The First International Research Conference on Carbon Pricing February 14-15, 2019 New Delhi, India Introduction 1 © 2019 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions, including from the Carbon Pricing Leadership Coalition (CPLC). The CPLC secretariat administered by the World Bank Group, is a voluntary partnership of governments, businesses and civil society organizations aiming to expand the use of carbon pricing across the globe. The findings, interpretations, and conclusions expressed by World Bank Staff or external contributors in this work do not reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; e-mail: pubrights@worldbank.org Report Design: Gimga Design Group | www.gimgagroup.com AC K N OW L E D G M E N TS This report provides a summary of the discussions Hemraj, National Treasury, South Africa; Rachael at the first International Research Conference on Jonassen, The George Washington University; Carbon Pricing held from February 14-15, 2019 in Emilio Lèbre La Rovere, Federal University of Rio New Delhi, India. de Janeiro; Adele Morris, Brookings Institution; Grzegorz Peszko, World Bank; Mandy Rambharos, We are grateful to Michael Mehling, Massachusetts Eskom; Youba Sokona, South Centre; and Robert N. Institute of Technology (MIT), and Andrei Marcu, Stavins, Harvard University. European Roundtable on Climate and Sustainable Transition (ERCST), who kindly accepted to serve as We would like to acknowledge the support of The Energy Research Institute (TERI) in hosting the Co-Chairs of the Scientific Committee of the Conference as well as the entire CPLC Secretariat Conference, guiding the process from the team, in particular, Carlos Cordova, Thomas Erb, conceptualization to actual delivery. We would also Liberty Ramirez, Esmeralda Batulan, Mercedita like to extend our appreciation to the Scientific Garcia Cano, Usayd Casewit and Herman Sips. Committee: William Acworth, ICAP; Malin Ahlberg, Federal Ministry of the Environment, Nature This report was written by Namrata Patodia Rastogi Conservation and Nuclear Safety (BMU), Germany; with oversight and guidance from the Management Susanne Åkerfeldt, Ministry of Finance, Sweden; Committee of the Research Conference: Angela Maosheng Duan, Tsinghua University; Ottmar Naneu Churie Kallhauge, Venkata Ramana Putti, Edenhofer, Potsdam Institute for Climate Impact Neeraj Prasad and Stephen Hammer; production of Research; Anirban Ghosh, Mahindra Group; Sharlin the publication was led by Chandni Dinakaran. Introduction 3 4 CPLC Research Conference Report TA B L E O F CO N T E N TS INTRODUCTION 3 Acknowledgments 3 Foreword from CPLC Secretariat 6 Foreword from the Co-Chairs of the Scientific Committee 7 Background 8 SECTION ONE 11 Executive Summary 11 SECTION TWO 17 Carbon Tax Design, the Use of Revenues and Public Acceptability 17 Conversation on Article 6: Lessons from Katowice 19 Carbon Pricing in Practice 20 Carbon Pricing and Air Quality 25 SECTION THREE 29 Theme 1: Learning from Experience 29 Research Papers: Abstracts 29 Presentations 31 Theme 2: Carbon Pricing Design – International and Conceptual Perspectives 34 Research Papers: Abstracts 34 Presentations 38 Theme 3: Concepts and Methods 40 Research Papers: Abstracts 40 Presentations 42 Theme 4: Political Economy: Distributional Effects, Political Acceptance, Revenue Use 45 Research Papers: Abstracts 45 Presentations 48 Theme 5: Decarbonizing the Economy: Carbon Pricing and Development 49 Research Papers: Abstracts 49 Presentations 51 Theme 6: Emerging Frontiers 56 Research Papers: Abstracts 56 ANNEXES 59 Annex 1: Agenda 59 Annex 2: List of Acronyms 62 Introduction 5 FO R E WOR D F RO M CP LC S ECRE TARI AT The Carbon Pricing Leadership Coalition (CPLC) We received an enthusiastic response to the call for brings together governments, businesses, and civil abstracts, and papers were selected for presentation society organizations to accelerate the uptake at the Conference based on criteria set by CPLC’s of carbon pricing policies that can maintain Scientific Committee, a forum of carbon pricing competitiveness, create jobs, encourage innovation, experts from government, private sector, and civil and deliver meaningful emissions reductions. society. Our aim was not only to present cutting- Since launching, CPLC has been a key player in edge research at this Conference, but also to provide fostering leadership on carbon pricing, making a a platform for new and upcoming researchers to strong business, political, and social case for it, and engage and form networks. mobilizing stakeholder support across regions and sectors. Our partners, over 250 in 2019, consistently Hosted in collaboration with TERI in India, the rely on us as a trusted resource for sound knowledge Conference was a resounding success with over 175 and analysis on carbon pricing. participants from all over the world. It provided a platform for knowledge exchange and learning on Over the last few years, as we worked closely carbon pricing and paved the way for novel ideas on with our CPLC partners, we recognized the need how we can collectively address emerging challenges. to engage the research community from around This report highlights the key takeaways from the the world to strengthen the efforts of carbon Conference and summarizes the presentations and pricing policy design and implementation. There research papers that were presented. was a particular need for relevant research and analysis to support developing countries that Needless to say, efforts from several people were contemplating or recently embarking on a contributed to the success of the Conference. We process to price carbon, especially as it pertains would like to specifically extend our gratitude to to the design and application of carbon pricing CPLC’s Scientific Committee for their leadership in instruments. The most pressing topics included guiding and shaping this key initiative over a year, to getting a better understanding of the factors that our host TERI, for their unwavering support at the determine successful and effective implementation Conference, and to the World Bank and the entire in a developmental context; and challenges related Coalition in delivering a successful Conference. to public acceptability, competitiveness impacts, market liquidity, and others. It was in this context Angela Naneu Churie Kallhauge, Head of the Carbon Pricing that the first International Research Conference Leadership Coalition Secretariat and Senior Climate Change on Carbon Pricing was conceived; with the aim to Specialist, Carbon Markets and Innovation, World Bank bring together researchers and practitioners from Venkata Ramana Putti, Program Manager, around the world to share and provide insight and Carbon Markets and Innovation, World Bank evidence on these, and other unanswered questions on carbon pricing. 6 CPLC Research Conference Report FO R E WOR D F RO M T H E CO - CH AI R S O F T H E SC IE N T I F I C CO M M I T T E E When we agreed in early 2017 to chair the CPLC work with a Scientific Committee of the highest Research Conference, we knew from the outset caliber, with global representation and a wide variety that it was both an important and a timely initiative. of professional and academic backgrounds. Being Our own work on carbon pricing had shown us able to draw on the collective experience of this that knowledge gaps pose a central barrier to the Committee was an inspirational experience: taken successful introduction of carbon pricing. Wherever together, the number of years these Committee policy debates were dominated by sentiment rather members have worked on different aspects of carbon than facts, we saw how difficult it became to muster pricing exceeds the years since which humanity has the required political support. Where a political emitted greenhouse gases at industrial scale. decision had already been secured, uncertainties about policy design and envisaged impacts often In shaping the main parameters of the Conference, complicated or slowed down implementation. we agreed from the start that the Conference should not only strengthen the interface between research For all its conceptual simplicity, carbon pricing and practice, but should also identify and empower is a challenging instrument to operationalize in a new generation of researchers, and—as carbon practice. Creating a policy framework that delivers pricing itself gradually expands around the globe— transformational change while ensuring a sustainable help promote a more even geographic distribution transition is a complex undertaking that comes with of research efforts. great responsibility. Early experiences—especially from the European carbon market—underscored The high turnout of excellent abstracts was a that point. Fortunately, those same experiences promising indicator that the Conference would be a have also helped to deepen our knowledge base, success. In fact, the Conference itself far exceeded allowing the research community to advance its work our expectations. We are deeply grateful to our on carbon pricing with increasingly sophisticated fellow Scientific Committee members, the CPLC qualitative and quantitative research methods. Secretariat, our colleagues at TERI, and, of course, the researchers and participants themselves, for Where we have arguably made less progress their many contributions to this success. But we is in connecting the overlapping worlds of are mindful that the work does not stop here. research, decision making, and public opinion: the More active engagement between carbon pricing policymakers, whose decisions will determine the researchers and practitioners cannot be achieved further evolution of carbon pricing; the business through an isolated event: it calls for an ongoing leaders, whose corporate strategies rely on clear commitment. We look forward with anticipation to policy signals; and the broader public, whose lives the next chapters in this exciting process. and livelihoods are affected by carbon pricing. Acknowledgment of this critical task prompted Andrei Marcu, Managing Director, European Roundtable on calls early on to explore a research conference as a Climate and Sustainable Transition potential bridge between these communities. Michael Mehling, Deputy Director, Center for Energy and In our efforts to make this Conference happen, we Environmental Policy