2017–2018 2017–2018 PUBLISHED APRIL 201 8 © 2018 International Bank for Reconstruction and Development and International Development Association / The World Bank Some rights reserved The Carbon Pricing Leadership Coalition Leadership Report serves as the Coalition’s annual report by providing the latest on CPLC activities while also aiming to inspire government and business leaders to take more action. The Carbon Pricing Leadership Coalition (CPLC) is a voluntary partnership of national and sub- national governments, businesses, and civil society organizations that agree to advance the carbon pricing agenda. The CPLC secretariat is administered by The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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ACKNOWLEDGEMENTS The CPLC Leadership Report serves as the Coalition’s annual report by providing the latest on CPLC activities while also aiming to inspire government and business leaders to take more action. In contrast to last year’s report, this one features selected leadership profiles and includes more opinion pieces that challenge CPLC audiences to increase ambition and turn advocacy into action. The report was edited by Isabel Saldarriaga Arango with the help from Yann Schinazi under the guidance of Angela Churie Kallhauge. Support was provided by the CPLC Secretariat team: Angela Churie Kallhauge, Usayd Casewit, Dominik Englert, Radhika Goyal, Thomas Kerr, Kelley Kizzier, Alexandre Kossoy, Ayesha Malik, Aditi Maheshwari, Céline Ramstein. Support was also provided by Elisabeth Mealey and teams from the World Bank’s Climate Change Unit. Special thanks to Commissioners Emilio Lebre la Rovere and Harald Winkler for their contribution to this report. The CPLC thanks partners for their contributions to this report. The Carbon Pricing Leadership Coalition acknowledges the generous support provided by the Children’s Investment Fund Foundation (CIFF), the Government of the Netherlands and Germany, and the World Bank Group. The report was designed by Brad Amburn. LE ADE RSHIP RE P O RT 1 CONTENTS Foreword by Jim Yong Kim, World Bank Group President................................................................................ 4 Running the Race Together by Feike Sijbesma, DSM CEO, CPLC Co-Chair........................................................ 6 Carbon Pricing Works by Catherine McKenna, Environment Minister, Canada, CPLC Co-Chair..................... 8 Stock Taking: Carbon Pricing Systems Around the World.......................................................................9 CPLC in Action...........................................................................................................................................12 2017-2018 Carbon Pricing Leadership Coalition Governance Team............................................................... 25 Box: What makes the CPLC unique? by Angela Naneu Churie Kallhauge, CPLC Lead................................... 25 The FASTER Principles for Successful Carbon Pricing...........................................................................28 British Columbia................................................................................................................................................. 30 France.................................................................................................................................................................. 31 Québec................................................................................................................................................................. 32 Sweden................................................................................................................................................................ 33 Leadership in Action................................................................................................................................34 2 CARB O N P R IC IN G LE AD ER SH IP COA L ITION Increasing Regional Cooperation on Carbon Pricing in the Americas........................................................... 34 Côte d’Ivoire: Getting serious about a national carbon price.......................................................................... 35 Box: Mobilizing Brazilian Business Support to Price Carbon.......................................................................... 36 The Reform of the EU ETS.................................................................................................................................. 38 Carbon Pricing in India: Tailored Risk Management....................................................................................... 38 Box: Financial Sector Leadership...................................................................................................................... 39 Carbon Pricing Policy Development in Mexico................................................................................................ 40 Heading for New Shores with the Shipping Sector.......................................................................................... 42 Multilateral Development Banks and Internal Carbon Pricing...................................................................... 42 Carbon Pricing as a Catalyst for a Sustainable Energy Transition.................................................................. 44 —An Emerging Leader for Carbon Pricing in Southeast Asia........................................................ 44 Singapore­ Going Forward.................................................................................................................................................... 46 List of CPLC Partners........................................................................................................................... Back Cover LE ADE RSHI P RE P O RT 3 FOREWORD by J IM YO N G K I M World Bank Group President Last year brought highs and lows in the global effort to confront climate change. On one hand, we saw an upsurge in international commitment to action, including deals announced at the extraordinary One Planet Summit that marked two years since the signing of the Paris Agreement. On the other, 2017 was marked by the devastation and loss that climate extremes continue to wreak on people and economies through more severe hurricanes, floods, drought, critical investments in clean and low-emission and wildfires. The fact remains: at the technologies that it can drive. current rate of progress, we are not on track to achieve the Paris Agreement An example of this far-sighted leadership came targets. And once again, we even see in late 2017. In a powerful demonstration of emissions back on the rise. regional cooperation, the national governments of Canada, Chile, Colombia, Costa Rica, and This is why innovative partnerships like the Mexico joined with the provincial leadership Carbon Pricing Leadership Coalition are so in Alberta, British Columbia, Nova Scotia, important. Through this coalition, we can and Quebec; and the Governors of California, inspire greater ambition and show—by Washington, and Ontario to launch the Carbon example—how to overcome challenges. We Pricing in the Americas initiative—a shared are seeing this more and more as public and pledge to implement carbon pricing and create private stakeholders come together to drive strong ties between their carbon markets. sensible action on climate change. Now, many leaders in industry and government We’re seeing other high-impact action at the are looking to carbon pricing tools as cost- national, regional, and international levels. effective mechanisms for creating incentives China, after piloting regional Emissions Trading for climate action. They see the triple dividend Systems (ETS) for several years, recently Franz Mahr / World Bank of carbon pricing: its contributions to the launched a nationwide carbon market. The health of the environment and the public; the European Parliament recently approved revenue it generates; and the innovation and reform of its ETS, while France, Germany, the 4 CARB O N P R IC IN G LE AD ER SH IP COA L ITION “It’s through partnership that we can inspire greater ambition and show, by example, how to overcome challenges. We are seeing this more and more as public and private stakeholders come together to drive sensible climate action.” Netherlands, Sweden, and the United Kingdom High-Level Commission on Carbon Prices, which are exploring – and in some cases already called for robust price levels if we are to meet the adopting – more robust prices and carbon Paris Agreement objectives. Their report shows pricing floor mechanisms in key sectors. After us that while carbon pricing initiatives continue the adoption of the Carbon Offsetting and to expand, prices and coverage remain limited, Reduction Scheme for International Aviation with only 1 percent of global emissions priced at (CORSIA) in 2017, we now see nearly 40 countries the levels they recommend. pushing for the international shipping sector to take urgent action to reduce emissions. At the World Bank Group, we have continued moving our organization forward to reflect our Private companies are also displaying strong principles, mission, and objectives. That’s why leadership. Nearly 1,400 companies are seeking we announced we would no longer finance to price their own carbon emissions. Carbon upstream oil and gas after 2019, and it’s why we market simulations involving key companies are will report greenhouse gas emissions from the taking place in Mexico, Brazil, and soon in India. investment projects we finance in key sectors. And throughout the global financial system, The World Bank Group also announced that it more and more companies are implementing the would progressively apply a shadow price of recommendations of the Task Force on Climate- carbon to relevant investment projects, using a related Financial Disclosures. price level consistent with the recommendations of the High-Level Commission on Carbon Prices. In 2017, policy experts and leaders throughout civil society also gave voice to the opportunities In this pivotal year for taking stock of progress and carbon pricing can bring. Leading economists raising ambition, this latest CPLC report highlights co-chaired by Joseph Stiglitz and Lord Nicholas crucial examples of carbon pricing leadership. I Stern reminded us of this in the Report of the trust these stories will inspire many others. LE ADE RSHI P RE P O RT 5 RUNNING THE RACE TOGETHER BY F EIK E S I J B E S M A DSM CEO, CPLC Co-Chair “Accelerated implementation of meaningful carbon prices across the globe can turn the Through the 2015 Paris Agreement, nearly 200 notion of the ‘tragedy of the world leaders committed their countries to commons’ into an ‘opportunity addressing climate change, recognizing that we of the commons’”. could not allow the adverse effects of climate change to continue to grow, passing the bill to the next generation. It is clear that the public sector another milestone. To ensure more effective price cannot successfully combat a challenge of this levels, the European Union committed itself to, magnitude on its own, however, and that actors among other measures, a gradual withdrawal across our societies will have to step forward. of excess emissions allowances. A promising That’s why businesses are committing to do their initiative to align and link carbon pricing systems part, alongside scientists and NGOs. in the Americas has emerged (see p. 34). To succeed, the road ahead must be paved with As Xie Zhenhua, China’s Special Representative more than good intentions. By putting a price on on Climate Change Affairs, and I wrote last year: pollution and heat-trapping gases, governments accelerated implementation of meaningful carbon can help unlock trillions of climate-finance from prices across the globe can turn the notion of the companies and investors in the private sector. “tragedy of the commons” into an “opportunity of Integrating real incentives into our economic the commons”. system will allow us to take a critical step toward harnessing and optimizing the financial means, Three points on the role of business are key to innovative power, and actions of the business making further progress: world when it comes to funding the transition to a low-carbon future. First, the Carbon Disclosure Project (CDP) revealed that 1,400 companies are currently in the process Over the course of this past year, we have of putting a price on carbon inside their company, seen tremendous progress on carbon pricing, essentially “future-proofing” their businesses. culminating in the One Planet Summit convened The CPLC remains committed to improving, co- by President Macron of France, World Bank creating, and aggregating essential materials and Group President Kim and UN Secretary General opportunities to help companies learn from their Gutteres in Paris at the end of 2017. China’s peers on best practices in the implementation of launch of an emissions trading system marked internal carbon prices. 6 CARB O N P R I C I N G LE AD ER SH IP COA L ITION More than 50 companies called for meaningful carbon prices at last year’s One Planet Summit in Paris. —Bloomberg Philanthropies Second, at a global level, last year’s One Planet development, and a variety of action-oriented Summit in Paris saw over 50 companies calling projects across sectors and regions. for meaningful carbon prices that “provide direction towards a well-below 2-degree Third, the greater our coordination and the more world”. Similarly, the WEF CEO Climate governments catalyze one another’s pace of Leaders called for a price towards (at least) action, the lower the competitiveness concerns $40 per ton. I urge all business leaders to will be for businesses. That said, we must ensure echo this message in their policy engagement a well-informed conversation on the degree to at national levels. Now is the time to engage which these concerns are likely to occur in the visibly and constructively: in the run-up to real economy, as well as on where and how they COP24, governments are focusing on the can be addressed. In the coming year, the issue implementation of the Paris Agreement and on of competitiveness will be a key topic that the raising their national ambition levels. CPLC will help convene valuable discussions on. Why is this so vital? In the absence of a global Indeed, accelerating our actions isn’t about entity to manage our atmosphere, a “universal creating a race to the top rather than a race price” won’t emerge soon. It is therefore our to the bottom. Rather, it’s about unleashing collective responsibility to design a global a joint race forward. Not against each other, patchwork of national carbon price policies. but against time. After all, Mother Earth is an Fortunately, the CPLC is here to help us sew those uncompromising negotiation partner, and the patches through policy dialogue, knowledge clock is ticking relentlessly. LE ADE RSHI P RE P O RT 7 CARBON PRICING WORKS by CATH E R I N E M C K E NN A Environment Minister, Canada, CPLC Co-Chair The impacts of climate change are clear, from warming oceans and rising sea levels to worsening storms and droughts. Pricing carbon Subnational governments are also stepping up pollution is an important tool to help mitigate to the plate. An agreement between Ontario, and prevent these impacts and the further effects Quebec, and California has created the world’s they’re having on millions worldwide. That’s second-largest carbon market. And we have why the Carbon Pricing Leadership Coalition is seen cities like Tokyo, Beijing, Shanghai, and catalyzing and supporting the adoption of carbon Singapore embrace carbon pricing. Together, pricing globally, through collaboration among governments at all levels are reducing carbon governments, businesses, and civil society. pollution to make our towns and cities cleaner to live, work, and play in. Why are a growing number of countries pricing carbon pollution? Because it works. We’ve come a long way. Prior to 2005, only a It lowers emissions and helps us meet our Paris small handful of countries priced carbon. By 2017, Agreement goals at the lowest cost. By putting 42 national and 25 subnational jurisdictions— a price on what we don’t want —pollution—it which, combined, account for about half of the also allows us to invest in things we do want, global economy—had plans to implement carbon like clean energy, schools, and healthcare. In pricing systems. This shift brings hope, but we short, it’s a win-win for our environment and our must ratchet up our ambition if we are to limit economy. global average temperature increase to below 1.5 degrees Celsius. Already, over 40 countries have a price on carbon pollution. In December 2017, China—the The CPLC Leadership Report details world`s second largest economy—finalized plans significant progress, and shines a light on to create the world’s largest carbon market. And the different paths we can take. But it is only in the past few years, Chile, Korea, Portugal, the beginning. We need to continue working and Mexico have all launched carbon pricing together to ensure the widespread deployment of systems. In 2016, Prime Minister Justin Trudeau carbon pricing is a foundational element of our announced a plan to price carbon pollution collective efforts to address climate change and across Canada, with a minimum $10 per ton in support the development of a prosperous and 2018 rising to $50 per ton in 2022. inclusive low-carbon economy. 