leading company in unlocking the potential of carbon pricing, especially on a local level, will be essential. 56 carbon pricing to deliver on the Paris Agreement. Together, countries and companies implementing and using carbon pricing policies must demonstrate to their ECOACT citizens, employees, and investors, the direct and local EcoAct supports businesses and sub-national economic and social benefits. governments with carbon pricing initiatives aimed at driving the transformation of organizations towards a Over the next few years, it will be essential to demonstrate carbon-neutral world, anticipating a low-carbon future, how carbon pricing supports low-carbon and sustainable and accelerating that transition. development with benefits for employment, health, social protection, and poverty reduction. If we do not, as the Carbon Pricing to Guide Transformation recent rise of the yellow vests in France demonstrates, Carbon pricing is a key tool to decarbonize companies whatever the country, social opposition will develop and shift their decisions and investments towards low- against this kind of climate policy. EcoAct plans to carbon options. In Europe, EcoAct helps businesses in continue its decade-long perspective that low-carbon carbon-intensive sectors to better understand the EU ETS development is sustainable development, helping regulatory changes for Phase 4 (2021–30) and estimate governments and companies to maximize the link the expected financial impact of stronger ambitions and between decarbonization and development and create a rising carbon price by 2030. Helping businesses to social benefits while transitioning to carbon neutrality. STRATEGIC PARTNERSHIPS Our strategic partners support decision-makers by engaging in data-backed research on innovative solutions and advocacy strategies that incorporate the latest developments in 57 multiple disciplines. THOUGHT LEADERSHIP CARBON PRICING ON CAMPUS: HOW HIGHER EDUCATION CAN AFFECT PUBLIC POLICY VALERIE SMITH, PRESIDENT, SWARTHMORE COLLEGE A warmer climate threatens to bring food As an institution of higher education, we have the and water scarcity, mass displacement, opportunity to use our public voice to build momentum disease expansion, resource wars, and other for policies at a much larger scale. Given the scale of the disastrous impacts to bear on our world. As issues, I am proud to have joined 50 other college and was reiterated in last year’s IPCC and National Climate university presidents in announcing our public support for Assessment reports, mitigating these threats will require the Put A Price On It campaign and co-signing a letter a dramatic and rapid transformation of our electricity, calling on our elected leaders to act decisively in the face heating, transportation, industrial, and food systems. of the climate challenge by putting a price on carbon All of us must consider how our own sectors and emissions at state and national levels. The letter signals a institutions are positioned to advance solutions that, commitment on the part of higher education leaders to collectively, match the unprecedented scale and fierce take a strong stance on solutions to climate change for the urgency of the challenge. good of our students, institutions, and communities. CARBON PRICING LEADERSHIP REPORT 2018/19 Institutions of higher learning are uniquely positioned to Swarthmore has found tremendous value in its Carbon facilitate informed discussions of the climate crisis and Charge Program, and we encourage and support other ways it can be addressed. We also have a responsibility to institutions to explore internal carbon pricing in their own adapt our own institutional behaviors and processes. For operations. Swarthmore was proud to contribute to the this reason, Swarthmore College has instituted an internal Internal Carbon Pricing in Higher Education Toolkit (discussed carbon pricing program. in greater detail on page 62) and provides workshops, webinars, and personal consultation for other schools A reading group of Swarthmore faculty, staff, and alumni looking to bring carbon pricing to their own campuses. began studying carbon pricing policy in the summer of The staff in our Office of Sustainability83 are pleased to 2015. This group soon determined that carbon pricing share information with you. was a fair, feasible, and powerful solution with potential to change energy consumption habits, make zero-carbon A price on carbon is a fair, feasible, and powerful strategy alternatives cost-competitive, and keep fossil fuels in the to accelerate the transition away from a fossil-fueled ground. To bring carbon pricing to Swarthmore, the economy. We look forward to working with the CPLC group proposed a program to model a price at a college community to determine how each of us can advance 58 scale; reduce campus emissions; engage our campus effective responses to the climate challenge. Together, community; and build momentum for state, national, and we can demonstrate to our elected officials the political global pricing solutions. will necessary to enact effective policy to combat climate change. We have a moral duty to care for the conditions As a result of their efforts, in 2016 Swarthmore launched of life on Earth and a civic responsibility to require action the second internal carbon price in higher education. The from our elected leaders. Carbon Charge Program levies a fee on departments and offices for the college’s emissions to fund sustainability work across campus–thus emphasizing the shared social costs of carbon emissions. To incorporate the price incentive at institutional-level decisions, we also use a “shadow price” of $100 per ton of CO2e in cost-benefit analysis for capital planning. Beyond reducing campus emissions, the program serves as a platform to educate members of our campus community about effective climate policy and engage them in these efforts. Each year, as a department builds its budget, it confronts its share of the cost of the college’s overall emissions. About Article 6 One of the key areas of focus for the business of Carbon Pricing report (2016),84 efficiency from community is Article 6 of the Paris Agreement and markets could reduce global mitigation costs by its market provisions. Article 6 enables voluntary around 54% in 2050, or $3,940 billion. cooperation among countries for achieving NDCs, Guidance for implementing Article 6 made allowing countries to trade mitigation outcomes impressive progress in 2018, moving from a list internationally. of disparate elements to a fully fledged, almost- Article 6 has the potential to lower the cost of final set of rules. However, Article 6 is one of the achieving NDCs while mobilizing the private sector most technical parts of the rulebook, and a lack of as a key player. In the face of limited public and operational detail resulted in this chapter of the concessional finance, there is a need to leverage rulebook not being finalized at COP24. Critical issues private capital intelligently if we are to increase remain unresolved and need to be agreed on at global ambition. According to the State and Trends COP25. INTERNATIONAL countries’ own NDCs or transferred internationally to EMISSIONS TRADING private buyers or other countries. ASSOCIATION (IETA) In preparation for COP24, IETA supplemented its ■ Supporting the creation of infrastructure to existing Straw Proposal: Implementation Guidance for store, track, and potentially transfer MOs. Article 6 of the Paris Agreement85 with a report carrying This infrastructure would be used to “store” its views and priorities for Article 686 from a market MOs in a “warehouse” after the benefits and practitioner’s standpoint. risks of the MOs have been assessed using an STRATEGIC PARTNERSHIPS independent, standardized assessment protocol. After Article 6 was deferred to COP25, IETA committed Such a warehousing system would enhance the to expanding its Article 6 work with a new project transparency, comparability, and potential fungibility to model and assess different rulesets and their of MOs that are generated from the bottom up. implications for the cost-saving and ambition-raising potential of Article 6. The project is being run in ■ Facilitating demand for MOs by the creation of suitable collaboration with the University of Maryland and other financial products. Financial instruments that reduce partners and will, IETA hopes, be used to inform COP25 risks for early adopters would stimulate demand and discussions on Article 6. participation from the private sector. 