Research (CEEPR), Massachusetts were privileged to help establish and subsequently Institute of Technology (MIT) Introduction 7 BACKG RO UN D Over the past several years, there has been growing policies, combining carbon pricing instruments, momentum of carbon pricing approaches around expanding the scope of carbon pricing to more the world and an increase in the diversity of such heterogeneous sectors of the economy, and approaches. As countries gear up to meet their adjusting system designs over time to realize Nationally Determined Contributions (NDCs), as committed ambition levels. submitted to the Paris Agreement, carbon pricing To address these, and many other questions, plays a critical role in helping meet these goals. the Carbon Pricing Leadership Coalition (CPLC) Carbon pricing is a flexible and cost-efficient tool convened researchers, practitioners, and interested that provides a clear price signal to governments and stakeholders for the first International CPLC businesses to reduce high-emitting activities and Research Conference on Carbon Pricing from shift investment to more efficient, and lower-carbon February 14-15, 2019 in New Delhi, India. The two- alternatives. When designed right, carbon pricing day conference was hosted by The Energy Resources not only reduces greenhouse gas emissions, but Institute (TERI), following the World Sustainable helps drive investments in low-carbon solutions and Development Summit (WSDS), TERI’s annual gives businesses the predictability and incentives flagship event on sustainability with a specific focus they need to adopt low-carbon growth strategies. on actions in the developing world. Research has contributed to understanding how The Conference drew participation from close to design and deploy carbon pricing mechanisms to 175 delegates from all over the world, with and helped stakeholders understand carbon representation from scientists, governments, the pricing instruments, success factors for effective private sector, and civil society. implementation, ways to address market and competitive distortions, and, among other things, The key aims of the CPLC Research the role and alignment of companion policies. Conference were to: In addition, a growing body of experience and data Bring together researchers, practitioners, and • is accumulating from the operation and modeling policymakers within the carbon pricing space of different carbon pricing approaches, from which to take stock of the knowledge base and much can be learned. The application of carbon strengthen understanding of emerging pricing instruments has revealed new or persistent trends in carbon pricing; challenges around the following: increasing market stability and liquidity, improving climate Strengthen understanding of the evolving • risk management, building acceptability on carbon challenges to the application of carbon pricing by society, designing carbon pricing for the pricing initiatives; and developing country context, managing transitions Identify areas of possible collaboration • and impacts in relation to carbon-intensive and issues requiring further reflection sectors and communities, addressing overlapping and research. 8 CPLC Research Conference Report The Conference comprised several plenary sessions that focused on big-picture issues, and six parallel thematic tracks focusing on Learning from Past Experience, Carbon Pricing Design, Concepts and Methods, Political Economy, Decarbonizing the Economy, and Emerging Frontiers. CPLC’s international Scientific Committee comprising of high-level representatives from government, academia, and private sector, put out a call for papers on carbon pricing. After careful selection, papers were chosen for presentation at the Conference. A particular emphasis was placed on attracting young researchers and scholars from emerging economies. STRUCTURE OF THE REPORT SECTION Executive Summary including key messages from the entire ONE conference including the Opening and Closing Plenary Sessions SECTION Summary of Keynote Address and TWO Topical Plenary Sessions SECTION Abstracts from Research Papers and Presentations according THREE to the following themes: LEARNING FROM CARBON PRICING EXPERIENCE DESIGN CONCEPTS AND POLITICAL METHODS ECONOMY DECARBONIZING EMERGING THE ECONOMY FRONTIERS Introduction 9 If we are emitting CO2, its not that “ we are emitting CO2 but that we are emitting money.” -  Mahendra Singhi, Managing Director and Chief Executive Officer, Dalmia Cement (Bharat) Ltd. 10 CPLC Research Conference Report SECTION ONE E XEC UT I VE S UM M ARY To achieve the large-scale emission reductions (TCFD)3 brought together industry to make voluntary, required under the Paris Agreement, the consistent disclosure recommendations for use by international community needs to find ways to companies in providing information to investors, rapidly decarbonize the economy. Putting a price lenders, and insurance underwriters, about their on carbon pollution is one of the most effective and climate-related financial risks. The TCFD has been efficient strategies that governments, companies, instrumental in raising the profile of climate change and other actors can use to reduce carbon emissions among industry and encouraging private sector to and combat climate change. 96 countries mention assess, manage, and measure their climate risk and carbon pricing in their NDCs, indicating that they are opportunities. TCFD highlighted the importance planning or considering the use of climate markets of transparency in pricing risk and acknowledged and/or domestic carbon pricing to meet their NDC that while challenges exist with measuring and commitments.1 While developed countries have disclosing climate risks, mainstreaming climate into taken the lead to use carbon pricing as a way to annual financial filings would ultimately assist in the reduce their emissions, there has recently been a appropriate pricing of risks and allocation of capital growing interest from developing countries as well. in the global economy. Furthermore, private sector engagement has also In the last decade, there has been an increase in been robust, with nearly 1,400 companies worldwide the number of carbon pricing initiatives to include embedding an internal price into their business jurisdictions from emerging economies. As of strategies in 2017, up from 140 in 2014.2 The February 1, 2019, 57 carbon pricing initiatives Taskforce on Climate-Related Financial Disclosures have been implemented or are scheduled for World Bank; 2019. State and Trends of Carbon Pricing 2019. Washington, DC. Available at: https:/ 1 /openknowledge.worldbank.org/ handle/10986/13334 CDP, 2017. Putting a Price on Carbon, Integrating climate risk into business planning. CDP. Available at: https:/ 2 / b8f65cb373b1b7b15feb-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/reports/documents/000/002/738/original/ Putting-a-price-on-carbon-CDP-Report-2017.pdf?1507739326.%20%20%20%20CDP%202019,%20CDP%20India%20Annual%20 Report%202018;%20Available%20at%20https:/ /6fefcbb86e61af1b2fc4- Task Force on Climate-related Financial Disclosures, https:/ 3 /www.fsb-tcfd.org/ Section One 11 implementation. This consists of 28 ETSs, mostly achievement of additional policy priorities, especially located in subnational jurisdictions, and 29 carbon the Sustainable Development Goals (SDGs). taxes primarily implemented at the national level.4 When designed well, carbon pricing can generate In addition, a number of countries have policies that significant economic and social benefits. These implicitly put a price on carbon, for example through benefits include increasing ability of governments to fuel taxes and renewable energy certificates. While use public financing to invest in other development there has been a surge in the uptake of carbon priorities like health and education, stimulating pricing by governments and the private sector, growth in clean technologies and low-carbon sound research that investigates key empirical innovation, and improving air quality. questions remains as important as ever. Several challenges exist in furthering the implementation of these policies, and robust research and insights The CPLC Research Conference is an “ on critical issues can help advance the uptake and initiative that can facilitate exchange robust implementation of carbon pricing initiatives. of experiences from jurisdictions To help address some of these empirical questions across the globe and make research on carbon pricing, the CPLC Research Conference on carbon pricing available to provided key insights and perspectives on topics a broader audience. I hope the such as successful carbon pricing models that can be applied in various contexts and that can conference will serve as a gateway address both the persistent and new barriers to better communication between that limit their adoption, as well as the evolving academia, practitioners and policy needs of governments and the private sector as makers - we all need to join forces they undertake carbon pricing in various forms. to ensure an effective carbon pricing The discussions will help enhance the collective design. Solid evidence of effective understanding among researchers and practitioners carbon pricing will help give policy and drive informed policymaking, further facilitating the adoption and durability of these policies. What makers the courage to introduce follows are the main takeaways from the Conference. such measures!”  