8 CARB O N P R IC IN G LE AD ER SH IP COA L ITION STOCK TAKING: CARBON PRICING SYSTEMS AROUND THE WORLD The year 2017 was marked by the launch The number of carbon 47 of several major new or enhanced carbon pricing initiatives scheduled pricing initiatives around the world, for implementation or are representing a key step forward in the currently being implemented. international community’s efforts to reach the targets set out in the Paris Agreement. Mobilizing many of the myriad forces working to confront the climate crisis, coordination on carbon pricing policies the One Planet Summit held in December between countries). 2017 ended the year with key new commitments on the part of stakeholders According to the last State and Trends of and momentum for the future. Carbon Pricing Report, 2016 and 2017 were very active years for carbon pricing. At the time We have seen significant progress since the of publication, 47 carbon pricing initiatives release of the last CPLC Leadership Report. The were scheduled for implementation or being Coalition and its partners—around the globe implemented around the world—covering and in both the public and private sectors—are about 15% of global GHG emissions—and the resolutely moving forward, driving the carbon new edition of the report (to be released in May pricing agenda through new forms of leadership. 2018) will present even more progress. Some of The Americas and China have been particularly the additions in 2017 included Alberta, Ontario, active, while the international private sector Chile, and Colombia. Importantly, China officially continues to lead increasingly bold initiatives. launched its national ETS in December 2017. It will first undergo two phases (infrastructure While the strides made throughout the year development and simulation) and decide next reflect a powerful international willingness to steps depending on the results – when it starts, it act, this momentum must be transferred into will do so with the added possibility of expanding more rapid and robust action. Priorities should and deepening its coverage. It will initially cover include expanding greenhouse gas (GHG) only the power sector but, according to estimates, emissions coverage with a price on carbon and this should expand global carbon pricing coverage sending stronger price signals across the world to about 20 percent of global GHG emissions. economy (notably by raising prices to the levels recommended by the Stern-Stiglitz High-Level We are also seeing the emergence of new Commission on Carbon Prices and by increasing forms of leadership combining subnational LE ADE RSHIP RE P O RT 9 The increase of companies 11% who committed to using internal pricing last year and national action (in the Americas) and number of companies that have committed regional and national action (notably in the to using internal carbon pricing increased by case of the EU.). Indeed, while the European 11% between 2016 and 2017. Interestingly, lawmakers recently approved reform of its companies have chosen to implement carbon Emissions Trading System, France, Germany, the pricing for a wide variety of reasons—from Netherlands, Sweden, and the United Kingdom assessing the vulnerability of their assets (and announced they would “ implement or evaluate, avoiding stranded assets) and mitigating legal or the introduction of a meaningful carbon price reputational risks to shifting investments toward in relevant sectors.” The Netherlands already 1 new opportunities in low-carbon sectors. led the way and put leadership into action by announcing its intention to introduce a carbon In 2017, essential contributions to combating the floor price in the electricity sector, set at EUR€18 climate crisis also came from policy experts and per ton of CO2 (€18/tCO2) in 2020, rising to €43/ leaders throughout civil society. The High-Level tCO2 in 2030. The UK had already adopted a 2 Commission on Carbon Prices, co-chaired by carbon price floor, and— in the midst of ongoing Joseph Stiglitz and Lord Nicholas Stern, released Brexit negotiations—the UK government has its report in May of 2017. The report identified reiterated its commitment to establishing a Total pricing level ranges, which, combined with Carbon Price (composed of the EU ETS and its consistent climate policy packages, align with the carbon price floor), at least until unabated coal is objectives of the Paris Agreement: from US$40– no longer used. $80/tCO2e by 2020 and from US$50–$100/tCO2e by 2030. In 2017, however, about three quarters Action in the private sector, driven by a of emissions covered by carbon pricing were still widespread understanding of the gravity of the priced at less than US$10/tCO2e, and significant climate crisis and by the business opportunities it effort will be needed to reach the aforementioned presents, has continued to grow. The Global Risks levels in time. Still, the rapid expansion of carbon Report released by the World Economic Forum in pricing mechanisms globally speaks to the early 2018 showed that for the second consecutive significance of the progress being made and to the year, business and political leaders around the role the climate crisis has come to occupy at the globe ranked “extreme weather resulting from forefront of policymaking and in various sectors. climate change” as the greatest threat facing the world. As a result of this expanding awareness, an The World Bank Group also announced that it increasing number of companies are disclosing would progressively apply a shadow price on their climate-related risks and are integrating carbon to relevant investment projects, using a these risks into their operations and financial price level consistent with the recommendations decisions. In a further encouraging sign, the of the High-Level Commission on Carbon Prices 10 CAR B O N P R I C I N G LE A D ER SH IP COA L ITION Among the results of the One Planet Summit was the Tony de Brum Declaration ... calling for the International Maritime Organization (IMO) to reduce greenhouse gas emissions stemming from the shipping sector for maintaining temperature rise below 2 degrees. (IMO) to reduce greenhouse gas emissions This process will notably entail reporting total net stemming from the shipping sector. It asks GHG emissions from the investment projects it the IMO to take action consistent with Paris finances in key emissions-producing sectors and Agreement temperature reduction targets. publishing those results following the end of each The Declaration references the “development fiscal year, beginning in 2018. of important mid to longer-term measures”, implying the need for market-based measures Amidst these encouraging trends, the such as carbon pricing, and the CPLC is proud to international community has also faced some have contributed to facilitate the discussions and headwinds. In South Africa, the launch of the filling the knowledge gaps. carbon tax has been delayed again, and a new start date has yet to be announced. And in June As we look ahead to 2018, we can expect to see 2017, the US Federal Government announced its multiple promising developments. In particular, intention to withdraw from the Paris Agreement the implementation of the Pan-Canadian and is moving to rescind or review several Framework on Clean Growth and Climate Change Federal energy and climate-related policies, will set a carbon price in every Canadian province such as the Clean Power Plan. Even within that and territory. This has already prompted action specific context, however, positive signs remain: in several provinces, and we are expecting the aforementioned Carbon Pricing in the more initiatives in the near future: provinces Americas Cooperative Framework presents vital and territories have until September 1, 2018, to opportunities for pan-American cooperation, and develop their carbon pricing systems to meet the United States Climate Alliance has assembled the federal criteria (if they do not take action by a bipartisan coalition of Governors—whose states this date, they will be regulated by the federal collectively represent over 40% of the total U.S. backstop system, beginning January 1, 2019). population and nearly $9 trillion in combined Elsewhere in the Americas, positive developments GDP—in shared commitment to reaching the include the implementation of the Argentinian targets set out in the Paris Agreement. carbon tax and the launch of the Mexican ETS (after its one-year simulation phase). Colombia Progress has also taken the form of initiatives and Chile also continue to consider establishing aimed at achieving results in sectors that an ETS following the introduction of their were not previously known for their climate carbon taxes. We will see additional progress Jonathan Ernst / World Bank leadership. Among the results of the One Planet in Kazakhstan, which will re-launch its ETS in Summit was the Tony de Brum Declaration, 2018 following a two-year suspension, and in issued by a coalition of over 35 countries, calling Singapore, which is planning the implementation for the International Maritime Organization of a carbon pricing initiative in 2019. LE ADE RSHI P RE P O RT 11 CPLC IN ACTION OUR PARTNERS CPLC Partners work together Putting the CPLC to achieve concrete progress Work Plan Into Action in driving carbon pricing Since launching two years ago, the action forward in the public Carbon Pricing Leadership Coalition 31 and private sectors, leading by has worked to make a strong business, example, and engaging with economic, and environmental case for other key stakeholders to bring carbon pricing across the globe. This them into the conversation. past year, the Coalition set out to share and cross-fertilize experiences among This past year, the CPLC continued partners and stakeholders on carbon national and to work toward the broader goal of pricing design and implementation sub-national achieving a carbon price applied at the global, regional and national/ government throughout the global economy by sub-national levels; support peer-to- partners making a conscious transition from peer learning and outreach efforts; and an event-focused work program to support working groups that advance one that takes a strategic outlook on solutions to existing or emerging issues the development and application of carbon pricing in specific sectors, around carbon pricing. 150+ regions, and by thought leaders Following the strategy outlined by in industry and civil society. The the Carbon Pricing Panel in 2016, Secretariat has worked to increase CPLC’s work has been guided by partners’ engagement and ownership the understanding that to achieve private sector of the activities undertaken under the carbon pricing goal set by the partners from a the umbrella of CPLC. New activities Coalition—doubling the percentage range of regions started in 2017 include a Maritime of global emissions covered by explicit and sectors work stream, a Banking and Finance carbon prices to 25% by 2020 and task group, and the recently launched doubling it again to 50% within a Construction Value Chain work. decade—CPLC needs to focus on: Additionally, the Communications Working Group was established to JJ Broadening carbon pricing, by 65+ improve the impact of the Coalition’s supporting the implementation messaging and expand the reach of in jurisdictions and sectors that knowledge products and briefs. currently do not have a price on carbon; strategic The accomplishments referenced partners below were only possible because JJ Deepening carbon pricing where representing of the collaborative work of the it already exists by strengthening NGOs, business secretariat and partners. The ambition and ensuring clear long- organizations, CPLC remains open to new ideas, term price signals for investment, and universities contributions, and leadership. consistent with the long-term goal of the Paris Agreement; 12 CAR B O N P R I C I N G LE A D ER SH IP COA L ITION AUSTRALIA GHANA PA K I S TA N BELGIUM HUNGARY PA N A M A BRAZIL INDIA PERU CANADA I T A LY PORTUGAL CHILE IVORY COAST RUSSIA CHINA J A PA N SOUTH AFRICA COLOMBIA K A Z A K H S TA N S O U T H KO R E A DENMARK MEXICO S PA I N EGYPT MOROCCO SWEDEN ETHIOPIA NETHERLANDS SWITZERLAND FINLAND NEW ZEALAND TURKEY FRANCE NIGERIA UNIKTED KINGDOM GERMANY N O R WAY U N I T E D S TAT E S JJ Enhancing international cooperation by showcase progress, and catalyze action on facilitating and promoting the alignment carbon pricing. Over the course of this past year, or possible convergence of domestic carbon the Secretariat contributed to building these pricing programs. kinds of learning and leadership opportunities by hosting or providing support to Coalition In 2017, the Work Plan was structured around partners for the following dialogues: four pillars, each with a corresponding Working Group: fostering government leadership, building and sharing the evidence base, mobilizing YEAR-ROUND business support and communications. Regional Carbon Forums JJ CPLC plays an active role supporting regional Fostering Government Leadership Carbon Forums throughout the