59 THE WORLD BANK ■ Supporting the regulatory framework for Article 6 Article 6.2 is expected to create flexibility for bilateral or by engaging with relevant stakeholders, including plurilateral arrangements between parties by allowing multilateral development banks, to identify areas mitigation outcomes (MOs) to be transferred under of common understanding and facilitate learning- a variety of mechanisms, procedures, and protocols. by-doing. Article 6.4, in contrast, will likely be governed by parties under UNFCCC process, with a greater level of Through the work program, The World Bank is multilateral regulatory supervision. demonstrating the opportunities and challenges inherent in different options for operationalizing In 2018, The World Bank started a work program to Article 6. In 2019, it will continue supporting countries as determine consensus on the next generation of climate they pilot MOs; develop conceptual frameworks for the markets under Article 6. The work program focused on proposed warehouse; work with its partners to design four components: potential financial products; and engage stakeholders to receive feedback and input on proposed concepts and ■ Creating a supply of MOs from The World Bank’s pilots. It is envisioned that the lessons it learns will help lending operations. MOs can be used against inform discussions at COP25. CARBON PRICING LEADERSHIP REPORT 2018/19 Article 6 “family photo” before negotiations at COP24. Carbon Markets and Disruptive Digital Technologies In 2018, The World Bank released a report titled Blockchain and Emerging Digital Technologies for Enhancing Post-2020 Climate Markets,87 which states To test this theory, The World Bank is developing a proof that the evolving technological landscape is enabling of concept. The project is divided into three phases: an efficient and highly robust generation of climate markets. Blockchain, “big data,” “the internet of things,” ■ Phase 1 aims to test feasibility and marketplace logic “smart contracts,” “artificial intelligence,” and other by using blockchain technologies to develop a pre- disruptive technologies hold promise of addressing the trade registry. needs of post-2020 climate markets. The data-sharing 60 and transaction-management capabilities of blockchain ■ Phase 2 aims to test the potential for digitalizing technology, in particular, align well with the needs of the monitoring, reporting, and verification climate markets. Blockchain technology has the potential process required to create climate assets by using of being able to: embedded, internet-enabled sensors, smart meters (the internet of things), and imagery technologies. ■ Record and track information associated with MOs. This phase also aims to develop a conceptual framework for a blockchain-enabled architecture ■ Provide transparency and robustly implement rules that could ensure robust accounting of climate via smart contracts, which can be used to internalize assets and avoid double counting. governance between two or more parties. ■ Phase 3 aims to test how well the new system ■ Digitalize monitoring, reporting, and verification. works with local markets and individual producers. PHOTO PROVIDED BY IETA. The creation of digital assets and interoperability ■ Measure, report, and verify mitigation outcomes at between national and international markets will be lower transaction costs, with the combined use of explored in both Phases 2 and 3.88, 89 remote sensors, the internet of things, big data, and artificial intelligence. NAVIGANT led by Navigant, sub-national governments in the Internal carbon pricing is gathering momentum across Netherlands have started working on a pilot project all sectors. Assigning an internal price to their carbon to implement internal carbon pricing for sustainable footprint gives companies and governments a monetary procurement in 2019. metric to inform decision-making. Most companies use internal carbon pricing to manage exposure to climate- The outcomes of the above research will be published in related financial risks, while governments primarily use the first half of 2019. it to inform their decisions on public policies and projects. Pressure from investors to meet the YALE UNIVERSITY AND recommendations from the TCFD is expected to drive more organizations to use internal carbon pricing SECOND NATURE Colleges and universities are agents of change in their to accelerate the reduction of their carbon footprint, communities and play a leadership role in addressing build resilience against climate-related financial risks, the climate crisis. Increasingly, campuses are exploring and capitalize on low-carbon opportunities. carbon pricing. They are doing so through faculty research, student and community education, and To support the development of internal carbon pricing, advocacy, and by demonstrating how pricing carbon the Carbon Pricing Unlocked partnership between within the organization can support climate action. Navigant and the Generation Foundation published several best-practice guides90 to internal carbon pricing The Carbon Pricing in Higher Education Working in collaboration with CDP in late 2017.91 The guides Group was founded in 2018 by CPLC, Second Nature, provide step-by-step instructions on how to establish Yale University, and Swarthmore College. The group an internal carbon pricing system and introduced a comprises colleges and universities that actively price four-dimensional framework for best practice. This carbon on their campuses, and includes schools from framework offers a new way of thinking about internal the United States, Canada, and England. Second carbon pricing and has motivated CDP to expand Nature—a nonprofit organization advancing climate disclosure on its carbon pricing questionnaire. Using action through higher education—and Yale University the framework, Navigant has helped various companies facilitate the group. Its mission is to support schools that and governments explore and implement best-practice STRATEGIC PARTNERSHIPS wish to implement an internal carbon price on campus. internal carbon pricing systems through webinars, workshops, and projects. A campus’s internal carbon price can take many forms. It can be as straightforward as charging a flat fee per In 2018, the Carbon Pricing Unlocked partnership round trip plane ticket, or as complex as metering the continued researching how internal carbon pricing at energy use of each campus building and charging financial institutions and along the procurement and departments accordingly. supply chain has the potential to accelerate emission reductions: As its first project, the group developed a toolkit to guide institutions along this process. It compiles ■ Financial institutions could accelerate the transition 61 resources, tools, and lessons learned to help them to a low-carbon economy—and benefit financially in design and implement an internal carbon price on the process—by decarbonizing their portfolios. The campus. A beta version of the toolkit was released in research, conducted in collaboration with CDP, focused September 2018 at the Global Climate Action Summit in on key considerations for investors and banks when San Francisco. implementing internal carbon pricing, aiming to help them understand how they could use internal carbon Looking forward, the working group hopes to expand pricing in their investment and lending processes. and refine the toolkit. Within a few years, the group envisages a new generation of students graduating ■ Procurement and supply chain management that favors having experienced what it is like to work in an products and materials with a low carbon footprint can organization with a price on carbon. Several members of create incentives for large-scale low-carbon innovation. the group are also exploring the role of higher education The partnership researched innovative ways to help in advocating for carbon pricing policy.92 suppliers understand