Susanne Åkerfeldt, Senior Adviser, - KEY MESSAGES Ministry of Finance, Sweden Carbon pricing is a necessary and efficient tool that can support countries as they meet their goals under the Paris Agreement and raise their ambition A complex concept such as carbon pricing is not on climate action. However, carbon pricing must easy to communicate. Identifying the best and not be considered in isolation, but as part of a most effective ways to simplify the concept and broader suite of policies. Policymakers must be clear communicate its benefits will be essential moving on the policy objectives they are trying to achieve— forward. Messaging is critical. Through positive environmental, fiscal, or others—and strive for a messaging—such as referring to a carbon pricing balanced approach when considering carbon pricing policy that returns revenues to targeted households and other relevant policies. Policymakers must as a carbon “cash back” program—the policy also consider how carbon pricing can assist in the Carbon Pricing Dashboard, https:/ 4 /carbonpricingdashboard.worldbank.org/map_data 12 CPLC Research Conference Report can be made more acceptable to stakeholders. difficult to decarbonize by undertaking a rigorous Providing a collaborative platform for researchers stakeholder engagement process will help ensure and practitioners to engage and share knowledge, the durability of the policy. such as the CPLC Research Conference, is a critical Developing data frameworks and processes, step towards furthering a healthy discourse and especially in developing countries, that ensure ensuring that policymakers are informed by the robust data collection and facilitate relevant latest research on this issue. analysis and research will be critical going forward. Political acceptability remains a key barrier to Sound research is dependent on the robustness of the wider uptake of ambitious carbon pricing models and availability of data. Despite significant policies. While economic theory clearly supports progress in recent years, computational and the efficiency and effectiveness of these policies, mathematical models still face shortcomings they have struggled with public acceptance. Political when trying to represent the complexities of the acceptability goes beyond economic theory to the real world, and a lack of consistent, reliable data behavioral sciences, and policymakers must take can limit the ability of researchers to undertake into account factors such as public perception of groundbreaking research on carbon pricing. For the costs and benefits of such policies, cultural and example, studies are often unable to quantify the social perspectives, and trust in policymakers. impacts of carbon pricing with great accuracy due to a lack of adequate and relevant data. Similarly, Climate champions, both from governments most research studies currently undertaken do not and private sector that are taking the lead in fully or adequately quantify the benefits of avoided implementing carbon pricing play a vital role climate damages. in inspiring others to take action and increase ambition in this context. Successful examples of RESEARCH NEEDS how to design and implement carbon pricing policies can help get additional countries to adopt these A clear need exists to strengthen the knowledge instruments. Countries that are in the early stages base on carbon pricing and provide actors from of considering carbon pricing can point to these diverse backgrounds—businesses, policymakers, and successful case studies, to get greater buy-in and civil society—with robust and objective information acceptability from their citizens. For example, the and data to support decision-making processes. The experience with the Swedish carbon tax provides a CPLC Research Conference identified several areas good example on how to secure public acceptance. for further reflection and research. These include: Clear messages on the impact that carbon pricing Design and implementation options for • has had on emissions, and examples of how carbon pricing as part of a broader portfolio carbon pricing works in various national of policies. Studies can help shed light on the circumstances, are needed. factors that policymakers should consider when Building in support for the policy transition, implementing carbon pricing as part of a broader especially for those who will be most affected, suite of policies, often with multiple, overlapping can ensure the durability and acceptability of the or conflicting objectives. A better understanding carbon pricing policy. Addressing concerns upfront of the role that carbon pricing plays in such a such as on the implications for the competitiveness policy package, and what implications this can of energy-intensive trade exposed industries, have under different national/sub-national distributional impacts of carbon pricing, and others, circumstances as well as various policy scenarios will be critical. Getting buy-in from sectors that are and timeframes, will help policymakers design policies that meet the stated objectives and raise climate ambition. Section One 13 Contextualizing carbon pricing for developing •  nderstanding synergies and co-benefits, •U country implementation. While significant and potential unintended negative impacts, research has been conducted on the design, of undertaking both climate change and air implementation, and impact of emissions pollution policies. Further research is needed trading schemes (ETSs) and carbon taxes in the that provides insight into policy packages that developed world, very little research exists on achieve the dual goals of climate change and its application in a developing country context. other social or environmental benefits in varying Research is needed to better understand scenarios. This could include benefits such as air the role carbon pricing policies can play in pollution mitigation achieved under scenarios developing country economies where other that reflect economy-wide or sector-specific pressing sustainable development challenges deployment, a developing country context exist and climate mitigation may not be of in which climate change mitigation is not a primary importance. For example, different development priority, or transitional designs may be needed for countries with solutions vs. final solutions as countries low emissions per capita, countries where a implement their NDCs. significant proportion of emissions originates Innovative ways to use revenues generated • from the agricultural sector (e.g. Ethiopia), or from carbon pricing to drive a low-carbon countries that are facing immediate impacts of transition, increase political acceptability, climate change (e.g. Bangladesh). Developing and balance efficiency and equity concerns. countries vary widely in terms of institutional Importantly, the political acceptability of capacities, stages of implementation or revenue use is dynamic. For example, modest consideration of carbon/climate policies, as well carbon prices and the limited amounts of as national priorities and circumstances. China revenue they raise may still allow earmarking and India are top emitters and recognized as the latter for green expenditures, whereas major economies, and the responsibilities that allocation of larger revenue streams from a more arise from this ranking in terms of addressing robust carbon price to a particular industry or climate mitigation are vastly different when use may meet with public resistance. Related compared to the development priorities of small to revenue use is the question of how carbon island developing states and least-developed pricing may support the low-carbon transition, countries. It will be important to have a robust including a just transition of the affected understanding of how carbon pricing policies workforce, and investments in areas that are and measures may be crafted and the impacts traditionally considered difficult to fund by the such instruments may have on developing private sector, such as infrastructure and early- economies; and how to build capacity, educate stage innovation. and sensitize policymakers, the private sector, and the public on carbon pricing in such economies. Also critical is country-specific and targeted research that recognizes the differing development priorities and economic stages of countries, and provides insights into the design and application of carbon pricing in these varying contexts. 14 CPLC Research Conference Report Use of carbon pricing to further incentivize • Modeling studies indicate that well-designed • the adoption of innovative, low-carbon carbon pricing policies can deliver significant technologies by country and by sector, cost benefits by designing them such that they including successful examples. A key issue include certain elements, such as broad or for policymakers will be to consider the economy-wide coverage, promote international evolutionary nature of technological shifts and cooperation, and allow use of offsets. Even how a price on carbon can help accelerate this though policymakers are aware that carbon technological transformation. For example, pricing is a more cost-effective tool, the political the Indian steel sector is forecast to triple in will to enact it is still lacking, suggesting that capacity by 2030, but using current carbon- the research is not persuasive enough to intensive manufacturing technologies will convince policymakers. A better understanding likely result in considerable carbon lock-in. of the factors that contribute to this situation, Policymakers urgently need to design policies including ways to address it, will help that incentivize companies now to avoid this accelerate the adoption of this cost-efficient lock-in and adopt lower-carbon technologies, policy option. even if those are currently still more expensive. Strategies that countries may adopt for • Understanding how a carbon price can implementation of their NDCs through the serve as a tool to incentivize this use of market mechanisms. It is important transformation will be critical. to develop an understanding of the market Benefits and cost savings from linking carbon • position a country might take—long or short— markets at the regional or international and the impact these may have on achieving levels, for instance through use of cooperative targets, on global ambition, and on ensuring the approaches under Article 6 of the Paris robustness, liquidity, and growth of the carbon Agreement, and best practices related to market itself. the design and operation of such linkages. The need for governance frameworks and • Exploring linking options for raised ambition processes that promote policy integrity and help and accelerated achievement of a net-zero secure a sustained consensus on carbon pricing carbon world will be increasingly important policy, including ways to build such frameworks. going forward. Examples such as the carbon market links between California and Quebec Research on understanding the benefits of • or between the European Union (EU) and carbon pricing—such as the technological Switzerland, and lessons learned from their innovation it can initiate—not only in the implementation, can help inform policymakers industries that pay the carbon price, but across as they explore this promising option. supply chains, and the ripple effects it may have. Section One 15 There is widespread agreement among a diverse set “ of policy analysts that in many countries economy- wide carbon-pricing systems will be essential elements of any policies that can achieve meaningful reductions of CO2 emissions cost-effectively. For that reason, this global conference is timely and of great importance.”  