year, convening One of the core objectives of the CPLC is to dialogues that drive the carbon pricing provide a platform for regional, national, and conversation with local stakeholders and that subnational governments, investors, business, benefit from the Coalition’s unique structure and civil society leaders to exchange experiences, and reach. LE ADE RSHI P RE P O RT 13 APRIL impossible, and Glen World Bank Group/ Murray, then Ontario’s International Monetary Minister of Environment. As Fund Spring Meetings part of the I4C Conference, JJ At the Second Annual CPLC supported the Carbon High-Level Assembly, where Pricing Plenary, and the partners endorsed the panel on Carbon Pricing to Coalition’s work, leaders Accelerate Climate Action. gathered to take stock of climate change action and DECEMBER to discuss the role of the SEPTEMBER One Planet Summit financial sector in delivering Climate Week JJ Thanks to the commitment investment and mitigating New York of CPLC partners, carbon climate risk. The HLA was JJ CPLC Partners hosted pricing was at the forefront followed by a technical and participated in panels of the discussions and workshop on Friday. To read and dialogues around announcements. Among more about the Assembly, town, including the North the key ones was the see our story CPLC Nurtures America Carbon Forum, announcement made by Leadership on Carbon among many other Mexican President Enrique Pricing on our website. panels and presentations. Peña Nieto, founding partner The Secretariat of CPLC, on the Carbon hosted a roundtable Pricing in the Americas MAY breakfast to discuss the (read more about it in our Innovate4Climate recommendations from the Leadership Profile, p. 34) JJ Partners attended a half- High-Level Commission on day strategic workshop to Carbon Prices. design the maritime work JANUARY program and a Steering Paris Committee Meeting. NOVEMBER JJ In Partnership with the The Secretariat hosted a COP23 OECD’s International networking reception with JJ CPLC Partners led and Transport Forum (OECD- an inspirational intervention attended side events covering ITF) CPLC convened a by Jean Piccard, Explorer a wide range of topics, from workshop on the “Economic and Chairman of the use of revenue to the role of Impacts of Carbon Pricing Solar Impulse Foundation, carbon pricing in supporting in International Maritime Bottom: Simone McCourtie / World Bank + Curt Carnemark / World Bank on accomplishing the low-carbon development Transport.” in Africa and the role of carbon pricing in achieving NDCs. Many conversations around maritime shipping and carbon pricing also Top: Bloomberg Philanthropies took place. The Secretariat hosted a high-level dialogue moderated by HLA Co-Chair Minister McKenna. 14 CAR B O N P R IC IN G LE AD ER SH IP COA L ITION Carbon Pricing in the Americas Zurich Changing World”. Convening Chile JJ In partnership with the business, financial sector, JJ ECLAC—Following the One Government of Switzerland, and government leaders, Planet Summit, stakeholders and with the support of the gathering explored met in Santiago to turn CDP and PRI, CPLC hosted a how companies, financial the Carbon Pricing in the high-level interactive session institutions, and investors Americas Declaration into on “Financial Institutions, are incorporating climate action. Businesses and Climate risk and opportunity into Change: Addressing Risks their business models and and Opportunities in a growth strategies. Building and Sharing data and analysis of the annual State and Trends the Evidence Base of Carbon Pricing report series. Developing and sharing evidence-based knowledge Users can navigate key statistics and information products is one of the key drivers on carbon initiatives implemented or scheduled of carbon pricing action. By for implementation by using interactive mapping. building a repository of global experience on carbon pricing policy design and carbonpricingdashboard.worldbank.org implementation, collecting best practices from different jurisdictions and businesses around the world, and synthesizing the latest analysis on key issues and sharing results with leaders and practitioners, CPLC is filling knowledge gaps and fostering new research. CARBON PRICING DASHBOARD Launched in May 2017, the Carbon Pricing Dashboard is an interactive online platform that provides up-to-date information on existing and emerging carbon pricing initiatives around the world. It builds on the LE ADE RSHI P RE P O RT 15 The High-Level In May 2017, the High-Level policymaking purposes, the Commission Commission on Carbon Commission concluded that on Carbon Prices report—led by two of the carbon prices currently in the world’s most prominent place are too low. They found Prices economists, Joseph E. Stiglitz that carbon prices in the range and Lord Nicholas Stern— of US$40–$80/tCO2e by 2020, concluded that setting a rising to US$50–$1000/tCO2e “strong carbon price” is by 2030, when combined with essential not only for reducing supportive policies, would global emissions, but also for allow for meeting the targets set sustaining innovation and out in the Paris Agreement. growth. The Commission was launched in November 2016 The carbon pricing corridors at COP22 in Morocco, at the recommended by the High- invitation of then Co-Chairs of Level Commission on Carbon the Carbon Pricing Leadership Prices were particularly Coalition (CPLC) High-Level timely, as they serve to inform Assembly, Ségolène Royal and national governments and Feike Sijbesma. It brought non-state actors to align their together 13 leading economists level of ambition. At the One from nine developed and Planet Summit in December developing countries to identify 2017, environment and the range of carbon prices, climate ministers from France, which would help deliver Germany, United Kingdom, on the core goal of the Paris Sweden and the Netherlands Agreement: keeping the rise welcomed the report.3 They in global temperatures below committed to implement or 2 degrees Celsius. Tasked to evaluate the introduction of use its judgment and current a meaningful carbon price in literature to identify indicative relevant sectors. The Dutch corridors of carbon prices for government is introducing a LEARN MORE: Visit the CPLC website: www.carbonpricingleadership.org/report-of-the-highlevel-commission-on-carbon-prices REPORT OF HIGH-LEVEL COMMISSION INTERNATIONAL RESEARCH ON CARBON PRICES CONFERENCE Powerfully setting the terms of the conversation, Launched in February, the International Research the Commission’s report concluded that a carbon Conference on Carbon Pricing aims to drive price of US$40–$80/tCO2e by 2020, rising to innovative research and analysis from academics US$50–$100/tCO2e by 2030, when combined with and practitioners on the effective design and supportive policies, would allow for achieving implementation of carbon pricing policies. the Paris Agreement temperature goal. 16 CAR B O N P R IC IN G LE A D ER SH IP COA L ITION Ottmar Edenhofer Deputy Director and Chief Economist at the Potsdam Institute for Climate Impact Research, Germany Gaël Giraud Chief Economist and Executive Director of the Research and Knowledge Directorate of the Agence Française de Développement, France Geoff Heal Donald C. Waite III Professor of Social Enterprise Columbia Business School, USA Emilio Lebre la Rovere carbon floor price initiative; banks are using these Executive Coordinator of the Center Sweden has begun taxing guidelines to revise their for Integrated Studies on Climate Change and the Environment, Federal previously exempted emissions internal carbon prices used University of Rio, Brazil from combined heat and power for the economic analysis of Adele Morris plants; France is in the process projects. Senior Fellow and Policy Director for of setting up a commission Climate and Energy Economics at the Brookings Institution, USA to revise its internal carbon The High-Level Commission on prices and is considering the Carbon Prices was: Elisabeth Moyer Associate Professor, Atmospheric recommendations of the High- Science, University of Chicago, USA CO-CHAIRS: level commission. In February Mari Pangestu 2018, while advocating for Nicholas Stern Senior Fellow at Columbia School Kt, PBA, FRS, Chairman of the of International and Public Affairs a carbon tax to achieve the Grantham Research Institute on Climate Columbia University, USA/Indonesia national NDCs, the South Change and the Environment; Professor, African National Treasury also London School of Economics Priyadarshi R. Shukla Co-chair Intergovernmental Panel on alluded to the carbon pricing Joseph E. Stiglitz Climate Change, India Professor at Columbia University, Chief corridors recommended by the Economist of The Roosevelt Institute Youba Sokona Commission.4 Vice-Chair Intergovernmental Panel on Climate Change, Mali COMMISSIONERS: In addition to national Harald Winkler Maosheng Duan Professor and Director of the Energy governments, some Director of China Carbon Market Center Research Centre (ERC) at the University multilateral development (CCMC) of Tsinghua University, China of Cape Town (UCT), South Africa RBON Executive Briefing CA NOVEMBER 2017 W AR ROO M Preparing shipping banks for climate change: EXECUTIVE BRIEFS How can internal carbon pricing help ship-financing banks in risk management? JJThe Role of Carbon Pricing T his Executive Briefing discusses the progress being made in reducing greenhouse gas (GHG) emissions, challenges to achieving effective GHG emissions reduction, and the key role that financiers can play in SUMMARY I both mitigating their own risks and helping the industry t is difficult to overstate the economic importance of towards a more orderly, effective decarbonization. maritime shipping. Shipping allows trade at a scale that has been fundamental for globalization and in a Low-Carbon Transition SEGMENTS & KEY CHARACTERISTICS many recent key developments in the world economy. Today, global maritime shipping accounts for around The global shipping fleet is mainly comprised of dry bulk 80% in volume and 70% in value of all world trade. carriers, oil, gas, and chemical carriers, container ships, and general cargo ships (in addition to specialized vessels The shipping and aviation industries have not been such as roll-on/roll-off ships, ferries and cruise ships, and included in the Paris Agreement. While aviation has forged a global agreement on GHG emissions through various offshore support vessels). As of the beginning of JJ the International Civil Aviation Organization (ICAO), Preparing shipping banks for climate change: 2016, the world commercial fleet consisted of a combined shipping still remains outside of any such agreement. 1.8 billion deadweight tonnage (dwt) capacity spread Official projections of the International Maritime among 90,917 vessels, representing a 3.5% growth from Organization (IMO) suggest that business-as-usual the previous year. The average vessel age in 2016 was GHG emissions from the maritime shipping industry 20.31 years, with the oldest being the general cargo ship will increase between 50% and 250% in coming fleet (24.72 years) and bulk carriers as the youngest (8.83 decades.1 Despite these trends, experts foresee a years). Table 1 (next page) provides a summary of the necessary decarbonization of this industry in the near key characteristics for the primary maritime shipping future. How can internal carbon pricing help ship- segments. It is important to note that these vessels are (continues on next page) (continues on next page) long life-cycle assets that cannot be rapidly replaced or _______________________________________ 1 A separate 2017 study by CE Delft, Update of Maritime GHG Emissions, suggests revising this figure adapted, and this lack of adaptability augments financial to 20-120%. risks within the shipping industry. financing banks in risk management? JJ Regional carbon pricing for international maritime transport LE ADE RSHI P RE P O RT 17 CARBON PRICING IN EMERGING AND LOW-INCOME ECONOMIES by EMILI O LÈBR E LA R OV E R E an d H AR AL D W IN K L E R “The fulfillment of such The Paris Agreement reached in 2015 at COP21 a deep decarbonization of the UNFCCC calls for stabilizing global average of economies in a few temperature well below 2 ºC above pre-industrial decades will be particularly levels while pursuing efforts to limit it to 1.5 ºC. challenging for developing Achieving this goal will require reaching net zero countries, as this transition greenhouse gas (GHG) emissions globally at some must allow for simultaneously point in the second half of this century. meeting other sustainable The fulfillment of such a deep decarbonization development goals.” of economies in a few decades will be particularly challenging for developing countries, as this transition must allow for the latter scenario, substantial increases in the simultaneously meeting other sustainable investment rate would be required up to 2030 development goals: notably bridging the and into 2050. housing gap; raising living standards; ensuring food security; and improving access to Investments in the transition to a low-carbon education, water, sanitation, health, mobility, society are expected to reach 3 to 5 trillion US$/ and energy. year in the next few decades, with two thirds of this global effort expected to take place in Recent advances in renewable energy developing countries. As most of them have technologies have made them a least-cost option limited financial capacity to fund the necessary in many energy systems, and a number of mitigation investments using domestic savings mitigation options have become cost-effective only, international financial flows to fund these across the globe. However, even in this new investments must increase to reach the level technological context—of increasingly accessible required to meet this challenge. mitigation options with large potential at reasonable costs—some reduction in economic While there is currently an excess of liquidity in activity, employment, and household income global financial markets, investments in mitigation would be expected in a 1.5ºC scenario, compared projects have to overcome significant barriers to the scenario of NDC implementation without in order to become attractive to international increased ambition after 2030. Moreover, in finance—notably high upfront costs and large 18 CAR B O N P R IC IN G LE A D ER SH IP COA L ITION Dar es Salaam Port, Tanzania –Rob Beechey / World Bank risks—particularly in developing countries. New developing countries may be slowed down by financial mechanisms may help achieve this end, concerns about potential negative distributional provided that they facilitate developing countries’ impacts. Further work is needed to understand access to international funding sources in order carbon tax revenue’s potential to reduce poverty to increase public guarantees and reduce capital and achieve development objectives. costs for investments in low-carbon infrastructure and technologies. Additional research on developing countries is also needed particularly with regard to the To accelerate the deployment of mitigation role of public policies complementary to carbon options, public policymakers must send a strong pricing, as well as on the challenge of reducing price signal to market