the value of implementing internal carbon pricing and how it could be used to futureproof their operations. The research holds promise for bringing large-scale change. Already, based on recommendations from an expert group Internal Carbon Pricing In Higher THE ENVIRONMENTAL Education Toolkit: Helping campuses DEFENSE FUND Carbon pricing can channel capital, innovation, and implement an internal carbon price entrepreneurial effort to the fastest and cheapest methods for cutting emissions, making deeper The Internal Carbon Pricing in Higher Education reductions possible. More than a billion people live in Toolkit,93 edited by Casey Pickett of Yale University jurisdictions with carbon pricing and that number is and Ruby Woodside of Second Nature, aims to likely to grow dramatically in coming years. While the help schools choose, implement, and manage momentum is real, so is the need for good policy design. the best model of internal carbon pricing for their The Environmental Defense Fund (EDF) has continued in institution's needs. The toolkit is divided into 2018 and 2019 to work to ensure that carbon pricing is a six sections that align with the decision-making, key tool for addressing climate change while recognizing implementation, and management processes for that if implemented without sufficient integrity it will be putting in place an internal carbon price. Each sidelined in favor of less efficient paths. In ICAO, as an section provides guidance and references to expert adviser to the process, EDF remained focused on online resources for download. ensuring that CORSIA delivers a real climate result—with These online resources include: broad participation and robust and transparent rules. ■ The rationale and goals behind campus In 2019, ICAO made significant progress by adopting carbon pricing policies. the emissions unit criteria for offset program eligibility. ■ Guidance and decision trees on the various EDF worked within the process and through political models of internal carbon prices. channels to ensure that the criteria included principles CARBON PRICING LEADERSHIP REPORT 2018/19 ■ Practical considerations for implementing a vital to environmental integrity. This past year, EDF also carbon pricing scheme. expanded the use of CarbonSim, a software application ■ Case studies from colleges and universities that teaches the principles of emissions trading. And with different types of internal carbon prices. in California, EDF advocated for a firm cap and other ■ Sample communication documents. provisions to strengthen the cap-and-trade program ■ Program management templates. in the 2018 amendments. These developments are detailed below. For more information, please visit https:// secondnature.org/climate-action-guidance/ Market Simulations to Accelerate Capacity Building carbon-pricing/. How can countries accelerate the adoption of an effective ETS with stakeholders that lack a strong understanding of carbon and/or financial market mechanisms? This question drove the Environmental THE GEORGE WASHINGTON Defense Fund to launch CarbonSim—a carbon market UNIVERSITY simulation tool. Experience gained since the launch The next generation of carbon managers need of the tool in China in 2015 provides lessons to guide 62 specialized training to enable them to assess and certify future carbon market simulations. reported reductions by countries and companies to ensure that these gases don’t end up in the atmosphere. In 2018, more than 900 ETS stakeholders in Mexico, One university offering such training is The George China, Korea, Thailand, and the United States Washington University in Washington, D.C., which saw participated in more than 25 carbon market simulations its first class of certified greenhouse-gas managers using CarbonSim. Drawn from government, industry, graduate from its rigorous graduate-level greenhouse- and civil society, participants included engineers, gas management program94 in May 2018. Going economists, planners, and sustainability managers. Key forward, the program plans to expand its online course lessons learned include: offering and provide new opportunities for real-world practical experience. The program is run in partnership ■ The professional backgrounds of the participants with the Greenhouse Gas Management Institute. develop as participants gain a greater appreciation of the nuances of emissions trading. Initially, firms tend to The director of the program, Professor Rachael assign people with narrow focus—for instance, those Jonassen, sits on the CPLC Research Conference’s who buy printer ink may also be assigned to purchase scientific committee and in February 2019 moderated allowances. Over time, firms come to understand that two sessions at CPLC’s first International Research managing a carbon portfolio can (and should) be done Conference on Carbon Pricing in New Delhi, India. by those that also are responsible for optimizing the company as a whole, that is, those charged with risk management, capital budgeting, engineering, fuels management, product development, and so on. ■ Carbon portfolio management strategies evolve. In the early exercises, participants tended to strive for compliance considering only on-site abatement costs. Over time, they come to understand that there are many paths to compliance—but only a subset of them are fiscally prudent. Superior performance is realized when budding carbon portfolio managers think about abatement and allowance/credit decisions as both compliance and investment decisions. Participants at the CarbonSim workshop in China. ■ Knowledge gained through simulations facilitates more lucid and impactful discussions with regulators. Regulators have remarked that the quality of CarbonSim is an artificial intelligence-enhanced, stakeholder queries improves as the carbon market multilingual, multi-user software application that simulation progresses. Those engaged in the teaches the principles of emissions trading and simulation come to understand that outcomes are brings markets to life. ETS program administrators a function of both their own skillset and program learn that policymakers drive results with their design. Participants draw on this knowledge as they design choices. Industries learn how to develop engage with regulators in the real world regarding an and implement a carbon management strategy. actual potential ETS. To date, more than 3,000 stakeholders from companies with emissions that exceed 3.5 billion ■ Simulation experiences prompt ETS-related tons of CO2 have used it. STRATEGIC PARTNERSHIPS planning within organizations. As participants develop, implement, and adjust their virtual carbon portfolio management strategies, they also begin to have more fruitful internal discussions about how their companies should prepare for an actual ETS. Advocacy in California Ultimately, this can help companies better appreciate The Environmental Defense Fund hit the ground and take advantage of opportunities to improve their running in California in 2018 and 2019. In December energy, process, and abatement efficiencies. 