Robert Stavins, A.J. Meyer Professor of Energy & Economic - Development, John F. Kennedy School of Government, Harvard University 16 CPLC Research Conference Report SECTION TWO This section presents the summaries of the keynotes address and the topical plenary sessions of the Conference. Revenue neutral firms: reducing costs for firms • C A R B ON TA X exposed to price effects, for example support for emission-intensive sectors or trade exposed D ES IGN , T H E U SE firms (e.g. grandfathering, free tax allowances) OF R E V E N U E S or providing support for firm activities (e.g. energy efficiency, new technology, process AN D P U B L IC improvements); ACC E P TA B IL IT Y Allocations for green purposes such as • supporting research and development, or investing in green infrastructure; and If a carbon tax is considered from a pure public finance perspective, the design of the instrument Support for developing countries to help finance • can have significant repercussions on the volume the transition to a low-carbon economy. of revenue generated, which can impact its use and ultimately, distributional impacts. Several possible A mix of revenue use options can be used to achieve uses of carbon tax revenue exist. These include: various policy goals and objectives. Equity, efficiency, administrative burdens, environmental impact and General government budget: raising additional • political acceptability considerations must be taken revenue for government policy priorities into account, especially when considering the use (education, health etc.); of revenues. Several pros and cons exist for the options listed below (Table 1). Revenue neutral households: reducing burdens • for households/consumers through reducing income taxes, sales taxes or direct returns of revenue (including lump-sum transfers); Section Two 17 Table 1: Carbon Tax Revenue Use: Pros and Cons All uses can be assessed relative to efficiency, equity, administrative burdens and environmental impact OPTION PROS CONS General government budget Relatively simple to implement • Lack of transparency in allocation. • and manage. Potentially limits acceptability if low • Provide potential allocation to “best-use”. • trust in politicians. Revenue neutral-households Can be used to reduce distortions in • Potentially limited public awareness and • other tax systems. understanding, unless direct “carbon transfers”. Ability to support lower-income/ • vulnerable households. May divert revenue from better uses. • Revenue neutral-firms Simple and easy to manage. • Less equitable than other • revenue-recycling options. Support can be offered to emission- • Might slow adjustment. intensive sectors and trade exposed firms. May overcome oppositions from industry. Allocation for ‘green’ purposes Demonstrates commitment to • Limited flexibility due to need for • ‘green’ initiatives. long term allocation. Additional support for investment in • Possible mistrust of • infrastructure/R&D programs with government ‘schemes’. broad benefits. Support for developing countries Demonstrate commitment to support • Potential public acceptability of use of • objectives of Paris Agreement and SDGs. revenues outside of the country. Well established system for allocation • and management. All options should be coupled with clear communication and transparency of revenue-use. Important that uses are relevant for a broad range of constituencies. Must observe country specific regulations/laws e.g. ear-marking. Source: Stern, Nicholas. “Carbon tax design, the use of revenues and public acceptability;” LSE. Presented at CPLC Carbon Pricing Research Conference, New Delhi, India, February 2019. To ensure acceptability of any of the above options, applied to achieve the targets established in the it should be coupled with clear communication and Paris Agreement, assuming a supportive policy transparency of revenue use. Political acceptability environment is in place. The proposed carbon of revenue uses plays a crucial role for the rapid price must be long-term, credible, and predictable uptake of carbon pricing implementation. Along to send clear signals to the market. On tax base, the political acceptability continuum, revenue use policymakers should be clear on where to levy tax, for households would rank high in terms of political whom to include, and on coverage of greenhouse acceptability, while revenue use for general public gas (GHG) emissions. The decision on whether a budget or support for developing countries might be carbon tax is applied upstream or downstream can a harder sell politically. determine whether it will be administratively easy or difficult to capture the benefits, or if a clear signal When designing a carbon tax, policymakers must be is provided to consumers. Efficiency is particularly clear about its policy objective, and consider both important in the structure of pricing, incentives, and the tax rate and the tax base to ensure acceptability revenue-raising. and efficiency of the tax. For the tax rate, the High-Level Commission on Carbon Pricing found Policymakers can facilitate a “Zero Carbon that a carbon price of at least US$40–80/tCO2 by Transition” by providing support such as learning, 2020 and US$50–100/tCO2 by 2030 should be local skills/innovations and investments, relocation 18 CPLC Research Conference Report of public sector services, and social protection Parties were unable to come to agreement, and the measures. Carbon pricing revenues should play a issue remains unresolved. key role in supporting the transition. Additionally, As negotiators prepare for COP 25 in 2019, Article 6 policymakers must recognize that managing “just will be of prominent importance as Parties will need transition” is different from managing zero-carbon to iron out their differences and reach consensus to transition. For a “just transition” one needs to ensure that international markets under the Paris consider a shift to services, labor-saving Agreement become a reality. technologies, and other factors. Coming out of Katowice, while there are several The urgency of climate action needed is technical issues that negotiators need to tackle, unquestioned. The next two decades will be critical a key issue that parties will need to address is the in determining whether the global community is level of centralization in governance, and the role able to garner the political will needed to address of Parties and that of the Conference of the Parties climate change. Urgent and swift action is required, serving as the meeting of the Parties to the Paris especially to ensure that the levels and coverage of Agreement (CMA). carbon pricing are expanded. Public acceptability and initial success stories will be key to getting This may be interpreted as a debate between the higher uptake of these instruments. International primacy of the NDC as a building block of the Paris agreements play a key role in providing political Agreement, versus the real or perceived needs direction to countries for effective carbon price of Article 6 in providing comfort to Parties to the practices. The twenty-sixth Conference of the Paris Agreement with respect to the integrity of the Parties (COP) in 2020 will be a major platform for market—i.e.—should Article 6 accommodate the all countries to demonstrate climate ambition if implementation of all NDCs, independent of their the “well-below 2°C” target of the Paris Agreement form (i.e. primacy of the NDC) or should negotiators is to be achieved. construct Article 6 in a manner that ensures robust market and environmental integrity and then parties adapt their NDCs so that they are able to CONVE R SAT ION O N participate in it. This is a political question that will ARTICL E 6 : L E SSO N S need to be addressed. FRO M K ATOWIC E Even though negotiators were unable to come to a consensus on Article 6, the Katowice Rulebook agreed to a specific provision in Article 13, para Article 6 of the Paris Agreement provides the 77d, which lays down elements of basic accounting. legal framework that allows the international use Independent of the Katowice results, rather than of market-based mechanisms to address climate wait, countries and the private sector can begin change. It lays the groundwork for countries to be engaging by demonstrating through pilots what a able to cooperate with each other to meet their carbon transaction could look like, especially under NDCs, as well as to facilitate raising the ambition of Article 6.2, and, thus, they can provide some real- their NDCs. life experiences. At the most recent COP in Katowice, Parties agreed The Asian Development Bank’s Article 6 Support to the Katowice Rulebook, essentially a package Facility is one such initiative through which capacity which operationalizes the Paris Agreement. building and technical support are provided to its However, Article 6 remained the one area where member countries with the aim to identify, develop, Section Two 19 and test mitigation actions under the framework Another key issue is participation by private sector of Article 6. Drawing on lessons learned from in carbon markets and the importance of ensuring the pilot activities, the Facility aims to inform the environmental integrity. Environmental integrity international negotiations, and at the same time will translate not only to ensuring long-term public boosts the readiness of its member countries for confidence in the system for robust investment but participation in post-2020 markets. Countries will will also assist in ratcheting up ambition. “Branding” need to begin strategizing on: how they plan to of the units will be extremely important for implement their NDCs, the impact on their positions sellers to ensure that there is enough demand for a in terms of length, and what areas can be open to quality product. international cooperation under Article 6. A key challenge