forces. The High-Level subsidies for fossil fuel prices. Among these Commission on Carbon Prices’ recent report critical issues are: providing compensation (Stiglitz & Stern et al, 2017) estimated that a to counter negative social effects (e.g. the corridor of carbon prices of US$40–$80/tCO2e impacts on vulnerable low-income households); in 2020—ultimately scaling up to US$50–$100/ designing and implementing smart financial tCO2e in 2030—would be needed to meet Paris mechanisms allowing for increased investment Agreement goals. in low-carbon infrastructure with a lower explicit carbon price, alleviating the negative However, the same report also acknowledged impacts on economic activity and vulnerable that the adoption of high carbon taxes in social groups. Emilio Lebre la Rovere is the Executive Coordinator of the Center for Integrated Studies on Climate Change and the Environment, Federal University of Rio, Brazil and Harald Winkler is Professor and Director of the Energy Research Centre (ERC) at the University of Cape Town (UCT), South Africa. Emilio and Harald were both members of the High-Level Commission on Carbon Prices. LE ADE RSHI P RE P O RT 19 WORLD’S FIRST INTERNATIONAL RESEARCH CONFERENCE ON CARBON PRICING Enhancing the evidence base around to bring together researcher and practitioner carbon pricing is one of the key pillars of perspectives from around the world and the Carbon Pricing Leadership Coalition’s particularly from the global south, where a (CPLC) action. In this capacity, the vibrant debate on carbon pricing is currently CPLC contributes to a growing body of underway. The conference will be a starting knowledge on different approaches to point for strengthening research collaboration pricing carbon, as well as on its effects across regions and sectors, and will contribute and conditions for success. to a broader understanding of the interaction between practice and theory. Listed below are As it scales up its work program, the CPLC the substantive themes the research conference has seen an increased interest in partnership will cover, as well as the scholars and from academic and other knowledge-focused practitioners supporting the conceptualization institutions around the world, many of and implementation of the conference. which have been influential in defining the carbon pricing agenda and advancing our Research Themes understanding of this policy instrument. An Relevant themes of the conference include, but active partnership between such institutions are not limited to, the following: and practitioners from government and business is key for more informed decision- JJ Learning from past and current making on policy design and implementation. experience: Case studies on carbon pricing Improved dialogue between research and design and implementation, performance practice can also help identify concerns that review and evaluation, comparing carbon impede the implementation of pricing policies, pricing systems and their effects, understanding while also contributing to effective solutions. actors and affected markets, results of modeling to assess/compare environmental, With the goal of strengthening the knowledge macroeconomic, and distributional outcomes of base on carbon pricing and fostering an different approaches; improved understanding of the evolving challenges to its successful application, the CPLC JJ Political economy of carbon pricing: will convene researchers and practitioners Political acceptance and feasibility of carbon for an international research conference, pricing, use of carbon pricing revenue, scheduled to take place in New Delhi, India, distributional effects of carbon pricing, dealing in January 2019. This conference will serve with adverse impacts of carbon pricing; 20 CAR B O N P R I C I N G LE A D ER SH IP COA L ITION Organization RESEARCH CONFERENCE CO-CHAIRS 28.6139° N, 77.2090° E New Delhi, India Andrei Marcu JANUARY 2019 Senior Fellow at the International Center for Trade and Sustainable Development and Director of the European Roundtable on Climate Change and Sustainable Transition Michael Mehling Deputy Director, Center for Energy & Environmental Policy Research (CEEPR), Massachusetts Institute of Technology SCIENTIFIC COMMITTEE MEMBERS William Acworth International Carbon Action Partnership (ICAP) Susanne Åkerfeldt Senior Adviser, Ministry of Finance, Sweden JJ Carbon pricing and development: Financing Malin Ahlberg The Federal Ministry of the Environment, Nature sustainable development with carbon Conservation and Nuclear Safety (BMU) pricing, fiscal aspects of carbon pricing, co- Maosheng Duan benefits of carbon pricing (indirect effects on Director, China Carbon Market Center, Tsinghua University pollution, employment implications, economic Ottmar Edenhofer diversification), pathways to a just transition; Deputy Director and Chief Economist, Postdam Institute for Climate Impact Research JJ Carbon pricing and competitiveness: Anirban Ghosh Understanding impacts of carbon pricing on Chief Sustainability Officer, Mahindra Group competitiveness, effects and limitations of Sharlin Hemraj policy options in terms of addressing leakage Senior Economist, National treasury of South Africa and competitiveness concerns (free allocation, Rachael Jonassen tax exemptions, alternative approaches); Director, Greenhouse Gas Management Program, The George Washington University JJ Role of carbon pricing in decarbonisation: Emilio Lèbre La Rovere Head, Environmental Sciences Laboratory and Center Complementary policies and policy for Integrated Studies on Climate Change and the interactions, hybrid approaches to carbon Environment, Federal University of Rio de Janeiro pricing, dynamic effects and climate policy Adele Morris ambition, role of carbon pricing in innovation Senior Fellow, Economic Studies and Policy Director, Climate and Energy Economics Project, The Brookings Institute and energy transition, internal carbon pricing; Grzegorz Peszko Lead Economist, Climate Change Group, World Bank JJ Emerging frontiers of carbon pricing: Linkage and convergence of carbon pricing Mandy Rambharos Head, Climate Change and Sustainable Development, Eskom systems, policy transfer and diffusion across Simone D. McCourtie / World Bank jurisdictions, extending carbon pricing to Youba Sokona Special Advisor, Sustainable Development, South Centre new sectors (aviation, shipping, agriculture and forestry), carbon pricing under the Paris Robert N. Stavins Agreement (e.g. operationalisation of Art. 6 A. J. Meyer Professor of Energy & Economic Development, Harvard University and NDC (Partnership) support). LE ADE RSHI P RE P O RT 2 1 MOBILIZING BUSINESS SUPPORT In a rapidly changing world, companies Similarly, shipping companies, financiers, and continue to seek opportunities to grow other stakeholders in the maritime industry are their business and manage risk, and using the platform provided by CPLC to explore carbon pricing is a key tool for helping carbon pricing as a tool to manage climate risk companies navigate their transition and carbon exposure in the face of expected to a low-carbon future. Businesses acceleration in the sector’s emissions. are advocating for more ambitious government carbon pricing policies, Companies are also showing leadership by while at the same time preparing for collaborating in specific regions and countries, the future by implementing internal creating a strong “demand pull” for government carbon pricing programs. The CPLC carbon pricing policies. For example, private contributes to facilitating private sector sector CPLC Partners in Canada have collected climate leadership through its Mobilizing corporate experiences using carbon pricing for the Business Support Working Group, which Role of Carbon Pricing in a Low-Carbon Transition helps companies actively develop their report that showcases how Canadian businesses own internal carbon pricing strategies, are preparing for a low-carbon future. This report advocate for governments to formulate is providing a proactive example of how business business-friendly carbon pricing policies, can shape climate solutions, and is being shared and engage in peer exchanges across with domestic and international audiences. The sectors and borders. private sector has taken the lead on carbon pricing in Brazil, organizing a first-of-its-kind voluntary Through sector-specific deep dives, CPLC is emissions trading system (ETS) simulation among helping companies better understand the over 40 major companies. This simulation has opportunities and paths forward within their been running for over two years, and resulted sectors and along the value chain. For example, in some key lessons on carbon market design. CPLC is bringing together companies such as Based on this experience, the companies have Rusal, LaFargeHolcim, and Acciona to explore issued a communiqué to the government with opportunities in the construction value chain several principles for carbon pricing policy to implement carbon pricing as a tool to reduce design. And in India, CPLC has helped share the embedded emissions. The CPLC Banking Task Brazilian corporate leadership example, and Team includes over 20 financial institutions that over 20 companies from diverse sectors are have joined together in the wake of the Financial now launching an ETS simulation of their own. Stability Board’s Task Force on Climate-related The following section delves further into the Financial Disclosures (TCFD) recommendations Brazilian and Indian private sectors’ successes in to understand the financial implications of establishing local chapters of the CPLC. climate change, discuss the application of a carbon price to their investment portfolios, Companies are demonstrating leadership by using and share best practices and lessons learned. internal carbon pricing to align their business 22 CAR B O N P R IC IN G LE A D ER SH IP COA L ITION 2017–18 WEBINARS Carbon Pricing In Brazil: A conversation with CPFL, Itaú Unibanco and Vale Interactive In collaboration with the Carbon Luiz Osorio webcasts Vice President, CPFL Pricing Leadership Coalition, Maria Eugenia Sosa Taborda on internal Yale University and the World Sustainability Manager, Itaú Unibanco Economic Forum are hosting Vivian Mac Knight carbon pricing a series of live, interactive Climate Change Advisor, Vale webcasts on Internal Carbon Hector Gomez Ang Brazil Country Manager at IFC - The private sector is at a Pricing, featuring executives and International Finance Corporation (Moderator) tipping point and has a historic practitioners from companies on opportunity to take the lead on the forefront of carbon pricing. Best Practices carbon pricing. But what does on Integrating an it take to convince an executive This webinar series aims to Internal Price on team to embrace the concept use leading edge examples to Carbon and operationalize a price? facilitate and stimulate an open Thomas Lingard Global Director, Climate & Environment, Which companies are shedding dialogue around best practices, Unilever light on the carbon pricing aimed at a global audience of Roger Seabrook VP of Finance Marketing and pathway? How does industry business leaders, policy makers, Sustainability, Unilever apply lessons—borne out of and academic experts. Long Lam both success and failure—to Senior Consultant, Ecofys improve and expand the state Find past webinars by visiting Alzbeta Klein Director and Global Head of Climate of carbon pricing beyond the carbonpricingleadership.org or Business, International Finance Corporation (World Bank Group) (Moderator) business arena? cbey.yale.edu/node/1975. models with a low-carbon pathway in many ways. portfolios against to help implement the TCFD During the past year, CPLC continued to co-host a recommendations and highlights economic global webinar series—Carbon Pricing: Gaining drivers that discourage high-carbon activities. a Competitive Edge in a Climate-Constrained World—which features leading company Communications Network executives from companies such as Vale, Itau The newly launched Communications Network Unibanco, CPFL, and Unilever speaking about is made up of over 83 communications the design and implementation of their carbon professionals from within the Coalition. pricing programs. CPLC Partner CDP has also The Network supports the Coalition’s developed the investment-grade Carbon Pricing communications efforts by identifying effective Corridors initiative, which provides reference carbon pricing messaging, developing a global scenarios for companies to benchmark their narrative that supports the Coalition’s strategy, LE ADE RSHI P RE P O RT 2 3 and working in unison to amplify each actor’s more accessible to broader audiences, thus communications efforts. helping advance and expand the reach of the conversation. This past year, the focus in the communications area was on supporting the shift from an event- To share these products and ready-for-social focused work program to one that helps advance messages with partners, the Secretariat has the conversation on carbon pricing by developing open a Trello account www.trello.com/cplc for and sharing key messages throughout the year partners to find messages by the Secretariat and and across the globe. Working in tandem with to provide their own messages, so that the entire partners, the Coalition benefits from expertise and Coalition can use them as well. resources outside of the Secretariat; for example, coalition partners recently received a summary, Renewed efforts around communications also developed in partnership with the New Climate include a refreshed look for the website with new Economy, highlighting the latest carbon pricing content, a monthly e-newsletter that currently developments. reaches all partners, as well as over three thousand subscribers from around the world. Relaunch of the #PriceOnCarbon Campaign Guide on Communicating Expanding on the initial #PriceOnCarbon Carbon Pricing campaign that supported the launch of the Together with the Partnership for Market Coalition in 2015, new products were developed Readiness (PMR), CPLC has commissioned to keep the campaign alive on social media. A a report to identify effective strategies for 3-minute video explaining carbon pricing and communicating on carbon pricing. The Guide introducing CPLC was developed as the main is intended to share existing knowledge, product of the campaign. experiences, and best practices with those involved in carbon pricing communications and The #CarbonPricingLeaders is a series of short to provide practical guidance on developing a videos filmed on-site, produced, and released communications strategy with regard to carbon within the days following key events. The videos pricing. This work will culminate in the launch are social media-ready shorts that emphasize key of a comprehensive Guidebook and a series of takeaways from participants, making the issues Executive Briefs towards the end of 2018. 