2018, California adopted amendments to its cap-and- trade program, as directed by the legislature. The fund Capacity-building and policy experimentation played a critical role in advocating for a firm cap, which ■ 63 goals are, at best, imperfectly aligned. Carbon included strengthening the instruments that would market simulations allow participants to improve their allow the program to maintain environmental integrity ETS-related skills. Participants can also experiment and ensuring that the inclusion of a price ceiling would PHOTO PROVIDED BY THE ENVIRONMENTAL DEFENSE FUND. with different policy designs. However, researchers provide certainty for the market, as well as preserve the should be cautious about basing their policy design program’s environmental goals. Quentin Foster, the recommendations solely on the results of a set of carbon fund’s California Director for Climate, was appointed by market simulations. There are several reasons for this. Governor Brown to the Independent Emissions Market One is that the actions of a novice carbon portfolio Advisory Committee, where he can weigh in on these manager can be quite different from those of a manager issues with other notable academics. The Environmental of a real-life facility. The lack of real-world risks (like Defense Fund’s comments submitted to the California imprisonment for non-compliance) could encourage Air Resources Board on the proposed amendments to virtual facility managers to take greater risks than their the cap-and-trade program can be accessed online.95 real-world counterparts. Other factors—for instance, In addition to its advocacy on cap and trade, the the relative short term of one to six virtual years—and Environmental Defense Fund encouraged the California an inability to accurately capture the effects of other Air Resources Board to consider the benefits of limiting economic, manufacturing, and energy-related variables the deforestation of tropical forests. The California should also give policy researchers pause for thought. Air Resources Board subsequently issued its Tropical Forest Standard to curb the effects of deforestation GOLD STANDARD and its contributions to global climate change. The Regulation is an effective way to control carbon Environmental Defense Fund strongly supported the emissions, but where the political will to quickly extend adoption of the standard, which is currently being carbon pricing to all corners of the economy is lacking, considered. This remains a priority for the fund in 2019. voluntary action is critical. The fund’s comments are available online.96 Voluntary carbon offsetting fell out of favor following In 2019, the Environmental Defense Fund will continue the 2008 market crash, a series of highly publicized to work with the California Air Resources Board to trading scandals, and rising criticism from civil society. strengthen and support California’s carbon market, as well Well-intentioned journalists and non-governmental as share the best practices and experiences of California’s organizations characterized offsetting as a way to buy market with states and sub-national jurisdictions looking out of meaningful internal emission reductions. However, to establish their own carbon pricing policies. the opposite was actually true: according to a 2017 report by Ecosystem Marketplace,99 companies that CEBDS included offsetting in their carbon management strategy In 2018, after meetings with representatives from 30 typically spent about 10 times more on emissions large companies across 13 economic sectors, the reductions activities than companies that didn’t offset. Brazilian Business Council for Sustainable Development (CEBDS)—accompanied by various member companies’ To catalyze private sector finance for high-impact climate CEOs—submitted a proposal97 to the country’s Minister of and development projects worldwide, Gold Standard Finance98 highlighting issues of concern that will need to set out to establish the role offsetting should play in a CARBON PRICING LEADERSHIP REPORT 2018/19 be considered in designing carbon pricing mechanisms. credible climate strategy. Partnering with CDP and WWF, it These include gradual implementation, actions to protect published a report titled Corporate Climate Stewardship100 competitiveness, and good governance. containing guidelines for best practice in corporate climate action. Published in April 2018, this report places The report put forward that: carbon pricing at the center of a business’s climate strategy. The guidelines outline the following four pillars: ■ Both regulators and regulated entities should be able to refine the carbon pricing scheme based on lessons ■ Measure and disclose climate impact and risks. learned as time goes by. ■ Reduce climate impact and risks in line with science. ■ There should be a price ceiling of $10 per ton of CO ■ Finance the global transition to a zero-carbon 2 for the first phase of the scheme, combined with free resilient economy. allocations for sectors with the greatest exposure to ■ Advocate for strong policy frameworks. international trade, high mitigation costs, and high carbon intensity. The guidelines are the first step to determine if, how, ■ Allowing offsets from the forestry sector and and to what extent voluntary carbon pricing—or providing tax exemption on capital gains in financing emissions beyond boundaries—should figure 64 emissions trade transactions could be used to into a broader climate strategy. Future work for the help contain costs. Gold Standard’s team, CPLC, and civil society partners ■ To promote good governance, the future regulatory includes clearly defining what “net zero emissions,” as framework should be established by law. It should enshrined in the Paris Agreement, means for business. also define principles, general guidelines, phases, For instance, should a company be responsible for its appointments, scope, the legal nature of emission value chain’s emissions? When should a company offset, rights, and mechanisms for participation of and when should they not? And what if a company is regulated agents. officially carbon neutral, but investing in new carbon- intensive products or services that are incompatible with In light of the new government in place, CEBDS and a net-zero future? These updates will soon be available. member companies’ CEOs met the new Brazilian Vice President and defended the idea of establishing a carbon INTERNATIONAL CARBON market in the country. The documents presented will now be analyzed and subsequent meetings will be scheduled. ACTION PARTNERSHIP In the meeting, CEBDS stood as an important stakeholder (ICAP) for the government to reach out to when dealing with Since 2007, ICAP has been supporting governments in sustainable development with the private sector. their efforts to implement successful ETSs. At the heart of its work is the exchange of lessons learned and best practice and the institute is now turning its attention to building among members through the ICAP technical dialogue. wide support for carbon pricing, with a view to protect long-term climate action. In Alberta, it is continuing the A core theme of ICAP’s current work is how to maintain push for climate action and awareness by disseminating the competitiveness of the participating sectors under information on carbon pricing to ensure that the carbon pricing. This question is key to safeguarding province’s price on pollution stays in place. Meanwhile, in the effectiveness and longevity of these programs, as B.C. it is offering the government recommendations on an adequate carbon price should not disadvantage how to fairly and effectively broaden the carbon tax.101 In regulated entities and lead to carbon leakage, that is, 2018, Pembina also released an Energy Policy Simulator, a displace emissions to jurisdictions with less stringent modeling tool that helps demonstrate the importance of climate regulations. carbon pricing as part of a suite of climate policies. Most ETS jurisdictions have used free allocation of Going forward, Pembina will continue advocating for a allowances to ease the transition of entities into the price on methane emissions at federal level and advising system and to protect emissions-intensive and trade- on the development of regulations around the output- exposed sectors from carbon leakage. Free allocation based pricing system to ensure that industries reduce lowers the effective carbon cost for industry and frees emissions while limiting risks. Finally, it will focus on up financial resources that can be used to invest in shaping the narrative on carbon pricing in the media. low-carbon technologies. On the other hand, giving free allowances can limit the incentive to reduce WORLD RESOURCES emissions. It is therefore commonly accepted that free allocation should become more targeted over time while INSTITUTE (WRI) WRI works with governments and the private sector continuing to protect those most at risk. to advance the adoption of carbon pricing. In close coordination with the PMR, the Ministry of Environment, Leading into 2019, ICAP’s work on competitiveness will Forests, and Climate Change, and the Confederation focus on two aspects: first, in a work stream on future- of Indian Industry, WRI India has been preparing a proofing carbon leakage protection, ICAP will examine comprehensive roadmap towards establishing carbon suitable metrics for identifying