that inhibits agreement is the There are other examples of jurisdictions that are interconnected nature of issues in Article 6. moving ahead where independent standards are Unraveling of one can have repercussions across all being used to generate investments. In California, other related issues and result in a “no consensus” for instance, three different offset standards are scenario. Several other technical issues will need used: American Carbon Registry, Voluntary Carbon to be addressed. These include ways to ensure Standard, and Climate Action Reserve. environmental integrity and avoidance of double counting, accounting for single-year targets, In South America, Colombia is an interesting example corresponding adjustments for emission reductions as a country which has adopted a carbon tax, but achieved inside and outside an NDC, ability for allows offsetting of tax payments by using emission Article 6 to be crafted in a manner that allow it reduction units through Verra or Colombian Clean to engage with other international systems like Development Mechanism (CDM) credits. It provides Carbon Offsetting and Reduction Scheme for an example of blending between an offset and International Aviation (CORSIA), metrics to be used a tax in a developing country. The Joint Crediting for internationally transferred mitigation outcomes Mechanism (JCM) is also another example of how (ITMOs), and the transition of CDM. Article 6.2 could be operationalized for mobilizing finances to fund low-carbon technologies. An international carbon market and a carbon price are key tools in reducing emissions in a Several countries are showing an increasing interest cost-effective and efficient manner and in helping in piloting some of these transactions and not countries achieve their long-term goals under the necessarily waiting for the negotiators to agree to Paris Agreement. an outcome. However, one must be clear that while countries can begin to move ahead on piloting some approaches, agreement on Article 6 is essential for many smaller countries to get access to international CAR BO N P R I CI N G I N carbon markets. Research on modeling scenarios P RACT I CE on various options on the outcomes of Article 6 would also be extremely helpful for carbon market practitioners and policymakers. Canada’s Pan-Canadian Framework lays the foundation to address climate change, grow the To advance international cooperation, a coalition of economy, and build climate resilience. Adopted on governments may be formed in which parties set a December 9, 2016, it consists of four main pillars, high bar on environmental integrity and ambition, of which pricing carbon pollution is one. The other and spearhead the use of carbon markets under the three are mobilizing complementary mitigation Paris Agreement. action across all sectors, addressing adaptation and 20 CPLC Research Conference Report climate resilience, and focusing on clean technology, revenues will be utilized for a cleaner economy, for innovation, and jobs. The Framework calls for the example to implement better technologies, cleaner establishment of a price on carbon, as part of a fuels, and better public transportation systems. larger policy to achieve emission reductions across The tax level was raised gradually and in a stepwise all economic sectors. manner, giving households and businesses time to adapt, resulting in improved acceptability of Canada has also established a Pan-Canadian tax increases. A key impact of the carbon tax has Approach to Carbon Pollution, which gave provinces been the reduced use of heating oil in buildings, as and territories the flexibility to implement their own households have replaced it with increased use of carbon pollution pricing system that meets certain biomass. This has been a key success factor of the criteria as set by the federal government (the policy, where feasible options existed that enabled ‘benchmark’). It also allows the federal government households to make the switch from high-carbon to implement a carbon pollution pricing system in heating oil to lower carbon biomass fuels. those provinces or territories that do not meet the benchmark, or those that request it do so. Provinces Colombia has been an early mover in mainstreaming and territories must have carbon pollution pricing in climate change impacts in their decision-making place that meet the benchmark elements as outlined process. In Colombia, about 70% of their electricity by the government. Under this, jurisdictions can is from clean hydroelectric power. Due to the impact implement either an explicit pricing system or a cap- climate change might have on the hydrological and-trade system. resources, Colombia has made climate change a central issue in its forecasting for the electricity For those jurisdictions that do not meet the sector, not only in terms of impact that climate benchmark, a federal backstop system will be applied change may have (i.e. in terms of reduced supply of which has two components: a regulatory charge on electricity due to lower hydro resources) but also fossil fuels, and a regulatory trading system called in terms of how to ensure that Colombia is able the Output-Based Pricing System (OBPS) that to meet its NDC due to the shift away from clean applies to power generation and certain industrial hydro that may result due to climate change. facilities. In the provinces in which the backstop applies, the OBPS took effect on January 1, 2019, The World Bank Group has been a frontrunner in and the fuel charge took effect in April 2019. After facilitating and advocating for the uptake for carbon an evaluation of the carbon pricing systems that pricing among its client countries. Through its various have been submitted by provinces and territories, programs, its focus has been on capacity building, the current map of carbon pricing in Canada is fairly communication, and conducting country specific diverse (Figure 1). research. Several initiatives exist within the World Bank Group that facilitate meeting these goals. For Sweden is one of the first countries to put a price on example, CPLC brings together governments, private carbon, implementing a price of CPLC €24 per ton of sector, and civil society to advocate for carbon CO2 emitted in 1991. Today, the carbon price is close pricing; and the Carbon Partnership Facility and the to €114 per ton of CO2 . The carbon tax remains a Transformative Carbon Asset Facility are facilities cornerstone of Swedish climate policy and provides to pilot carbon markets under the Paris Agreement. incentives to reduce energy consumption, improve Partnership for Market Readiness (PMR) is a flagship energy efficiency, and increase the use of renewable initiative of the World Bank that provides market- energy alternatives. The successful implementation readiness programs at country level, undertakes of the carbon tax in Sweden was in part due to buy- upstream policy analysis, provides technical/ in from the public and making the case that the analytical support, provides training and capacity Section Two 21 Figure 1: Carbon Pollution Pricing in Canada Source: Mercer, Jackie. “Carbon Pollution Pricing in Canada;” Environment and Climate Change Canada. Presented at CPLC Carbon Pricing Research Conference, New Delhi, India, February 2019. building, and hosts convening and knowledge- In the Americas (North America and Latin America), sharing sessions. Initiatives like PMR have been more than 20 countries have considered the use instrumental in addressing challenges specific to of carbon pricing in their NDC and a comparative country circumstances, and are helping countries analysis of the carbon tax in Latin American adopt carbon pricing measures and policies. Going countries shows a variety of approaches are being forward, one of the key focus areas for the PMR used (Table 2). will be to provide technical and advisory support for developing countries, specifically in relation to carbon markets and how such support might be applied in their national context. 22 CPLC Research Conference Report Table 2: Carbon Tax in Latin American Countries Key Features Argentina Colombia Chile Mexico Total Emissions 368 169 109 665 (mm ton CO2) Paris/NDC Unconditional: 15% Unconditional: 20% Unconditional: 30% Unconditional: 22% Commitments 2030 Conditional: 30% Conditional: 30% Conditional: 45% Conditional: 36% BAU Forcasted emissions GDP Intensity BAU Type of Tax Fuel Tax, Carbon content Fuel Tax, Carbon content Emission Tax Fuel Tax, Carbon content Law 23.966 en su Part III Art. 221 Law 1819, Art. 8 Law 20.780 Special Tax Law 2013, December 2016 Amendment 20.899 Article 2, Part I Coverage (% GHG) 40% 16% 42% 30% Year of Implementation 2018 2017 2017 2014 Tax Base Purchase/sale of fossil Purchase/sale of Emissions from boilers/ Purchase/sale of fossil fuels: All sectors except fossil fuels; All fuels turbines (>50MW); all fuels; All fuels except gas biofuels except carbon sectors and fuels, except biomass Tax Rate (US$/Ton 1-10 (2019-2028) 5 5 1-4 CO2e) Destiny of Tax General Budget Environmental Fund and General Budget General Budget and offset Collected tax rebates Compliance & Finance Ministry MRV of emissions: MRV: Environment MRV of fuels, collection, Surveillance Environment and social Ministry Tax collection, audit and sanctions: Development Ministry audits and sanctions: Internal Revenue Service and Internal Revenue Internal Revenue Service Service Other Price Carbon Under consideration Tax and offset Under consideration ETS internal and Instruments Linking with WCI Source: Lendo, Enrique. “Carbon Tax in Latin America;” EDGE LAC. Presented at CPLC Carbon Pricing Research Conference, New Delhi, India, February 2019. An unprecedented regional effort was made by the Several challenges exist as countries in the Latin governments of Canada, Chile, Colombia, Costa America region have adopted carbon pricing— Rica, Mexico, and Sonora (subnational government political transitions and lack of policy certainty from Mexico), as well as United States (US) states of being a key one. Policy uncertainty increases the California and Washington, and Canadian provinces risk to invest in low-carbon technologies from the including Alberta, British Columbia, Nova Scotia, private sector perspective. Lack of capacity and fear and Quebec, when they announced the creation of of losing