24 CAR B O N P R IC IN G LE A D ER SH IP COA L ITION W H AT M A K E S THE CPLC UNIQUE? b y A N GE L A NA N E U C H U R I E KALLHAU GE CPLC Lead CPLC SECRETARIAT TEAM Angela Churie Kallhauge Smita Rana Isabel Saldarriaga Arango Mercedita Cano Usayd Casewit People often ask me what the CPLC does and Timila Dhakhwa what sets us apart among all those advocating Dominik Englert for climate action. My response is that the CPLC Dirk Heine is unique because of the myriad backgrounds, Thomas Kerr experiences, and perspectives of its partners, Kelley Kizzier as well as the ways in which the richness of Alexandre Kossoy this diversity is incorporated into its leadership Ayesha Malik style. We are a coalition of leaders from across Aditi Maheshwari Venkata Ramana Putti the international private and public sectors—as Céline Ramstein well as from civil society and the climate action Herman Sips community—dedicated to building a sustainable future through our own activities, as well as by inspiring others to get engaged. The Coalition is therefore intently focused on Through the reach of our partners, the CPLC transforming advocacy into action. We draw on has brought the issue of carbon pricing and the the collective knowledge and expertise of our opportunities it offers to the highest echelons partners to design business cases founded on of government and to the forefront of the strong analytics and research, and we respond corporate world. We look to, and analyze, to the specific questions of governments, examples of action around the globe in order to businesses, and communities. Above all, we illustrate the applicability of different carbon provide a forum in which stakeholders can come pricing models. In doing so, we demonstrate together on equal footing and in a non-politicized that carbon pricing instruments should not be manner to discuss their ideas, experiences, and driven by “one-size-fits all” approaches, but opportunities for implementing carbon pricing. should instead be tailored to reflect specific needs and circumstances, all while dispelling As a—literal and figurative—meeting point for misconceptions on pricing and addressing real fostering leadership across stakeholder groups, concerns from stakeholders. Under the CPLC’s the CPLC represents a critical component of leadership, stakeholders spanning sectors have global collaboration and partnership on carbon joined forces to call for raising ambition in pricing. Through this work, we can ensure that climate action and to recognize the essential role the centrality of carbon pricing in climate action carbon pricing must occupy in this effort. strategies is widely recognized and advanced. LE ADE RSHI P RE P O RT 2 5 By fostering engagement with partners and stakeholders in dialogues from across the world, the CPLC HLA Co-Chairs guide the Coalition and challenge world leaders to increase ambition to reach CPLC goals and tackle climate change. The Co-Chairs have co- authored an op-ed for the CPLC website Reaffirming our commitment to carbon pricing and climate action, moderated dialogues, and served as vocal advocates for carbon pricing in multiple forums. 26 CAR B O N P R I C I N G LE A D ER SH IP COA L ITION Catherine McKenna STEERING COMMITTEE WG 3- Mobilizing Business Support Minister of Environment, Canada JJ Formed by representatives Marina Matar Institutional Affairs and Sustainability In her first year as Co-Chair, from governments, Director, Abiqium (Brazil) businesses, and civil society, Minister McKenna, continued the Steering Committee aims Lance Pierce working to engage the private to ensure that the Coalition’s CEO, CDP North America sector, as well as her peers, in activities are aligned with the vision and goals laid out Noémie Klein carbon pricing discussions. Associate Director, Ecofys Navigant During Climate Week in New by the High-Level Assembly. The Committee, hosts virtual WG 2- Building and York, she challenged the Sharing Evidence Base and in-person meetings to Coalition to work on broadening review progress on the CPLC the reach of communications Anthony Cox Work Plan, recommends Deputy Director, Environment Directorate, efforts to the youth and non- new activities, knowledge OECD converted and, at COP23, products, working groups or other necessary actions, and Shaun Reidy she lead a panel of Canadian Special Advisor to the Director, Environment helps support CPLC activities Directorate, OECD businesses where they shared among other duties. their experiences in what later Susanna Laaksonen-Craig became The Role of Carbon Christine Fedigan Assistant Deputy Minister, Climate Action Secretariat, Ministry of Environment, British Pricing in a Low-Carbon Head of Corporate Climate Policy, ENGIE Columbia Province Transition Report. Gonzalo Saenz de Miera Director of Climate Change at the Chairman’s Michael Grubb office, Iberdrola Professor of International Energy and Climate Change Policy, University College London Feike Sijbesma Luiz Osorio Chief Executive Officer, Royal DSM WG 4—Communicators’ Network Executive Director of Sustainability and In his final year as Co-Chair, Institutional Relations, Vale SA David Hone Chief Climate Change Adviser, Shell Feike Sijbesma, provided Ulrika Raab International Ltd. Senior Advisor, Swedish Energy Agency, precious guidance to the Sweden Anirban Ghosh Coalition, while challenging the Chief Sustainability Officer, Mahindra partners for more ambitious Enrique Lendo Fuentes action and leading significant Chief of the International Affairs Office of the Juan Ramon Silva Ferrada Mexican Ministry of Environment and Natural Chief Sustainability Officer, Acciona Resources (SEMARNAT), Mexico engagement with governments and business alike. He Adrien Zakhartchouk spearheaded impactful Head of Environment and Agriculture Unit, THEMATIC LEADS Directorate-General of the Treasury, France business advocacy initiatives, Carbon Pricing in the maritime sector among other through the Tom Lorber Analyst, Climate Change, Children’s Tristan Smith World Economic Forum CEO Investment Fund Foundation Lecturer in Energy and Transport at the Climate Leaders Alliance in Bartlett School of Environment, Energy and Davos, through We Mean Dirk Forrister Resources University College London CEO and President, International Emissions Business, and at the One Planet Trading Association Johannah Christensen Director Global Maritime Forum Summit organized by President Helen Mountford Macron, to call for meaningful, Director of Economics at WRI and the directional carbon price levels. Program Director for the New Climate Economy (NCE) initiative, World Resources RESEARCH CONFERENCE Mr. Sijbesma uses his media Institute (WRI) appearances (including a Andrei Marcu Senior Fellow International Centre for Trade feature in The Economist, an and Sustainable Development (ICTSD) interview with CNBC and joint WORKING GROUP CO-CHAIRS Michael Mehling op-ed for the China Daily with WG 1–Fostering Government Deputy Director of the Center for Energy and Xie Zhenhua, China’s Special Leadership Environmental Policy Research (CEEPR) MIT –Massachusetts Institute of Technology Representative on Climate Rodrigo Pizarro Chief of Division of information and Change Affairs) to explain and Environmental Economics, Ministry of promote how putting a price on Environment Chile, Chile FINANCE SECTOR carbon is a way to future proof TASK FORCE Alexa Kleysteuber businesses, while protecting the Deputy Secretary for Border and Nikki Bartlett Intergovernmental Relations, California environment. Environmental Protection Agency, California Director, Carbon Pricing CDP LE ADE RSHI P RE P O RT 2 7 THE FASTER PRINCIPLES FOR SUCCESSFUL CARBON PRICING In September of 2015, the WBG and the These past years, we have seen initiatives OECD published a joint report on the centered around these basic principles essential principles behind successful multiply around the world—on sub-national, carbon pricing initiatives. These were national, and international levels. Quebec’s identified as: Fairness, Alignment of cap-and-trade system, highlighted in this Policy and Objectives, Stability and report, illustrates how the FASTER principles Predictability, Transparency, Efficiency can help propel efficient and successful and Cost-Effectiveness, and Reliability initiatives into action. Launched in 2013 at and Environmental Integrity. the province level, Quebec’s ETS has since partnered with Ontario and the U.S. state When integrated and taken together, these of California to create the Western Climate concepts lead to carbon pricing initiatives Initiative carbon market. that succeed in developing and expanding sustainable energy, providing a consistent These sub-national governments’ innovative regulatory framework, and reflecting the public partnership—the first of its kind in the interest. Critically, they are designed around world—speaks to the enormous possibilities the notion that those who profit the most from for creative leadership when it comes to carbon-intensive industries should contribute advancing carbon pricing. We hope analysis of the most to mitigating its effects and building the initiative’s success will lead others to follow the transition to a low-carbon future. its example. FASTER Fairness Alignment of Policy and Objectives Stability and Predictability Transparency Efficiency and Cost- Reliability and Environmental Effectiveness Integrity 28 CAR B O N P R IC IN G LE A D ER SH IP COA L ITION LEADERSHIP IN ACTION LE ADE RSHI P RE P O RT 2 9 BRITISH COLUMBIA British Columbia British Columbia is also committed to Since 2008, British Columbia, Canada has had one of the most broad- working with industry. As the tax goes up, B.C. helps large industries remain 17% based carbon taxes in the world. As competitive through actions like the a carbon-pricing pioneer, B.C. took new Clean Growth Incentive Program. an approach similar to the World This program is being designed to Bank’s FASTER principles. Between direct incremental carbon tax revenue the growth 2007 and 2015, its provincial real GDP received from industry back into the of B.C.’s grew more than 17 percent, while net sector. Incentives will be structured to provincial real emissions declined. This demonstrates provide support industries based on GDP between 2007 and 2015 how these principles can lead to stable how clean they are. Revenue generated using FASTER pricing, which when combined with will be available for industry to principles a broader suite of polices, supports access as part of a technology fund to cleaner choices and a strong economy. decrease emissions. Fairness is a key concern when it Transparent, stable, and predictable comes to carbon pricing. B.C. is carbon pricing is essential to maintain focusing on the need to maintain affordability and competitiveness. a robust economy. B.C.’s price on carbon has been rising predictably 40% Starting April 2018, the province will over a period of time, and the changes raise its $30/tCO2 by $5/tCO2, until it have been communicated in a reaches $50. New revenues from the transparent way that offers businesses carbon tax will be used to provide the stability they need to invest. the percentage tax relief for families by increasing of emissions the Low-Income Climate Action By taking a FASTER approach, B.C. is France is tax credit. They will also be used showing that efficient, cost-effective looking to reduce by to support businesses and enhance carbon pricing is one of the best 2040 (and 32% environmental integrity by funding ways to build a strong, sustainable fossil fuels) green initiatives that address climate economy that works for people and action commitments. the environment. 30 CAR B O N P R IC IN G LE A D ER SH IP COA L ITION FRANCE France natural gas, and coal. Since it is broadly applied to Carbon pricing has become an essential sectors and activities not covered under the EU ETS, component of France’s strategy to both mitigate its role with regard to the ETS is a complementary climate change at home and mobilize public one. The tax is aligned with France’s broader and private finance for climate action globally. climate goals to reduce emissions by 40% by 2030, At the One Planet Summit convened by French to cut fossil fuel use by 30% by the same year, President Emmanuel Macron in December 2017, and to increase the share of renewables to 32% of issues related to the policy featured prominently overall energy consumption by 2040. among the major themes of the event, notably through the announcement of several new Stability: The Finance Act for 2018 sets carbon carbon pricing initiatives. Previously, in June prices at EUR€44.6/tCO2 in 2018, rising to EUR€65.4/ 2016, France hosted a High-Level Forum on tCO2 in 2020 and EUR€86.2/tCO2 in 2022. This Carbon Pricing with more than 200 government, upward trajectory reduces uncertainty, reinforces business, and civil society leaders to explore the long-term stability and predictability of carbon best practices for effectively designing and prices, and provides emitters with a consistent and implementing carbon pricing programs. credible investment signal. Meanwhile, at the national level, France’s Energy Transition for Green Growth Act of 2015 set a Transparency: France’s Ministère de la carbon price target of EUR€56/tCO2 by 2020 and Transition écologique et Solidaire provides broad EUR€100/tCO2 by 2030 to help channel long-term information on current and future carbon tax investments toward a low-carbon pathway and rates. Its website also provides clear guidelines on incentivize emissions-reducing innovation. how carbon revenue is used. Fairness: France’s carbon tax is part of a domestic Efficiency: France continually monitors and tax on the consumption of energy products (Taxe refines its carbon levels to account for changes Intérieure de Consommation sur les Produits in economic conditions, adjustments in the EU Energétiques, also known as TICPE). It is factored ETS, and technological advancements that reduce into the price of fuel for transportation and for abatement costs. In order to enhance efficiency heating buildings. In the power and industry and boost competitiveness, a share of carbon tax sectors, carbon is priced through the EU ETS. revenue was used to finance labor tax cuts for France has earmarked a portion of the tax employers in 2016. As France looks to the future, revenue generated to provide financial assistance the country plans to raise long-term carbon price to low-income communities that could be levels, especially the planned price of EUR€100/tCO2, adversely affected by certain aspects of the tax’s by 2030, which is currently enshrined in the law. implementation. Reliability: Emissions reductions from France’s Alignment: Introduced in 2014, France’s carbon tax carbon tax are projected to reach 3 MtCO2 in 2018 was integrated into existing energy taxes on fuel, and 6 MtCO2 in 2022. LE ADE RSHI P RE P O RT 3 1 QUÉBEC Québec industries, the Québec government The Québec Cap-and-Trade system was launched in 2013 and has since has adopted a sophisticated approach to free allocation based on real output 20% linked its system with those of that does not impede ability and California (2014) and Ontario (2018) to incentives for growth. form the Western Climate Initiative’s carbon market, the first international Alignment: The system is the The amount emissions trading scheme conceived centerpiece of Québec’s climate Québec and operated by subnational change action strategy, which aims wishes to governments. The systems were to reduce GHG emissions by 20% reduce GHG emissions originally designed to ensure equal below 1990 levels by 2020 and by