the sectors most at risk markets covering small and medium-sized businesses, and thus deserving of free allocation. In addition, ICAP STRATEGIC PARTNERSHIPS which are not yet covered under any mechanism. will debate alternative approaches to leakage protection in the longer term. Over time, as caps become stricter, In addition, WRI India, in partnership with CPLC, free allocation volumes will decline, which will render has embarked on an economy-wide carbon market treating leakage concerns with free allocation less simulation to further explore the potential of carbon effective. These issues become increasingly salient as pricing in the country. A preliminary landscape and jurisdictions progress on their decarbonization pathway. scoping exercise, carried out in consultation with leading businesses in the country, has helped WRI India In parallel, ICAP is creating a common knowledge base establish recommendations on possible market design among its members around questions of free allocation. considerations. The simulation, planned to be launched This involves both identifying trade flows of commodities 65 in the first half of 2019, will test out various options and covered by carbon pricing and comparing notes on establish key opportunities, challenges, and impacts jurisdictions’ approaches to free allocation, particularly regarding price ranges and possible reductions. benchmarking. ICAP, along with other actors in the field, is working to ensure competitiveness for firms subject Carbon pricing programs often result in improved to an ETS over the lifespan of the program. Looking availability of climate-related data and bottom-up to 2019 and beyond, ICAP will continue stimulating information. Our planned webinars in early 2019, as part discussions in an ever-expanding circle of peers of the capacity-building efforts under the Partnership to pioneering and fine-tuning carbon markets as a key tool Strengthen Transparency for Co-Innovation, will explore on the path to decarbonization. experiences from carbon pricing programs across the globe to put forth learnings in the context of improved PEMBINA INSTITUTE availability of climate-related data. The climate-positive policy decisions made over the years by Canada and its provinces like Alberta and B.C. Training based on WRI’s publication outlining a clear are the product of insightful decision-making, supported framework on how corporates can incorporate internal by robust discussion, science-based evidence, and the carbon pricing measures will be rolled out in early 2019. advocacy of organizations like the Pembina Institute. But WRI is also building a knowledge base of corporate the work of a climate change advocate is never done, experiences of applying internal carbon pricing, specifically in terms of effectiveness, impact, and transition towards enhanced business goals, including science-based targets. As a start, a compendium of case studies from leading businesses in India, developed by WRI, shares the approach and methodology adopted by companies across the automotive, oil and gas, textiles, information technology, and cement sectors. CARBON TRUST MEXICO The Carbon Trust has continued collaborating with Shakti Sustainable Energy Foundation several Latin American countries to develop carbon launching its report, Discussion Paper on pricing mechanisms, as well as supporting various Carbon Tax Structure for India. organizations in the region to strengthen their capabilities. Recent work has included helping Costa Rica develop a voluntary carbon market, known as the Costa Rica Compensation Mechanism. This voluntary the CPLC Secretariat. The association also conducted carbon market aims to promote the compensation an official side event with the Nigerian government on CARBON PRICING LEADERSHIP REPORT 2018/19 of carbon emissions by acquiring Costa Rican “Leveraging Domestic and International Finance for compensation units, derived from the implementation NDC Implementation.” of climate change mitigation projects. In addition, the Carbon Trust recently led a series of SHAKTI SUSTAINABLE capacity-building workshops for the private sector in Mexico on the upcoming implementation of the national ENERGY FOUNDATION ETS. Carbon Trust experts trained key stakeholders from Advancing smart energy policies will be key to providing regulated sectors to facilitate public-private discussions millions of Indians with reliable, affordable, and secure and greater collaboration. access to energy in a sustainable manner. Meaningful policy action on India’s energy challenges will strengthen CLIMATE MARKETS AND national energy security, support development, and INVESTMENT ASSOCIATION keep the environment clean. Shakti Sustainable Energy Foundation works to facilitate India’s transition to a (CMIA) sustainable energy future by aiding the design and It has been a challenging year for EU ETS development implementation of policies that promote clean power, in the United Kingdom (UK). The European Commission energy efficiency, sustainable urban transport, climate 66 decided to temporarily suspend processes related to the action, and clean energy finance. Working collaboratively UK in the Union Registry,102 and the UK government does PHOTO PROVIDED BY SHAKTI SUSTAINABLE ENERGY FOUNDATION. with policymakers, civil society, industry, think tanks not plan to issue any 2019 allowances until this issue is and academia, Shakti seeks to catalyze transformative resolved. The Climate Markets and Investment Association solutions to meet India’s energy needs in clean and participated in the UK’s Department for Business, Energy, sustainable ways. and Industrial Strategy EU ETS Stakeholder Group, where it contributed to Brexit discussions on the EU ETS. Carbon pricing instruments have been growing in significance over the past few years, with an increasing The department consulted the association throughout the number of national and sub-national players committing year on a range of post-Brexit options for the country’s to reduce greenhouse-gas emissions through effective future approach to carbon pricing. The association also market mechanisms. Shakti works closely with has its own Brexit EU ETS working group, which invites a policymakers in India on regular high-level stakeholder wide range of industry for consultation. discussions on Article 6 of the Paris Agreement, which includes a specific focus on carbon pricing through At COP24, Climate Markets and Investment Association taxation or a cap-and-trade approach. Under its climate presented, along with IETA, the Carbon Pricing business program, Shakti also engages with corporates Champion Award to the Republic of Colombia and to to help establish internal carbon pricing measures. In India, the recent adoption of the Goods and Services Tax opened up a window for re-strategizing the pricing SOUTH POLE In the last 12 years, South Pole has developed over 700 of energy resources, including fossil fuels. In this context, emissions reduction projects in renewables, forestry, Shakti commissioned Ernst & Young to examine if, and agriculture, and industry. In addition to reducing how, a carbon tax mechanism can be introduced in hundreds of millions of tons of carbon and protecting or India; its associated merits and challenges; and the role restoring landscapes, these projects have transformed that the proposed tax mechanism can play in helping lives: improving the health of millions of people by India achieve its stated climate goals. increasing access to clean and affordable energy and water, and creating jobs. KLIMAATPLEIN.COM Klimaatplein.com,103 a social enterprise based in the In 2019, South Pole will continue to focus strongly Netherlands, carried out a unique carbon pricing on driving and quantifying the social benefits of pilot on small and medium Dutch enterprises in projects and demonstrating how they contribute to 2017. The participants gained insight into their the Sustainable Development Goals. In addition, it will carbon footprint and how much they would have increase its efforts on nature-based solutions. Despite to pay if carbon emissions were priced at €100 per frameworks still being developed, South Pole is looking ton. What energy-saving measures could these forward