competitiveness by industries, are other the Declaration on Carbon Pricing in the Americas. challenges that the countries have had to face. The Declaration created a cooperation platform While India has no explicit price on carbon, it in the region exclusively on carbon pricing, and has adopted other measures that incentivize the members demonstrated a joint recognition that transition toward a greener economy: Perform, climate change is a global threat and reaffirmed Achieve, and Trade (PAT) Scheme, market-based their support for the Paris Agreement as a necessary instruments, and Renewable Purchase Obligations. step toward fighting it. They also recognized their Currently, India is considering piloting a market- commitment to implement carbon pollution pricing based mechanism for the micro, small and medium as a central economic and environmental policy enterprise (MSME) sector which includes 180 instrument for ambitious climate action. clusters within 18 energy-intensive industries. Section Two 23 Table 3: Examples of Internal Carbon Pricing adopted by the Indian Private Sector Internal Carbon Pricing Examples Mahindra Infosys Arvind Dalmia Bharat Essar Approach Shadow-Explicit Inbuilt cost of Shadow price Explicit price Shadow price Price Hybrid to help initiatives to be to better inform involving cash to better inform decision making and understaken for decision making flows to create a decision making & boost investments carbon abatement dedicated fund drive innovation. Motivation Accelerate Take leadership Reduce energy Reduce emissions to Manage climate- investment in low- position on climate consummption lessen exposure to related risks and carbon alternatives action and become as hedge against clean environment drive technological and reduce exposure carbon neutral. future energy cost/ tax or levy & create innovation. to environmental instability. revenue stream taxes and other to fund further regulations. efficiency and abatement measures Internal Carbon 10 10.5 Mark-up of 5-25% 11 15 Price (in US$) on its electricity tariff across operations Emission Sources Scope 1 and 2: Scope 2: Electricity Scope 1 and Scope 1: Fuel Scope 1 & 2: Fuel Fuel & Electricity consumption at 2: Electricity consumption for consumption for consumption for offices & data consumption at operations operations assembly centers facilities Goal served by Reducing Emissions Being Carbon Achieving sector Building a 4-fold Reducing the risks Carbon Pricing Intensity by 25% Neutral across key leading benchmarks increase in the of future regulations by 2019. operations. on energy intensity renewable energy by driving business globally by 2020 component across innovation. the overall fuel mix by 2030. Source: Adhia, Vivek. “Carbon Pricing in Action: Learnings from India;” WRI-India. Presented at CPLC Carbon Pricing Research Conference, New Delhi, India, February 2019. These sectors, currently not covered under the Indian businesses have been proactive in engaging PAT Scheme, have significant potential to reduce on climate, especially adopting internal carbon emissions as well as overall energy consumption. prices. WRI India conducted a survey which found The Government of India is also setting up a national that a key driver for adopting carbon pricing is meta-registry, that PMR is assisting with, which to manage long-term risk exposure to climate will serve the dual purposes of data management change, and there are clear linkages between as well as transaction registry. Such a registry will carbon pricing and eventually taking-up ambitious establish systems and processes to collect, organize, emission reduction targets, thus enhancing business report and analyze data from markets, facilitate competitiveness and resilience. A range of carbon linking among existing markets and an international pricing approaches are being adopted by the Indian market-based mechanism, and inform policymaking. private sector, with coverage of mostly Scope 1 and 2 emissions (Table 3). 24 CPLC Research Conference Report Scientists and policymakers must work together to C A R B O N P R IC IN G understand the full range of impacts—both positive and negative—that these policies might have. A ND A IR Q UA L IT Y Designing policies that take the full picture into consideration can be fairly complex. For instance, a modeling study5 found that by undertaking Climate policies, such as carbon pricing, can deliver global decarbonization of about 80% reduction in substantial air quality co-benefits in addition to CO2 in 2050, the surface ozone pollution reduces climate benefits as fossil fuel combustion is a significantly, and in this case could potentially common source for both problems. save about 1500 lives every year in Mexico City Well-designed policies that take into account both in addition to lives saved from reducing other air the synergies and the tradeoffs between climate pollutants. In a different study,6 researchers found and air quality policy, can deliver substantial different results: if China were to reduce its SOx, benefits. This is especially true as climate targets NOx and CO2 emissions as per its 12th Five-Year Plan, become more stringent over time, and in some the study found that, in addition to having mostly scenarios health benefits alone can exceed the cost positive impacts, this could have resulted in up to of meeting the Paris Agreement goals. Some recent 10% increase in the monthly mean concentrations positive examples of policies that are taking both in surface ozone in some highly polluted regions climate and air quality into account include Chile’s in 2015. This is largely due to the background green tax on electricity generation, California’s 2017 emissions in the ambient environment, where high legislative packages to address climate change and levels of NOx emissions occur and where VOC and air pollution, and the EU’s green mobility package. CO emissions from transport and industry are not The latter highlights interdependencies not only addressed. Other research looking at health and air between climate and air pollution, but also, safety. pollution co-benefits of climate action, found that health co-benefits associated with achieving the At the governance level climate change policies Paris Agreement targets would outweigh mitigation require international cooperation, and the impact costs with a ratio ranging between 1.4 and 2.45.7 of the policy tends to be measurable over a longer- term and felt globally. On the other hand, policies Better policy coordination and consistency in the tackling air pollution have a more short-term and short-, medium-, and long-term across all levels of visible impact at the local level. These short-term governance based on the best available science, attributes can help contribute to social acceptability are needed. Doing so will enable businesses to of carbon pricing. explore opportunities in a stable and predictable regulatory environment, manage risk with a long- term perspective, and avoid lock-in of investments and high cost. Barker, T., A. Anger, O. Dessens, H. Pollitt, H. Rogers, S. Scrieciu, R. Jones, J. Pyle (2010) Integrated modelling of climate control and air 5 pollution: Methodology and results from one-way coupling of an energy–environment-economy (E3MG) and atmospheric chemistry model (p-TOMCAT) in decarbonising scenarios for Mexico to 2050. Environ.Sci.Policy, vol. 13, no 8, pp. 661-670. Anger, A., O. Dessens, F. Xi, T. Barker, R. Wu (2016) China’s air pollution reductions efforts increase ozone levels, AMBIO, March 2016, 6 Volume 45, Issue 2, pp 254-265. Markandya A., Sampedro J., Smith SJ., Van Dingenen R., Pizarro-Irizar C., Arto I., González-Eguino M. 2018. Health co-benefits from 7 air pollution and mitigation costs of the Paris Agreement: a modelling study. The Lancet Planetary Health. DOI (10.1016/S2542- 5196(18)30029-9). Section Two 25 There is an increasing trend to address both policy • Dialogue and cooperation: encourage a areas simultaneously, with different and new actors learning mindset by enabling conversations taking action on both priorities. This has been and engagement across sectors, countries, seen especially in cities where officials are deeply stakeholders, and experiences. engaged in design and implementation of policies • Research and analysis: spearhead research in the that address both climate and air quality. To be able synergies and linkages between climate and air to respond to the urgent call for climate action, quality policies to maximize their joint benefits. greater cooperation and coordination is needed in several areas: While there is a need for a coordinated analysis of the co-impacts of climate and air quality policies, it is • Communication and social acceptance: develop essential that transition solutions and final solutions narratives that acknowledge the linkages are taken into consideration to ensure that policies between climate and air quality policies. The in place do not lock in investments and hinder long- Guide to Communicating Carbon Pricing8 is a term solutions. Similarly, tailored messaging of these valuable resource in this context. policies for a targeted audience is essential. For • Vertical alignment: align air quality and climate example, low-income countries have no perceived issues across all (such as national, local, regional, or immediate benefit from climate policies contrary and global) governance levels to leverage to related air pollution reductions where benefits synergies in policymaking. are visible and immediately captured. An inclusive approach to climate and air quality actions can Economic and regulatory measures—define and •  deliver substantial monetary and health benefits, design tools that simultaneously address climate can help drive social acceptance of carbon pricing and air quality. and consumption decisions, and can promote a • Sectorial coordination: have a broad, economy- more stable regulatory environment. wide perspective and an understanding of how a single policy may impact another policy, and the impacts it may have across various sectors, and, therefore, promote coordination across different policy areas. “Partnership for Market Readiness; Carbon Pricing Leadership Coalition. 