compared to stringency prior to linkage and to 37.5% below 1990 levels by 2030. All 1990 levels preserve the environmental integrity revenues from the sale of allowances, of the scheme. expected to reach more than CAD $3.3 billion by 2020, are deposited in Fairness: Sectors covered by the a green fund exclusively dedicated Québec Cap-and-trade system to the implementation of mitigation, represent about 85% of the GHG emissions of the province, including adaptation, and public awareness measures contained in the plan. 120€ the transportation sector. Since close to 100% of Québec’s electricity comes Stability: To provide stability and from renewable sources—mainly predictability to its covered entities, hydro and wind—transportation is the the Québec government recently set Sweden’s 2018 largest GHG emitting sector, with over the annual declining emissions caps carbon tax rate 40% of total emissions. Québec has also of its system from 2021 to 2030. The has increased recently expanded its system’s coverage linear cap trajectory also informs the to SEK 1,150 since being by permitting emitters below the 25,000 participants of the future relative introduced in CO2 eq./year threshold to voluntarily scarcity of allowances in the system, 1991 register in the system as covered thereby allowing them to develop a entities. To protect trade-exposed long-term in-house emissions-tackling 32 CAR B O N P R I C I N G LE A D ER SH IP COA L ITION SWEDEN strategy, alongside the banking opportunities the would have been equally fitting titles. This proves Cap-and-trade design provides. a key point: the FASTER principles are interlinked and, in successful policy design, you don’t just Transparency: The Québec government engages focus on one principle at a time—you try to keep in extensive consultations with industry regarding them all in mind. proposed system regulations. It also provides both the public and participants with broad The Swedish carbon tax was introduced in 1991 information on the system’s technical specificities, at a rate corresponding to SEK 250 (EUR 26) per implementation, and progress via the Ministère ton fossil carbon dioxide emitted, and has been du Développement durable, de l’Environnement gradually increased to SEK 1,150 (EUR 120) in et de la Lutte contre les changements climatiques 2018.5 It is strongly rooted in the Polluters Pay website. In particular, an aggregated summary Principle, a principle of Fairness (“F”). In its clear of transactions is issued yearly to provide design and implementation, the system is also transparency on allowance price averages for deeply Transparent (“T”). potential buyers and sellers. By increasing the tax level in an incremental Efficiency: Québec’s system sets a meaningful manner, policymakers have given households carbon price signal across the economy, allowing and businesses time to adapt. Additionally, economic agents to better internalize carbon the Stability and Predictability (“S”) that have costs. All Québec-covered entities complied with characterized the system have improved the their obligations during the first compliance political feasibility of tax increases. period (2013-2014), achieving a success rate of 100%. From 2012 to 2016, Québec-covered A lower tax rate has historically been applied industrial emitters globally reduced their to industries outside the EU Emissions Trading emissions by about 7 %. In addition, linking with System (EU ETS), while industries covered by the California and Ontario’s system has provided system have been entirely exempt from carbon covered emitters with a larger pool of low-cost tax. As of 2018, however, the industry rate outside emission reduction potential. the EU ETS is the same as the general rate. The general level and the industry level of carbon tax Reliability: All aspects of Québec’s system— have therefore been Aligned (“A”). from cap setting to covered emitters’ reporting process for ensuring that they are meeting Through its comprehensive application of FASTER their compliance obligations—are based on principles, the Swedish carbon tax ensures that independently verified data informed by the use emissions are reduced in an Efficient and Cost- of rigorous protocols and standards. Effective way (“E”) and provides tangible emission reductions. It is a Reliable system with high Sweden Environmental Integrity (“R”). To describe the following example from Sweden, “A for Alignment” was chosen, but really, “F for For more information on the Swedish Carbon Tax, Fairness” or “S for Stability and Predictability” please see www.government.se/carbontax. LE ADE RSHI P RE P O RT 3 3 LEADERSHIP IN ACTION Leadership on carbon pricing, coming Following the Climate Action Statement from from a variety of economic sectors and the Climate Summit of the Americas, the geographic areas, has kept the issue Ministerial Declaration on Carbon Markets, the at the forefront of the climate change Cali Declaration of the Pacific Alliance Presidents conversation. From its inception, the of 2017, and the regional events hosted by the CPLC has brought together leaders CPLC in Mexico in January of 2017 and October of already showing the way on carbon 2017, growing collaboration between the Pacific pricing, as well as emerging leaders who Alliance countries and across the entire region are new to the issue but nevertheless facilitated the emergence of a more coordinated committed to making progress. A critical approach in the design of regional policy part of the Coalition’s mission involves frameworks. shining a light on those leading the way on carbon pricing and learning from This collaboration led to the Declaration on their experience. The selected stories Carbon Pricing in the Americas announced at of leadership that follow are proof of the One Planet Summit in Paris. The government the growing momentum that new—and leaders of Canada, Colombia, Costa Rica, Chile, maturing—carbon pricing schemes are Mexico, Alberta, California, British Columbia, experiencing and are presented here with Ontario, Oregon, Quebec and the U.S. state of the hope that they will inspire others to Washington reaffirmed their commitment to discover their own solutions. the Paris Agreement by pledging to implement carbon pricing as a central policy instrument Increasing Regional Cooperation for climate change action; deepen regional on Carbon Pricing in the Americas integration of carbon pricing instruments across In the past two years, the Americas have been the hemisphere; and develop carbon policies that at the forefront of carbon pricing developments, support competitiveness, encourage innovation, particularly in Canada and the Pacific Alliance create jobs, provide healthy environment for countries. Carbon taxes and/or emission trading their citizens, and deliver meaningful emissions systems are being implemented in Chile, Colombia, reductions. Mexico, California, the nine states of the US’ Regional Greenhouse Gas Initiative (RGGI), Washington, In the Declaration, countries and seven Alberta, British Columbia, Quebec, Ontario, and subnational governments [note: there was Massachusetts. New carbon pricing instruments are a comma here that should also be removed] also under discussion in additional countries, states, agreed to collaborate on monitoring, reporting, and provinces, including Argentina and Manitoba. and verifying (MRV) greenhouse gas emissions In Brazil, where the Federal Government is in the region; designing common standards to evaluating options, we are seeing strong support for ensure environmental integrity; creating the carbon pricing from major private sector companies cooperative platform on Carbon Pricing in the and civil society organizations. Americas (CPA); and strengthening international 34 CAR B O N P R I C I N G LE A D ER SH IP COA L ITION and regional collaboration. By aiming to involve Carbon Pricing Leadership Coalition. At the High- financial institutions, NGOs, and other civil Level Assemblies of the Coalition, Côte d’Ivoire, society organizations—and by encouraging the consistently represented by the Prime Minister support of jurisdictions outside the Americas—the and the Minister of Environment, regularly Declaration constitutes a powerful foundational reaffirmed its commitment to carbon pricing. element of integrated action and is open to other This commitment has been incorporated into the jurisdictions if they seek to join. country’s Nationally Determined Contribution (NDC), and there has been interest in the policy Côte d’Ivoire: Getting serious across both the Ministry of Environment and the about a national carbon price Ministry of Finance. In November 2015, even before the adoption of the Paris Agreement, Côte d’Ivoire organized its Through its leadership, Côte d’Ivoire has become first national workshop to explore the idea of a major advocate for carbon pricing not only implementing a carbon price. Shortly after that, on the African continent, but among lower the West African country became a member of the middle-income countries in general. At high- LE ADE RSHI P RE P O RT 3 5 BRAZIL Mobilizing Brazilian Business Support to Price Carbon While a mandatory carbon (known as EPC ETS) is entering responsible for over 40% of the pricing mechanism has not yet its fourth year of operations. Brazilian annual GDP.7 been established in Brazil, the The simulation—conducted Brazilian Federal Government with over 30 major Brazilian CEBDS and several other is exploring and analyzing companies—includes auctioning Brazilian companies and various instruments to achieve and bonds markets, assessment associations are active members carbon pricing. This work is of company emissions of the CPLC. The financial sector being led by Brazil’s Ministry of submissions, and penalties for has also been active, including Finance, under the Partnership non-compliance. It provides through the engagement of for Market Readiness (PMR) substantial information for the major banks such as Itaú work program. While the 6 key stakeholders, including Unibanco—the largest bank private sector and civil society the Federal Government, on in Latin America.8 In addition, have been supportive of critical aspects to consider with ABIQUIM—the association of all the Federal Government’s regard to the establishment chemical and pharmaceutical technical assessments, they are of a mandatory ETS. It has companies in Brazil—is a co-chair demanding a swift decision been managed by the Center of the CPLC Mobilizing Business regarding the type of carbon for Sustainability Studies of Support Working Group, while pricing mechanism that will the Business Management Companhia Vale do Rio Doce ultimately be adopted. This School at the Getulio Vargas (Vale) has served as a co-chair of demand is twofold: first, it is Foundation (FGV-EASP), and the CPLC Steering Committee. It based on the recognition of the CPLC Secretariat has been is expected that Brazil—as the major regional developments represented on the advisory largest economic power and (see the Carbon Pricing in the board of the initiative since its GHG emitter in the region—will Americas). Secondly, it stems early stages. remain well-represented in the from widespread concern that, CPLC. This collaboration has if Brazil is not fully engaged in Beyond the ETS simulation notably resulted in: the ongoing regional dialogue and envisioning of coherent and initiatives, businesses messaging and coordinated JJ A 2017 series of joint meetings will not have access to the action, a vital development between CEBDS and CPLC technological innovation and has been the creation of the with senior government financial resources expected for Business Climate Initiative officials, leading to an the region’s transition to low- (also known as IEC, from alignment between public and carbon economies—a matter of the name in Portuguese) by private sector agendas and business competitiveness. leading companies and civil work plan; society groups. Among their Among existing private sector- participants, the Brazilian JJ An open letter demonstrating led initiatives, the Emission Business Council for Sustainable Private Sector Support Trading System Simulation of Development (CEBDS) includes Carbon Pricing in Brazil, led Business for Climate Platform companies and corporations by the IEC in 2017; 36 CAR B O N P R IC IN G LE A D ER SH IP COA L ITION level fora such as the Conferences of the Parties, the World Bank/IMF Spring Meetings, and the Africa Carbon Forum, Ivorian ministers have repeatedly explained their view of carbon pricing as an effective mechanism in terms of its ability JJ A webinar session Internal to both lower emissions and yield important Carbon Pricing: Practical development co-benefits. This includes, but is Experiences from the not limited to, the recycling of carbon revenues, Private Sector in 2017, with which could be used to fund renewable energy representatives from Itaú supply and low-emissions activities in Côte Unibanco, CPFL, and Vale as d’Ivoire and make low-carbon development a part of the YALE, WEF, CPLC reality in the country. series on internal carbon pricing. Côte d’Ivoire has also been very active on the technical level from a national, regional, and JJ The report Carbon Pricing: continental perspective. In 2017, the government what the business sector conducted a self-funded feasibility study on needs to know to position establishing a national carbon tax. Together with itself, launched in 2016 by subsequent extensive stakeholder consultations, CDP, We Mean Business, and this study will serve as the analytical basis for CEBEDS, which provides an the design of the country’s future carbon tax. in-depth evaluation of carbon Cooperating closely with neighboring states, finance in the Brazilian Côte d’Ivoire also served as a co-founder of the private sector; 9 West African Alliance on Climate Finance and Carbon Markets, which came to life at COP23 in JJ The paper Carbon Pricing Bonn. Furthermore, the country participated in Positioning, launched in 2016 and actively contributed to the CPLC’s African by IEC in support of carbon Consultative Expert Dialogue, held in Nairobi in pricing;10 October 2018. Moving forward, the CPLC Since making a very convincing case for its will continue promoting carbon pricing plans at the Partnership for coordination between its Market Readiness (PMR) Partnership Assembly partners, other interested in Tokyo in October 2018, Côte d’Ivoire has players in the international become a new technical partner of the PMR. climate community, and private This partnership enables the country to receive and public-sector leaders in a significant grant in order to undertake the Brazil to support the design and necessary analytical work of designing its implementation of an effective national carbon tax. In this effort, Côte d’Ivoire carbon pricing mechanism will also benefit from a large network of at the national level, as along international government partners providing with Brazilian engagement in regular opportunities for peer-exchange and the regional and international capacity building. Just recently, the government’s carbon pricing dialogue. detailed plan of activities for making the best use LE ADE RSHI P RE P O RT 3 7 of the PMR resources was approved. This way, auction revenue from the EU ETS is substantial. the