to pioneering Article 6 approaches (see below companies take to keep their carbon emissions at for details) to explore how international cooperation their lowest possible level? can mobilize additional finance to support countries’ ambitions, and drive climate action on the ground. For starters, the pilot led to increased carbon emission awareness by the participating organizations: What’s Southern and Eastern Mediterranean the source of their CO2 emissions? How can they be South Pole is working with the EBRD to mobilize climate reduced and what does a price on carbon mean when finance and support carbon market developments in the it is time to choose energy-efficient investments? southern and eastern Mediterranean region, including Companies found answers to these questions by countries such as Egypt, Jordan, Morocco, and Tunisia. participating in this pilot. The project aims to design and implement an upscaled crediting mechanism for renewable energy projects to STRATEGIC PARTNERSHIPS One year later Klimaatplein.com asked the participating monetize greenhouse-gas emissions pre-2020, while companies what kind of energy-saving and emission helping to set the stage for piloting a new market reduction measures they took in response to mechanism to support international and domestic participating in the pilot. Participants took very different mitigation efforts post-2020. approaches, including: ■ Replacing remaining conventional lighting in Since the project started in 2016, South Pole has been warehouses with LED lighting. in charge of the overall project coordination, including ■ Buying green electricity from wind energy. working closely with national authorities to develop ■ Buying an electric company car for deliveries in the grounds for a carbon crediting mechanism and the region. quantifying emission reductions from renewable 67 ■ Replacing company cars with fuel-efficient vehicles. energy pilot projects in order to monetize them. ■ Standardizing stocks (parts) in buses. Partly because South Pole has also contributed to the dissemination of this, the company can drive with smaller buses of the project’s progress by participating in events at that consume less fuel because they have less air COP22104 in Marrakesh and at the Innovate4Climate resistance and are less heavily loaded. 2018105 in Frankfurt. ■ Buying more than 360 solar panels, allowing the business to become energy self-sufficient. Nordic Region ■ Buying a software program to regulate transport more The Nordic Working Group for Global Climate efficiently. With this program the company can plan Negotiations has engaged South Pole, along with routes more efficiently, thereby saving fuel. Climate-KIC and Gaia Consulting, to build a Nordic collaborative platform that can mobilize and scale Because of these results, Klimaatplein.com started a climate financial flows by sharing knowledge of follow-up of this research with 12 small- and medium- operational experiences and best-practice designs. sized companies in three business sectors: metal, South Pole supported this initiative by creating and technology, and horeca (the hotel/restaurant/café food operating a steering group that focused on key climate service industry). The companies worked with a carbon finance issues; synthesizing findings through producing price of €60 per ton. The research is still ongoing. briefs on Mobilizing Private Finance for Climate Action in the Global South: Nordic Experiences and the Way Colombia and Mexico Forward106 and Greening the Financial System: Nordic Given the uncertainties of how Article 6 will operate in Experiences and the Way Forward;107 and organizing real-world contexts, South Pole is facilitating a virtual workshops and webinars to present the final findings. pilot of Article 6 in Colombia on behalf of the Swedish Energy Agency. This mitigation pilot activity aims to South Pole is also supporting the platform’s working demonstrate how to mobilize climate finance between group on Article 6 of the Paris Agreement to understand Annex 1 and non-Annex 1 countries. Specifically, South how to mobilize private finance between Nordic Pole will act as an intermediary between the Colombian countries and individual emerging countries. The group government and the Swedish Energy Agency to find explores how to enable cooperative arrangements carbon projects that will inform the development of under Article 6.2, to then enable the transfer of Article 6 programs in the energy sector. internationally transferable MOs under Article 6.4. As long as Article 6.2 and 6.4 are subject to further South Pole is supporting the Nitric Acid Climate Action UNFCCC negotiations, Nordic countries can already Group’s activities in Colombia and Mexico by identifying move ahead with bilateral test instruments that can be long-term abatement opportunities of nitrous oxide integrated under Article 6 later on. Nordic countries aim emissions after 2020, based on the nature of each to use the operational lessons learned from pilot testing country’s nitric acid production sector, and the current 2018/19 REPORT 2018/19 Article 6 projects to support negotiations, particularly and future policies that are aimed to reduce nitrous on ensuring environmental integrity and sustainable oxide emissions from these sectors. development (see next project). In 2018, South Pole developed a white paper for GIZ and the Colombian government that catalogues policies, LEADERSHIP mechanisms, instruments, and incentives to reduce nitrous oxide emissions in the nitric acid sector, including those that would need to continue after 2020. REPORT PRICING In 2019, South Pole will work on a similar white paper LEADERSHIP for Mexico and undertake further work in Colombia, including an analysis of options to certify existing Clean CARBON Development Mechanism projects under the Voluntary Carbon Standard, and options to adjust the project CARBON PRICING design to another technology. 68 CARBON PRICING RESEARCH A selection of research produced by our knowledge partners in 2018/19. 69 NEW CLIMATE ECONOMY shows that putting a price on carbon does not slow economic growth. It provides a clear and steady signal We are on the cusp of a new growth era, one where for business, industry, and consumers to shift course. bold climate action across economic systems can lead to higher productivity, more resilient economies, and Carbon pricing can also support a people-centered greater social inclusion. Yet we are not making progress approach. Carbon pricing revenues can be used to fast enough. The next 10 to 15 years are a unique use- invest in public priorities, including those that ensure a it-or-lose-it moment. The world is expected to invest just transition113 to a low-carbon economy. For example, $90 trillion108 in infrastructure by 2030, more than the in B.C., Canada, revenue from a carbon tax is returned current global stock. How that infrastructure is built to the people through corporate and individual tax will be a major determinant of future prosperity and rate cuts and a low-income climate action tax credit. whether the world turns the tide on climate change. And even where carbon pricing is not yet in place, The next two to three years are a critical window when businesses and development finance institutions can many of the policy and investment decisions that shape implement shadow carbon prices to steer investments the next 10 to 15 years will be taken. away from increasingly risky fossil fuel options. In 2018, the New Climate Economy109 launched its Leaders are seizing the exciting economic and flagship report, Unlocking the Inclusive Growth Story of market opportunities of this new growth approach. the 21st Century: Accelerating Climate Action in Urgent The laggards are not only missing out on these Times.110 It demonstrates the benefits of low-carbon opportunities; they’re putting us all at greater risk. The growth and outlines how we can accelerate efforts to New Climate Economy’s 2018 report makes plain, we achieve it. The report finds that bold climate action have everything to lose and so much to gain. could yield a direct economic gain of $26 trillion by CARBON PRICING LEADERSHIP REPORT 2018/19 2030 compared with business as usual. Ambitious climate action could also: MASSACHUSETTS INSTITUTE OF ■ Generate more than 65 million new low-carbon jobs in 2030 (equivalent to the workforces today of Egypt TECHNOLOGY Sergey Paltsev, a leading climate change academic and the United Kingdom combined). with the Massachusetts Institute of Technology (MIT), ■ Avoid more than 700,000 premature deaths from air presented the key findings of two reports114—one on pollution in 2030. Latin American nations and the second on Association ■ Increase women’s participation in the labor force. of Southeast Asian Nations—at COP24 side events. The reports analyze gaps between current emission The 2018 report urges leaders in government, business, levels and NDC targets for each region, highlight key and finance to prioritize action on four fronts: challenges to compliance with those targets, and recommend cost-effective policy and technology ■ Ramp up efforts on carbon pricing and move solutions to overcome those challenges. The research toward mandatory disclosure of climate-related was supported by General Electric. 