2018. Guide to Communicating Carbon Pricing. World Bank, 8 Washington, DC. https:/ /openknowledge.worldbank.org/handle/10986/30921 26 CPLC Research Conference Report Section Two 27 …To broaden and deepen carbon “ pricing instruments around the world, it is essential to make sure that sciences supports policy decisions. The CPLC Research Conference on Carbon Pricing, first in its kind, will bring innovative solutions to address the challenges faced by policy makers in the transition to a low carbon economy.”  Enrique Lendo, Former Co-Chair, CPLC - Steering Committee 28 CPLC Research Conference Report SECTION THREE This section is a compilation of the abstracts of the research papers and the presentations made at the conference. T H E M E 1 : L E AR N I N G F RO M E XP E R IEN CE RESEARCH PAPERS: ABSTRACTS Has Pricing Carbon Reduced Aggregate prices, non-pricing drivers of energy and carbon Emissions?: Evidence from 25 OECD Countries intensity, and various fixed effects, we find that Ryan Rafaty9* and Geoffroy Dolphin10 the relationship between changes in carbon prices and changes in per capita CO2 emissions has been Assessments of the effects of carbon prices on negligible in approximately 84% of the countries aggregate CO2 emissions have been scarce. This analyzed. Among the four countries—all in Europe— is attributable to challenges presented by the lack wherein carbon price increases have been linearly of standardized carbon price data accounting for related to emission reductions, the ostensible short- heterogeneous coverage cross-nationally, as well term effects of a US$10/tCO2 price increase have as econometric difficulties in isolating the (causal) varied within an order of magnitude. When assuming effect of said prices on emissions. Using a novel non-linear relations, however, carbon pricing has dataset of emissions weighted, economy-wide been effective in only two countries: a 10% carbon carbon prices in 25 OECD countries from 1990 to price increase has been robustly associated with 2012, we employ a dynamic macro-panel model reductions of per capita CO2 emissions of 1.35% in to estimate the cross-nationally heterogeneous Sweden and 0.067% in Finland. While our findings relationships between carbon prices and per capita should be cautiously interpreted as correlational and CO2 emissions. We take a conservative perspective, not necessarily causal, they nevertheless strongly approaching the problem from a correlational rather suggest that the “carbon pricing performance gap” than causal lens. Controlling for average energy is even larger than typically assumed. 9 Institute for New Economic Thinking at the Oxford Martin School, University of Oxford Judge Business School, University of Cambridge 10  In the Research Papers section, the names of the presenters have been highlighted to indicate that they presented at the Conference. * In some cases, these were not the author(s) of the paper, and it has been indicated accordingly. Section Three: Learning from Experience 29 The Use of Revenues from Carbon Pricing11 Carbon Tax in the Building Sector: A Comparison Melanie Marten and Kurt Van Dender12 of European Countries Luisa Dressler Eoin Ó Broin,13 Jens Ewald,14 Franck Nadaud,15 Érika Mata,16 Magnus Hennlock,17 Louis-Gaëtan The paper collects comprehensive and detailed Giraudet,18 Thomas Sterner19 data on what 40 OECD and G20 economies do with revenues from carbon taxes, emissions trading Across the EU, substantial carbon taxes outside of systems, and excise taxes on energy use. It notes sectors covered by the EU Emissions Trading Scheme that constraints on revenue use differ between (ETS) have been applied in Sweden. This raises carbon taxes, emissions trading systems, and excise the question as to where the EU might currently taxes. Constraints can take the form of political be with respect to greenhouse gas emissions had commitments or legal earmarks. Constraints are other EU countries followed the Swedish example. less common for excise taxes, which also raise the We simulate how a high carbon tax would have most revenue. Carbon tax revenues are relatively affected demand in the residential sectors in France, often associated with environmental tax reforms, Germany, Italy, Spain, and the United Kingdom. We involving reductions in personal or corporate income utilize the residential sectors’ price elasticity of taxes. Revenues from emissions trading systems demand for energy and use it to estimate the fall in are frequently directed towards green spending. energy demand that would have accrued had carbon The discussion of these results suggests that these taxes at the Swedish level been in place in these observations are relevant to the political economy five countries. Our conservative estimates indicate of ambitious carbon pricing schemes (which are reductions in demand for fossil fuels of a minimum estimated to generate revenue worth 2% to 5% or of 10–20%. This means that at least 60 MtCO2eq more of country’s GDP), in the sense that it casts yearly greenhouse gas reductions could have been doubt on the view—held among some stakeholders achieved only in the five countries of focus if such —that carbon pricing will meet with stronger public carbon taxes would have been implemented at the support if revenues are used for green spending. time of the signing of the Kyoto Protocol in 1997. Marten, M. and K. Van Dender (forthcoming 2019), “The use of revenues from carbon pricing”, OECD Taxation Working Papers, 11  OECD Publishing, Paris. OECD’s Centre for Tax Policy and Administration, 2, rue André Pascal, 75775 PARIS CEDEX 16, France. Email: Kurt.VanDender@oecd. 12  org. Views and opinions expressed in this paper are the authors’ and not necessarily those of the OECD. Centre International de Recherche sur l’Environnement et le Développement (CIRED), Paris, France, EnvEcon, Dublin, Ireland 13  Environmental Economics Unit, Department of Economics, University of Gothenburg, Sweden 14  Centre International de Recherche sur l’Environnement et le Développement (CIRED), Paris, France 15  IVL Swedish Environmental Research Institute, Gothenburg, Sweden 16  IVL Swedish Environmental Research Institute, Gothenburg, Sweden 17  Centre International de Recherche sur l’Environnement et le Développement (CIRED), Paris, France 18  Environmental Economics Unit, Department of Economics, University of Gothenburg, Sweden 19  30 CPLC Research Conference Report PRESENTATIONS Emissions Trading around the World: In North America, California and Quebec represent A Status Update mature systems linked since 2013, and developed William Acworth, International Carbon Action under the Western Climate Initiative (WCI). The Partnership (ICAP) Regional Greenhouse Gas Initiative (RGGI), the first mandatory market-based program in the US, There has been significant momentum building has been highly effective in reducing emissions and around emissions trading systems (ETSs) worldwide, aims to reduce emissions by a further 30% between with 20 ETSs operating across 27 jurisdictions 2021 and 2030. RGGI states are also exploring currently (regulating emissions from more than 7 options to introduce a market-based mechanism billion tons CO2). Another six jurisdictions are putting in the transportation sector, which may result in in place their systems that could be operating in a future expansion of RGGI’s coverage. Oregon the next few years, including China and Mexico. 12 intends to pass an ETS bill with future linking jurisdictions are considering the role that ETS can possible. Mexico is gearing up for a pilot ETS in play in their policy mix. 2020 that will provide hands-on experience which is critical for policymakers and private sector to better The European Union’s ETS (EU-ETS), one of the understand the impact of such a policy. Mexico oldest trading systems, plans to link their ETS aims to launch a mandatory ETS in 2022. Chile and with Switzerland from 2021 onwards providing Colombia’s growing experience with carbon pricing is learning opportunities on how linking systems may helping them establish the necessary measurement, work. Since 2010, governments in Asia have been reporting, and verification infrastructure for an increasingly interested in carbon pricing with 12 ETS. Similarly, Brazil has run a voluntary simulation ETSs being implemented in the region; 8 of these for businesses since 2013 and a national system is are pilot schemes in China’s provinces and two are under consideration. There have been challenges from the Japanese provinces of Tokyo and Saitama. as well; Ontario recently withdrew from the WCI, Several interesting examples exist in the region. which is representative of a broader trend wherein South Korea’s ETS had issues with liquidity concerns climate policy is becoming somewhat polarized in and Kazakhstan recently strengthened their trading political debates. procedures and allocations for participants and recommenced operations in 2018. In Thailand, Establishment and uptake of ETSs worldwide development of a domestic carbon market is part demonstrates the trends that established systems of the 12th National Economic and Development have witnessed key reforms in preparation for Plan (2017–2021) and the Indonesian government post-2020 period, and a significant increase in the issued a Regulation on Environmental Economic regional and global cooperation such as Carbon Instruments, which provide the policy basis for a Pricing in the Americas initiative. Article 6 will also market-based instrument and mandate to establish provide ways in which countries can work together an ETS before 2024. Turkey, as it considers an ETS, through market approaches. has developed reporting software that is considered state-of-the-art which may provide learning opportunities for other jurisdictions globally. China’s national ETS, once it begins trading, will be the largest in the world. Section Three: Learning from Experience 31 To accelerate the uptake of carbon pricing, research Not taking into consideration the benefits plays a critical role. Several areas can benefit, and generated from climate change mitigation, most these include: studies show carbon pricing causes net economic costs (loss in GDP, welfare), even with revenue Empirical investigation: assessing the • recycling. There have been some recent studies that impact of carbon pricing (mitigation, pass demonstrate that net economic benefits (GDP or through to product prices, interaction with welfare gain) do exist when tax revenue