country has taken another important step Auctions from 2013 to 2016 have generated toward becoming the first lower middle-income nearly EUR€16 billion, and over 80% of this nation to introduce an explicit carbon price revenue has gone toward climate and energy within its jurisdiction. programmes and projects. Although most of the reported revenue use has been for domestic The Reform of the EU ETS climate and energy purposes, EU Member States The European Parliament and Council have also channel a significant portion of the revenue agreed on the second major reform the EU into international initiatives. In the first three Emissions Trading System (EU ETS) after two years of the the EU ETS’ third phase nearly years of intense negotiation. The EU emissions EUR€900 million was invested in international trading system (EU ETS) is still the largest climate and energy finance. international carbon market by volume and value. It includes over 11,000 installations The EU ETS is the cornerstone of EU climate and airlines and covers nearly half of the EU’s policy and will contribute a 43% reduction on greenhouse gas emissions. The agreed changes 2005 emissions by 2030. The reform ensures will impact the EU ETS’s fourth trading period that the provisions of the new ETS law will (2021-2030) and represents a significant piece of be kept under regular review including an the EU’s plan to achieve its commitment under assessment of the need for additional policies or the Paris Agreement. The reform not only measures in the context of each stocktake under increases the ambition in the system but also the Paris Agreement. addresses competitiveness concerns and puts in place measures to smooth the transition to a low- Emissions Trading Systems carbon economy. It also includes measures to of the EU and Switzerland manage the oversupply of EU allowances, which In 2017, the EU and Switzerland signed an were adversely impacting the carbon price. agreement to link their emissions trading systems—the first partnership of this kind for The reform of the EU ETS maintains auctioning the EU and the first between two Parties to the as the main allocation method used in the EU Paris Agreement. This coordination will allow ETS. In Phase 3 (2013-2020), 57% of allowances participants in both systems to use allowances are expected to be auctioned. The reform from either system for compliance. increases this percentage while protecting the most exposed European industries from Carbon Pricing in India: carbon leakage through free allocation. In the Tailored Risk Management reform, a portion of the auction revenue has Operating in an increasingly attractive hub for been alllocated to specific funds established clean investment, India’s expanding private to support low-carbon innovation and sector has begun to acknowledge the role modernization. A fund initially consisting of businesses must play in the fight against climate 400-450 allowances provides continued support change, as well as the reciprocal risk that climate for renewable energy, carbon capture and change poses to their interests and prospects. storage projects, and industrial sectors. Two percent of the total allowances will be auctioned With more than 65 jurisdictions across the globe in order to foster energy efficiency and bolster using carbon pricing as a tool to incentivize low- the modernization of the energy sector in EU carbon activities—and the expectation that this Member States that have per capita GDP rates number will continue to grow as countries move which are 60% lower than the EU average. The towards their climate commitments—companies 38 CAR B O N P R I C I N G LE A D ER SH IP COA L ITION Financial Sector Leadership In the wake of the Financial bank financial institutions advancing the work of the Stability Board’s Task Force are applying a carbon price to Carbon Pricing Corridors, which on Climate-related Financial their operations, governments provides a range of carbon price Disclosures (TCFD), banks and and other stakeholders are levels to meet a 2°C scenario at other financial institutions are increasingly expecting them to five-year intervals. Through the increasingly prioritizing climate- “stress test” their investment Corridors Initiative, CDP and the related risks and opportunities portfolios against carbon risk, We Mean Business Coalition are as part of their financial including by applying a carbon working with industry leaders planning and budding climate price to individual projects. to develop reference scenarios strategies. In 2017, the Carbon for specific sectors to provide Pricing Leadership Coalition While the TCFD cites internal a carbon price companies convened around 30 private and carbon pricing as a metric can apply to risk assessment multilateral development banks for managing climate-related decisions. This is applicable not to form the Banking Sector risks, it does not expand only to companies evaluating Task Team, with the objective upon what this means for the the appropriate price for their of monitoring the development banking sector specifically. own operations, but also for of the TCFD and exploring the Going forward, the CPLC banks who can apply this price role of using internal carbon will be publishing a series of in evaluating their clients’ risk pricing as a metric for managing executive briefings covering the exposures. Complementing climate-related risks. TCFD Recommendations, and the TCFD Recommendations, how a bank can benefit from, the Corridors can be used as Financial institutions are and practically implement, a tool in scenario analysis, as contending with how to an internal carbon price to organizations consider the manage the carbon risk of manage traditional risks and potential financial, strategic, both their operations and identify new opportunities. and business impacts resulting investment portfolios. While from the Paris Agreement in many of these banks and non- The Task Team has also been their decisions. are recognizing the business case for internal Leadership Coalition (CPLC) to engage with one carbon pricing. Indian companies are moving another, the government, and other stakeholders forward with carbon pricing as a climate-risk on this issue. management tool, with 14 businesses already pricing carbon in 2017—up from 8 the previous The CPLC’s India partners are learning more year—and another 26 intending to implement about carbon pricing, advocating for well- carbon pricing within the next two years, as designed carbon pricing policies, and sharing per their CDP disclosures. India’s private sector their experiences and best practices with other companies are joining the Carbon Pricing like-minded companies looking to price their LE ADE RSHI P RE P O RT 3 9 carbon footprint. Although carbon pricing is being recognized for its business benefits Mexican consistently, companies are engaging with Climate Initiative and the concept in varied ways. For instance, the Mahindra Group is using a hybrid combination of shadow and explicit pricing, set at US$10/ Environmental tCO2, to evaluate its projects and investments, reduce exposure to transition risk, and prioritize Defense Fund low-carbon alternatives and innovations. With support from a wide variety It calculated this price through an internal of stakeholders, the Ministry of assessment of its outstanding energy efficiency Environment of Mexico has been and green investment commitments, as well as working toward the design and policy exposure, arriving at an abatement cost implementation of an emissions for GHG emissions that would have a material trading system (ETS). In early impact on decision-making. Infosys is using a 2017, EDF was invited by the US$10.5/tCO2 price as a tool to achieve its stated Mexican Climate Initiative (ICM) goal of carbon neutrality. This price, designed to join discussions on engaging around the cost of carbon offsets, is intended academic experts and key to encourage the company’s business units to stakeholders from Mexican non- manage their Scope 2 emissions and invest profit organizations on further in renewable energy and efficient processes. developing national climate Dalmia Cement piloted an internal carbon fees policy, particularly with regard to scheme, which helped set and implement a carbon pricing. This collaboration carbon price that incentivized the adoption of has created a unique synergy: low-carbon activities, procurement, and projects. ICM contributes its profound The fees generated were funneled into a credit knowledge of Mexico’s line for investing in climate-smart projects to environmental and energy policy manage Scope 1 and 2 emissions. The success of and the domestic context for the program, implemented in 2015, has led the policy implementation, as well as company to explore avenues for investment in an extensive network of experts; low-carbon technology using the fees collected EDF puts forward its deep from a US$11/tCO2 price. expertise on carbon pricing and emissions trading policy broadly, Others implementing a carbon price include the as well as the experience of Tata Group, Arvind Limited and Essar Oil, with having advanced state, national, each company following an approach tailored and global carbon pricing policy to its specific needs and goals. Inspired by the and initiatives. successful work in Brazil, CPLC partners are also developing an ETS simulation that will be Our organizations share a launched in mid-2018. This innovative pilot common vision, centered on the is being led by the World Resources Institute crucial role of harnessing the and will include over 20 companies voluntarily expertise and involvement of a working in coordination to test a cap-and-trade broad array of non-government approach; the results can then help to inform the stakeholders in crafting robust potential design, registry, reporting and other environmental policies. We also important aspects. recognize the key role of actors 40 CAR B O N P R IC IN G LE A D ER SH IP COA L ITION across civil society in ensuring advocacy, expert knowledge, meeting hosted by the Ministry sustained ambition and continuity and communications and media. of Environment to discuss the of processes when government role and expectations of civil administrations change. With this JJ Respond to needs identified society in developing a Mexican brief case study, we aim to share by partners. ETS. The group expressed some of our experience so far and Based on interest and needs interest in engaging and suggestions on best practices: assessed during initial supporting the policymaking discussions, EDF and ICM process. Direct engagement by JJ Begin on common ground offered a two-day interactive the regulator, as well as clarity and assess interests and workshop tailored to the on the deliverables and timeline needs to engage on carbon environmental experts ahead, helped give the group an pricing policy. participating in these group impetus to make it a priority. A map of influential discussions, some of whom stakeholders from academia, had less familiarity with ETS JJ Adapt the agenda to current think tanks, and NGOs mechanics and policy design. policy processes and needs informed the initial outreach This workshop took place Given the interest raised by on beginning discussions early in the group’s formation the stakeholder group and the on carbon pricing and its and was attended by most current plans of the Ministry place in Mexican mitigation participants, resulting in a group of Environment, we expect to policy. Shared interest in of stakeholders that was largely focus on advancing the pilot achieving Mexico’s nationally aligned in terms of familiarity ETS regulation the Ministry is determined contribution (NDC) with the topic. The agenda working on, developing a clear was the organizing principle included presentations on ETS stance from key stakeholders for first bringing together this basics, ETS design, Mexico´s regarding the need for a group of stakeholders. After an climate policy, and California’s concrete policy mechanism and initial discussion, we surveyed Cap and Trade program, with the conditions under which an participants to assess specific expert contributions from ETS will be desirable for Mexico, interests, areas of expertise, both government regulators creating a favorable political and perceptions around and private sector entities. We environment for the policy’s carbon pricing—as well as also included an interactive implementation under the needs. market simulation exercise current administration, as well using EDF´s ETS software as looking toward the upcoming JJ Keep information flowing platform (CarbonSim). government transition. The and build an agenda based The group emerged with development of informed policy on expertise and interests. a better understanding of positions and communications Given the interest in continuing how ETS design choices can is seen as a key component the dialogue, ICM offered be used flexibly to address of shaping Mexico’s domestic to carry out administrative each country’s goals, needs, environmental policy agenda functions to keep the group challenges, and priorities. as the country heads into active and organized. national elections and prepares Participants shared relevant JJ Recognition from the for a government transition in updates and self-selected regulator further fuels the late 2018 and early 2019, even different roles to move policy group’s engagement while it continues to engage in development forward in The working group participants the national and international multiple areas, including were also invited to a high-level carbon pricing agenda. LE ADE RSHI P RE P O RT 4 1 Heading for New Shores sector, UCL and GMF have made major progress with the Shipping Sector in terms of outreach, stakeholder engagement, International maritime transport accounts for the and knowledge production. lion’s share of global freight transport: ships carry around 80% of the volume of all world trade and With four CPLC shipping events at COP23 in 70% of its value. If the shipping industry was a Bonn (two of those organized with the Fijian country of its own, it would rank as the 6th largest COP Presidency), maritime transport was greenhouse gas (GHG) emitter worldwide. While featured prominently during the international the sector’s share in global emissions is currently climate negotiations in November 2017. Also in at 2-3%, the demand for maritime transport is November 2017, a CPLC Executive Briefing on soaring—and so are its emissions. Unlike other internal carbon pricing for ship-financing banks, sectors, international shipping has not been part supported by Carbon War Room and released at of the climate change commitments secured a Citibank luncheon in November 2017, engaged under the Paris Agreement. And without further financial institutions. A month later, a joint action, the sector risks being unengaged in the blogpost series was started with the World Bank’s fight against climate change. Sustainable Mobility for All initiative. Hosted by the OECD International Transport Forum, Now, however, the situation is on the cusp the Coalition gathered 25 renowned shipping of change. Since May 2017, the Coalition’s experts in Paris early January 2018 to discuss maritime leads, the University College London