70 financial risks. ■ Accelerate investment in sustainable infrastructure. Michael Mehling115 (Deputy Director, MIT’s Center ■ Harness the power of the private sector and for Energy and Environmental Policy Research) unleash innovation. also shared new research116 at COP24 on carbon ■ Build a people-centered approach that shares gains markets, providing guidance for the governance of equitably and ensures that the transition is just. cooperative approaches for transferring MOs to ensure transparency, accurate accounting, and environmental The 2018 report also calls on major economies to put integrity while minimizing transaction costs and a price on carbon of at least $40 to $80 per ton of CO2 maximizing participation and climate ambition. by 2020,111 along with a predictable rising pathway by 2030. It calls for major economies to phase out fossil fuel subsidies by 2025. Subsidies and other support to fossil fuel production and consumption have declined, but still amounted to $373 billion a year112 in 2015. The report finds that subsidy reform, combined with carbon pricing, could generate an estimated $2.8 trillion in annual government revenues or savings in 2030, equivalent to the total GDP of India today. Evidence THE WORLD BANK With carbon pricing gaining traction throughout the world, carbon revenues represent an increasingly crucial asset for both the economy and the environment (globally, $33 billion in revenues in 2017). The World Bank’s forthcoming Carbon Pricing Revenues report will provide practical guidance and insight on the use of revenues generated by carbon pricing policies. The report is aimed at decision- makers involved in the design, implementation, and evaluation of carbon pricing instruments. It highlights the importance of using revenue for the distributional impacts of carbon pricing instruments. It details the four main options used by governments to spend carbon revenues: earmarking for infrastructure and/ or climate-related projects, allocation to the general budget, targeted tax cuts, and direct benefit schemes. To assess the benefits and challenges associated with each option, the report proposes six criteria: macroeconomic performance; environmental performance; political resilience; communication and transparency; social inclusiveness; and governance and management. Finally, the report proposes a checklist of guiding principles forming the six stages of a well-defined framework for the use of carbon revenues, the CARBON PRICING RESEARCH INCOME principles: ■ Incorporate revenues upfront when designing a carbon pricing instrument. ■ Tailor revenue use to national circumstances and priorities. ■ Consult widely and set up an inclusive governance structure. ■ Organize the right revenue spending framework to increase acceptability. ■ Measure and report on revenue use. 71 ■ Enhance revenue use through regular reviews. I4CE Every year, I4CE releases a short yet comprehensive overview of key trends regarding the implementation of explicit carbon pricing policies throughout the world. A timeline, a world map, a detailed table, and graphs provide up-to-date and extensive information on the jurisdictions that have implemented or plan to implement explicit carbon pricing policies, the type of instrument chosen, the sector and fuels covered, the pricing levels, and the use of revenues. THOUGHT LEADERSHIP MARKET APPROACHES GAIN TRACTION IN NORTHEAST ASIA JACKSON EWING, SENIOR FELLOW, DUKE UNIVERSITY NICHOLAS SCHOOL OF ENVIRONMENTAL POLICY SOLUTIONS I n her remarks at the 2018 CPLC High-Level Assembly,117 and in this report, IMF Managing Director Christine Lagarde repeated her call to “price it right, tax it smart, and do it now.” The “it” here is carbon emissions and the already-converted crowd Lagarde addressed leads a movement to expand decisions, and striking122 a balance between alienating and deepen carbon pricing—whether through taxes or covered businesses through overly onerous carbon markets—around the world. restrictions and placing limitations on carbon that are too lax to be environmentally valuable. Linking markets There are signs that Lagarde’s call is gaining traction. regionally requires harmonizing123 select policies, The World Bank estimates118 that 74 jurisdictions exploring124 different legal and diplomatic options, and are covered by existing or scheduled carbon pricing developing the political trust needed to accept emissions CARBON PRICING LEADERSHIP REPORT 2018/19 initiatives; and this coverage is expanding steadily year reduction credits from another country. by year. Northeast Asia is helping to lead this charge, with three of the world’s largest economies—China, Given the trend of expanding carbon pricing coverage Japan, and the Republic of Korea—all pricing carbon in developed and developing polities across the world, as core elements of strategies to reduce emissions.119 its effectiveness will drive or impede the speed and costs of transitioning to a lower-carbon future. Getting Unlike past efforts that were more centralized these policies right necessitates combining125 research internationally, this generation of carbon pricing is and practitioner experiences across geographies organic and individualized, with policy designs unique and throughout different stakeholder groups. Such to the governments putting them in place. The most collaborations can yield outcomes that are greater than likely path for continued carbon pricing expansion is the sum of their parts. through linking multiple pricing regimes together. Market approaches are particularly attractive120 for the major economies of Northeast Asia given their commitments to reduce greenhouse-gas emissions 72 in economies highly dependent on fossil fuels. The juxtaposition of China’s relatively low emissions reduction costs and the high costs faced by Japan and the Republic of Korea also creates opportunities for market links that are in the interest of each party. Recent and ongoing research121 by the Asia Society Policy Institute and its partners suggests that policymakers and stakeholders in Northeast Asia can cheaply and efficiently reduce emissions if they learn from others and finds ways to work in concert. With China, Japan, and the Republic of Korea accounting for roughly one-third of the world’s emissions footprint, it is critical to find solutions that enhance domestic markets and open up opportunities for future market links. This means modeling different policy interactions domestically as a basis for strategic policy THOUGHT LEADERSHIP YOUTH LEADERSHIP THE KEY TO SUCCESSFUL CARBON PRICING ALLISON ROMER, UNDERGRADUATE STUDENT, BINGHAMTON UNIVERSITY Y oung people will disproportionately face a crisis functioning ecosystem to provide clean water, nutritious that no generation has experienced before: food, and breathable air. climate change. The predicted magnitude of this crisis requires a global push for sweeping I choose to act on climate because my interests lie environmental policies, including a price on carbon, where social issues and climate change intersect. It is that will guarantee a dramatic reduction in global increasingly clear that climate change will exacerbate greenhouse-gas