economic modeling approaches to shipping. (UCL), and the Global Maritime Forum (GMF) This analysis has been a crucial component of have been working to establish the CPLC as properly assessing the impacts of carbon pricing a new player in shaping the shipping sector’s on maritime transport costs, as well as on trade climate change agenda. Within this context, flows and individual states—a key issue in the UCL and GMF have successfully launched IMO negotiations. within the Coalition a forum for open dialogue where ideas for decarbonizing the sector can be Although the IMO’s initial GHG reduction explored and discussed. The outcomes of these strategy might lead some observers shout “Land dialogues are being used to inform the decision- ahoy”, it should be clear that the actual work making process under the International of defining specific policies to decarbonize the Maritime Organization (IMO) and among its shipping sector has just began. Building on key stakeholders, especially regarding carbon the political momentum gained and the forum pricing and market-based mechanisms. and network established, UCL and GMF are committed to supporting the sector in beginning A dedication to being progressive, inclusive, to sail to new shores. and transparent has guided the CPLC’s maritime work. In less than a year, this approach has Multilateral Development Banks led to the creation of an extensive network and Internal Carbon Pricing of governments (e.g. Germany, France, Multilateral development banks (MDBs) are Finland, and the Marshall Islands), businesses on the cutting edge of addressing climate (including Lloyd’s register, Maersk, and change in their own operations and in helping Cargill Transportation), and leading think their clients to do the same. Most MDBs have tanks (e.g. UNCTAD, CE Delft, and Transport & established targets for lending to qualifying Environment) from both inside and outside the climate projects, and they collectively track and CPLC. By closely cooperating with numerous report on their investments. A growing number partners from the international transport are also beginning to use internal carbon pricing 42 CAR B O N P R IC IN G LE A D ER SH IP COA L ITION “Multilateral development starts at EUR€35/tCO2e for emissions (in banks (MDBs) are on the 2014 prices) for emissions released in 2014, cutting edge of addressing rising by 2% per year in real terms. Since the introduction of the methodology, the EBRD has climate change in their own not financed any coal-fired power projects. operations and in helping their clients to do the same.” JJ European Investment Bank began incorporating environmental externalities, including carbon and local air pollutants, into to influence their investment decision-making its economic appraisal of projects in the mid- and address climate risk. The price levels being 1990s. In order to ensure consistency across used across the MDBs are roughly consistent, sectors, in 2007, carbon values out to 2030 even though the institutions are using different were formally approved by the Bank’s Board of approaches when it comes to application. The Directors. In 2015, as part of the Bank’s wider following summarizes the current state of play climate action strategy, these values were of internal carbon pricing for the MDBs that are further extended out to 2050. The central EIB actively using a carbon price today: value for carbon emissions in 2018 is EUR€38/ tCO2e, rising to EUR€121/tCO2e by 2050 (in real JJ Asian Development Bank incorporates a 2016 euros). The rate of annual increase in real social cost of carbon as part of the economic terms increases over time. The Bank also has a analysis of projects in the energy and low and high CO2 price scenario which is used transport sectors and projects with a GHG in sensitivity testing. emissions mitigation focus. In valuing GHG emissions, the initial carbon price used is JJ The World Bank updated its approach in US$36.30/tCO2e in 2016 prices, increasing September 2017 based on the report led by annually by 2% in real terms to allow for Nicholas Stern and Joseph Stiglitz. The use increasing marginal damage of global of a shadow price of carbon in the economic warming over time. The approach identifies analysis is a corporate commitment for all IDA/ and values the net change in emissions IBRD investment project financing in sectors resulting from a given project through a that are subject to Greenhouse Gas (GHG) ‘with and without project’ comparison. accounting (energy, forestry, agriculture, ADB publicly discloses a summary of the transport, water, and urban) and that have economic analysis as part of the report and concept notes approved on or after July 1, recommendation of their President. 2017. Economic analyses of projects are required to use low and high estimates of the JJ European Bank for Reconstruction and shadow carbon price. These will start at levels Development (EBRD) has publicly disclosed of, respectively, US$40 and $80 t/CO2e in 2020, its carbon pricing methodology, which is will then increase to US$50 and $100 by 2030, applicable to coal-fired power generation and beyond that, will rise at a rate of 2.25% projects. The coal-fired methodology is based per year, leading to values of US$78 and $156 on calculating a levelized cost of electricity by 2050. If a project that increases emissions (as a cost per MWh) to compare different is viable with the low shadow price of carbon feasible alternatives. The cost of emissions is estimate but not with the high estimate, the factored in as part of the lifetime costs of the price that makes the project viable (switching options considered, along with other relevant value) shall be provided. Similarly, if a project externalities. The carbon price being applied that reduces emissions is viable with the high LE ADE RSHI P RE P O RT 4 3 shadow price of carbon estimate but not with the low estimate, the switching value shall be provided. The results of the economic analyses with and without shadow carbon prices will The 2016 revenue $133M generated by Portugal’s then be reported in project documentation to carbon pricing scheme (US$) allow management and the Board to take this information into consideration. JJ IFC has operated a carbon pricing pilot since November 2016 using price levels of US$30 t/ CO2e in 2016, increasing to US$80 by 2050. The Carbon pricing is expected to continue playing an price is applied to the economic rate of return essential role in achieving Portugal’s ambitious analysis of project finance investments in three climate goals. The country’s ‘Roadmap for emissions-intensive sectors (cement, thermal Carbon Neutrality’, announced by Prime Minister power, and chemicals), and is considered António Costa in 2017, prioritizes a set of key as one of several inputs into the investment objectives as part of an overall effort to facilitate decision. The price is applied to gross Scope a transition toward achieving carbon neutrality 1 and 2 emissions only. IFC is moving to full by 2050 through sustainable public and private implementation in project finance deals in the investments. In the long-term, there are 3 sectors listed above, and will also pilot the expectations that coal-based products will also be application of a carbon price to project finance included in a forthcoming ‘fuel escalator’ tax, set investments in other sectors with annual to rise incrementally until 2021. In parallel, there emissions above 25,000 tCO2e. IFC will also are plans to re-evaluate the carbon tax rate and pioneer the application of carbon pricing to set a carbon price floor as the government seeks corporate loans with known use of proceeds, to accelerate the rate of emissions reductions. and will continue to align with the World Bank on the price levels to be used. Singapore—An Emerging Leader for Carbon Pricing Carbon Pricing as a Catalyst for a in Southeast Asia Sustainable Energy Transition Singapore recently became the CPLC’s newest Portugal launched its carbon tax in 2015 as part government partner, joining in March 2018. This of a broader package of green fiscal reforms, followed Minister of Finance Heng Swee Keat’s affirming the government’s dedication to announcement of plans to implement a carbon incorporating climate and sustainability issues tax starting in 2019, a measure that would levy a into the country’s fiscal system. The carbon tax US$10–$15/tCO2 tax on GHG emissions from 30 to serves as a complimentary measure to the EU 40 energy-intensive companies. ETS, with the taxation rate adjusted annually based on EU ETS allowance levels from the As a small, low-lying city-state, Singapore faces previous year. distinct challenges and threats to its economic activities from climate change. Last year was At around US$8/tCO2, Portugal’s carbon pricing the country’s warmest on record, with torrential scheme generated roughly US$133 million in rains increasing in intensity and frequency. revenues in 2016. The tax applies primarily By introducing a tax directly on large emitters, to entities in the industrial, construction, and Singapore is aiming to provide a financial transport sectors, and covers approximately 29% incentive for reducing GHG emissions and of the country’s total GHG emissions. improving energy efficiency. 44 CAR B O N P R I C I N G LE A D ER SH IP COA L ITION Singapore. –IMF Staff Photo/Stephen Jaffe The country’s decision to put a price on carbon Today, as Singapore marks its ‘Year of Climate did not occur overnight. The Government Action’, it is prioritizing low-carbon policies and of Singapore had been considering carbon enhancing inter-agency coordination aimed at pricing as a policy option for achieving its 2020 tackling climate change collaboratively. Singapore’s climate goals as early as 2007. Recognizing the Inter-Ministerial Committee on Climate Change importance of gradually ‘socializing’ carbon (IMCCC) put forward a Climate Action Plan that pricing, Singapore first communicated the outlines four key cross-cutting climate objectives: need to price carbon at the 2010 Singapore International Energy Week. Following that event, JJ Improve Energy Efficiency the government held multiple consultations JJ Reduce Carbon Emissions from Power with key industry players and with the broader Generation public, as part of a collaborative approach JJ Develop and Deploy Low-Carbon Technology to build momentum, develop robust MRV mechanisms, and openly discuss carbon leakage JJ Encourage Collective Climate Action and competitiveness concerns. The implementation of a carbon tax, as an In 2013, Singapore introduced favorable energy integral part of Singapore’s broader Climate policy measures—aligned with the FASTER Action plan, is expected to support and principles for successful carbon pricing design— complement a suite of other climate change coupled with financial support designed to help mitigation measures. As the first country in companies improve their energy efficiency. Southeast Asia to announce plans to introduce a A competitiveness study was subsequently carbon tax, Singapore has emerged as a leader in launched in 2014 to assess the impact a carbon carefully and collaboratively designing carbon price would have on the manufacturing sector. pricing programs. LE ADE RSHI P RE P O RT 4 5 GOING FORWARD Carbon pricing has been gaining stronger communications—the Coalition will increase momentum as the climate change activity in focused work streams that will look discourse progresses—and 2017 was no into key economic sectors and regions, and aim exception. We witnessed a great year to continue reaching to new audiences. for the carbon pricing agenda with several schemes around the world being Partners are the center of the Coalition’s work— either established or enhanced—such their leadership and action drives carbon developments inspire the Coalition to pricing forward and inspires others to join the increase the ambition and widen the conversation. Together, we remain committed to scope of the work plan. our strategy for broadening our engagement with a wider and more diverse coalition that will help Carbon pricing is a key step—one with growing us expand the implementation of carbon pricing public and private support— in comprehensively schemes around the world, deepen our efforts addressing climate change, ending poverty, and toward meaningful price levels, and support furthering sustainable development. Carbon efforts to create cooperation and links between pricing can be well aligned with economic carbon pricing systems across jurisdictions. growth—after all “it is the growth story of the future” as Nicholas Stern said in the 2017 HLA. Going forward, CPLC will continue to work “CPLC will continue to toward the goal of putting effective carbon work toward the goal of pricing policies that maintain competitiveness, putting effective carbon create jobs, encourage innovation, and deliver pricing policies that maintain competitiveness, create meaningful emissions reductions. To do this, in addition to the four pillars that have grounded CPLC so far—fostering government jobs, encourage innovation, leadership, building and sharing the evidence and deliver meaningful base, mobilizing business support and emissions reductions.” 46 CAR B O N P R I C I N G LE A D ER SH IP COA L ITION LE ADE RSHI P RE P O RT 4 7 ENDNOTES 1. Ministère de la Transition Ecologique et solidaire, One Planet Summit Press Release, December 12, 2017, https://www.oneplanetsummit.fr/IMG/pdf/8-carbon_pricing-eu-press_release-en.pdf 2. Central Planning Office of the Netherlands, Analysis of the Economic and Budgetary Effects of the Financial Attachment of the Coalition Agreement, October 4, 2017 3. https://www.carbonpricingleadership.org/news/2018/2/9/environment-and-climate-ministers-from- france-germany-united-kingdom-sweden-and-the-netherlands-commit-to-implement-or-evaluate-the- introduction-of-a-meaningful-carbon-price 4. Finance standing Committee, Carbon Tax Draft Bill: National Treasury briefing. Available at https://pmg.org.za/page/Carbon%20Tax%20Draft%20Bill:%20National%20Treasury%20 briefing?via=homepage-feature-card. 5. Currency conversion based on an exchange rate of SEK 9.61 per EUR 6. PMR provided Brazil US$ 3 million in August 2014 to conduct analytical studies, covering carbon tax, and ETS policy options. 7. CEBDS’ president is a member of the Council of Economic and Social Development (SEDES, from the name in Portuguese – http://www.cdes.gov.br/) within the presidency of Brazil. 8. The financial sector faces risks associated with the transition to a low-carbon economy, and wants to know the impact of carbon pricing on sectoral competitiveness and their investments. IFC has been instrumental in supporting the Brazilian financial sector. 9. The sole acknowledgment in the report was provided to the CPLC Secretariat. 10. IEC acknowledged the support in this process (“IEC is grateful for Carbon Pricing Leadership Coalition’s support and participation in developing its carbon pricing statement.”). 48 CAR B O N P R I C I N G LE A D ER SH IP COA L ITION #PriceOnCarbon www.carbonpricingleadership.org PARTNERS GOVERNMENTS Cement Association of Canada Nouveau Energy Management Studies Cemex Novartis Ceres Alberta Cenovus Energy Inc. 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