emissions over the next decade. Failure struggles faced by communities in both developing to act on climate change will leave young people fighting and developed nations, including food and water to adapt to a completely altered planet rather than security, suitable land access, and economic progress. pursuing the same opportunities previous generations Pricing greenhouse gases can be scaled up globally, had. We have grown up with “climate anxiety,” but thus prompting further worldwide action on equitable ultimately, young people have the power, energy, and solutions to climate change. A carbon price will not only drive to ensure that we are the last generation to face slow the direct impacts of climate change but will also this scenario. prevent young people from addressing these secondary burdens associated with rising global temperatures. I strongly believe that the climate policy youth should be advocating for is carbon pricing. The time to act on climate is now. Young people have the most to lose as a result of climate change and, as A well-designed price on carbon eliminates the present the best movements do, the voices of those who have market failure by holding those most responsible for the most to lose must be centered in decisions. Given climate change accountable for their actions. Benefits this, we have an opportunity to get directly involved in include a measurable reduction in emissions, a source the outcome of our future in a key way. In the United of revenue that can be used in many ways, and the States, young people are now the largest eligible voting promotion of continuous innovation in renewable block; we have the power to elevate politicians who energy. By leveling the economic playing field, clean prioritize climate legislation through our voting voice energy is likely to advance as the most efficient option and civic engagement. I’ve personally advocated for as these energy sources are not priced under a carbon carbon pricing legislation by attending nearly a dozen fee. A well-designed carbon price can create measurable lobby meetings at the state and federal level, collecting reductions in carbon emissions without placing unfair letters from young people to send to elected officials, 73 burdens on disadvantaged communities, thus offering and engaging in countless conversations with peers on an equitable and economically viable path towards why they should care about climate action. A clean and mitigating climate change and relieving young people of livable future is something young people are entitled to a global climate crisis. and can’t happen without a direct, economically sound, socially equitable, and politically viable path to combat Raised in upstate New York, I was exposed early to the climate change—which a well-designed price on carbon gifts a healthy ecosystem provides as I was surrounded can help to achieve. by a plethora of lakes, gorges, and agricultural products. I am certain that I am not alone when I express fears of losing natural diversity as a result of climate change. At the same time, the impacts of climate change on the natural environment span far beyond losing “pretty” things. Innumerable people around the world depend directly on their natural environment to meet their day-to-day needs. Further, every individual, regardless of their geographic background, relies on a properly CONCLUSION STILL MUCH WORK TO BE DONE ANGELA CHURIE KALLHAUGE, HEAD, CPLC SECRETARIAT 2 018 was an eventful year for carbon pricing, with robust progress seen on several fronts. At the same time, new challenges emerged as carbon pricing initiatives segued into concrete implementation. Needless to say, it was a busy year for CPLC. While the momentum around carbon pricing continued to grow, what was especially encouraging for us was that this momentum was accompanied by a strengthened carbon price. With the increase in prices comes an increase in revenues generated by these initiatives, as CARBON PRICING LEADERSHIP REPORT 2018/19 highlighted in several dialogues convened by CPLC and its partners. Greater focus on these revenues has been an important factor in many jurisdictions, and the discussions underlined the need to consider this in the context of communicating the social aspects related to pricing. Due to the growing political attention that carbon work with our partners to continue building awareness pricing has been receiving, we also witnessed increased on how to strengthen communication on carbon pricing, social awareness. In some jurisdictions, this took so that we can contribute to objective debates that are the form of opposition to carbon pricing programs. relevant to specific circumstances and priorities. While one can argue the cause for opposing carbon pricing—whether due to the price being set or due to Businesses continue to engage deeply with the coalition. the implications from the broader policy context within As the number of business partners increases, so does which it is applied—one thing became clear: more effort the need to address some of their prevailing concerns, is needed to build a strong social case for pricing carbon. especially among energy-intensive and trade-exposed For us, a key question is whether we are advocating for industries. To respond, the work of the High-Level 74 pricing in a way that resonates with the broader social Commission on Carbon Pricing and Competitiveness, and developmental priorities of stakeholders in different launched at the last High-Level Assembly, has begun. jurisdictions and sectors. This commission is examining the evidence of impacts of pricing on key sectors and engaging with industry To help our partners communicate carbon pricing to leaders on how best to address their concerns while key stakeholders, CPLC, in collaboration with the PMR, enabling a shift to a low-carbon economy. released the Guide to Communicating Carbon Pricing. While the fundamental principles of different carbon pricing In 2018, we continued engaging with partners in different policies and measures are fairly similar, the application, fora across the world. CPLC was present at several motivations, and form of the initiatives vary from sector partner-led events, including the Globe Forum, where to sector and from jurisdiction to jurisdiction. We plan to Canadian partners launched their report on the role carbon pricing can play in the transition to a low-carbon economy, and the Global Compact Network Singapore’s National Summit in Singapore, where the first national CPLC chapter was launched to support corporate engagement on pricing carbon. Private sector partners are discussing forming a similar chapter in India—a development we hope to pursue in 2019. In addition, CPLC partnered with California, the EU, IETA, and others at the Global Climate Action Summit in San Francisco to run a “Carbon Pricing Day,” which provided a comprehensive overview of progress being made globally on this issue. Four years since the CPLC was established, we are at a watershed moment for carbon pricing. While we can take pride in the fact that CPLC is considered a trusted and respected platform for stakeholders from the public and private sectors to openly discuss the benefits and challenges of this tool, we need to remain focused. We must continue strengthening the case for a price on carbon, building social acceptability, and exploring opportunities to engage with stakeholder constituencies across different regions and sectors, while keeping their specific context in mind. Our work is far from done. We need to keep engaging with our partners and amplifying leadership efforts to achieve our collective vision of doubling the global coverage of carbon pricing by 2020, and doubling it again by 2030. In this way, we aim to contribute to ambitious, effective climate action while supporting sustainable development. 75 REFERENCES 1 Intergovernmental Panel on Climate Change. IPCC Special Report: Glob- tion-today.pdf. al Warming of 1.5℃. Chapter 1, Page 79, October 8, 2019. https://www. 23 Prime Minister’s Office Singapore. DPM Teo Chee Hean at the Global ipcc.ch/sr15/chapter/chapter-1-pdf/ (accessed March 14, 2019). Compact Network Singapore Summit 2018. 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