is recycled companion policies); to cut capital taxes, or when pre-existing distortions • Decarbonizing the materials sectors: sending like incomplete and distorted tax collection is a strong carbon signal to the carbon intensive recognized (realities of developing countries). materials sector; Analyzing several studies highlights that from a cost effectiveness perspective, the best way to recycle Third generation ETS: ETS & regulated • carbon tax revenue would be in the following power sector; cap-setting in a dynamically order: cutting corporate tax or capital tax, cutting growing economy; income or labor tax, instituting a lump-sum rebate, cutting government debt, and, finally, for public Linking: from proof of example to broader trend; • consumption. However, this complicates matters • Overcoming politics: what processes or since those revenue recycling schemes that perform governance frameworks have resulted in better from an efficiency perspective tend to be bipartisan (multi-party) support for worse from an equity perspective. The regressivity of climate policy; and a carbon tax can be reduced by transferring some of the carbon tax revenue to lower-income households. Delivering on the Paris Agreement: quantifying • Equity remains a critical issue for policymakers ambition and maintaining (or adopting) two in this context, and governments (developed and degree-compatible cap trajectories in the developing countries) want to be fully aware of the face of rising carbon prices. impacts of carbon tax on income distribution and poverty incidence before considering carbon pricing Lessons Learned from 30 Years of Research as a climate change policy. on Carbon Tax Govinda R. Timlisina, World Bank Another key issue is competitiveness concerns, specifically for emissions-intensive trade exposed World Bank’s Development Research Group has (EITE) sectors. Several measures have been conducted a comprehensive review covering almost discussed in this context. One such measure is a all peer-reviewed journal articles on carbon taxes border tax adjustment and studies have shown published over the last 30 years. There exist some widely varying impacts with large to small damages common problems of carbon tax in practice: carbon to developing countries. Other measures include tax rates can be fairly low to make a significant reducing taxes for EITE industries, and providing impact, with tax being less than US$5/tCO2 in some corporate income tax credits tied to carbon tax jurisdictions; carbon taxes in practice are heavily payments of EITE industries. Implementation of distorted due to fuel and sectoral exemptions these measures depends on multiple factors such as (for example: exemptions for energy intensive level of tax rate, structure of international trade, and sectors, natural gas exemptions, etc.); and the levels and types of existing taxes. selection of revenue recycling schemes is on an ad-hoc basis rather than on economic efficiency or equity considerations. 32 CPLC Research Conference Report Environmental co-benefits of carbon tax can also be to enhancing and promoting international tax significant. A recent study by Li et al. (2018) found cooperation among national tax authorities and that in China, at US$72/tCO2 (2007 price), the assesses how new and emerging issues could reduction of particulate matter (PM) concentration affect this cooperation. The Committee is also would avoid 94,000 premature mortalities and the responsible for making recommendations on value of health co-benefits are 3.7 times larger capacity-building and the provision of technical than cost of the carbon tax. Estimating health co- assistance to developing countries and countries benefits of a carbon tax in the largest 20 emitting with economies in transition. A proposal by Sweden countries, Parry et al. (2015) report that countries for the Committee to examine carbon taxation to such as Saudi Arabia, Iran, Russia, China and Poland the Committee led to the establishment of a Sub- would receive most health benefits of a carbon tax. Committee on Environmental Tax Matters in 2017. Comprising of government officials, and tax experts Theoretically, even though a carbon tax and an from government and private sector, the mandate ETS should be equivalent in terms of reducing CO2 of this committee is to consider, report on and emissions and associated economic impacts; they propose guidance on environmental tax issues and differ significantly due to their design architectures, opportunities for developing countries in particular. such as quota allocation rules in the emission The Committee places a specific emphasis on the trading scheme and revenue recycling options in the application of carbon taxes, including reporting on carbon tax. ETS requires monitoring and verification current country practices, policy considerations, and processes which can increase administrative and administrative issues. Currently, the Sub-Committee legal compliance costs. However, a “tax” can be is developing a Handbook due to be released in 2021. perceived as a burden and the ETS can be perceived The Handbook will draw on practical applications of by some players as new market opportunity. carbon tax and investigate the policy options on the Additional research on the following areas will help scope and design of carbon tax by analyzing different facilitate in the uptake of carbon pricing policies: existing carbon tax approaches. For example, the impacts of carbon tax on poverty and shared Handbook will delve into Sweden’s tax, which is prosperity, impacts of carbon tax given several applied at the end product—diesel, petrol, coal, etc. pre-existing distortions in developing-country and the tax rate is based on the average fossil fuel economies, efficiency versus equity of revenue carbon co-efficient and compare that with Chile’s recycling schemes, political economy of various taxation approach, which targets emissions from sector and fuel exemptions, and analysis of carbon stationary boilers or turbines above 50MW. The tax on full social cost basis. Handbook will specifically draw on lessons learned from these practical examples and provide guidance An Update on Work on Carbon Taxation within for developing countries in particular. the UN Committee Susanne Åkerfeldt, Government of Sweden The United Nations Committee of Experts on International Cooperation in Tax Matters, established in 1990s, consists of 25 members and tax experts from around the world. The Committee provides a framework for dialogue with a view Section Three: Learning from Experience 33 T H E M E 2 : C A R BO N P R I CI N G D E S I G N – IN T E R N AT IO N AL AN D CO N CE P T UAL P E R SP EC T IV E S RESEARCH PAPERS: ABSTRACTS Business responses to climate policy uncertainty: an essential role in helping firms to engineer the Theoretical analysis of a twin deferral strategy future payoffs from their abatement strategies. and the risk-adjusted price of carbon Policies to facilitate the use of REDD+ will help make Alexander A. Golub,20 Ruben Lubowski,21 it part of solutions for business and environment in Pedro Piris-Cabezas22 the face of continued uncertainty and policy delays. Research and development into new low carbon There is currently a mismatch between politically technologies is a complementary hedging approach declared climate goals and the current level of that corporations may use to mitigate risks of future action in progress worldwide to cut greenhouse carbon liabilities. gas emissions. Adjustments of climate policy will inevitably result in carbon markets corrections. We Global carbon pricing: When and What flexibilities use a theoretical analysis of the relative riskiness revisited in a second-best framework of different abatement strategies to explain Meriem Hamdi-Cherif23 business behavior with respect of abatement. By This article analyzes the gap between the delaying investment into low-carbon technologies, recommendations of public economics in favor of a corporations are building up a net short position on unique carbon price throughout the world and the abatement that is subject to risk, as reductions in results of empirical nonstandard modeling exercises policy uncertainty could drive carbon prices upward. Given the potential for a number of sequential in a second-best world. It uses the IMACLIM-R model, a computable hybrid general equilibrium adjustments to climate policy, we estimate a model. It investigates the time profile of carbon stepwise rising function to describe the shape of emission reductions and the use of complementary the future price pathway across emerging global carbon markets. We develop a feasible hedging instruments to carbon pricing in the design of policy strategy for corporations potentially exposed to packages that go further than a global and unique carbon price. The article highlights the asymmetry future carbon liabilities. In particular, options on between developed and developing countries low-cost abatement options, such as from reducing when implementing a unique carbon price. It shows emissions from deforestation (REDD+), could play American University Washington, Washington, D.C., US. Corresponding author: agolub@american.edu 20  Environmental Defense Fund, New York, US 21  Environmental Defense Fund, Madrid, Spain 22  CIRED- Centre International de Recherche sur l’Environnement et le Développement (ParisTech/ENPC& CNRS/EHESS) – 45bis 23  avenue de la Belle Gabrielle 94736 Nogent sur Marne CEDEX, France. SMASH - Société de Mathématiques Appliquées et de Sciences Humaines — 20, rue Rosenwald, 75015 Paris, France. 34 CPLC Research Conference Report that the recycling of carbon tax revenues towards change the interests among cost-burdened groups lower labor taxes and an early action on long- and the government. Deploying international and lived infrastructure offers important reductions of domestic policy efforts that better orient the private macroeconomic costs of low-carbon scenarios. It is and public sector towards the long-term, may better found that such complementary measures to carbon enable the Mexican government to truly “invest” in pricing are important determinants of social and carbon pricing reform. economic implications of the transition to a low- A Proposal for a Carbon Fee and Dividend carbon society as the time profile of emissions. in New Jersey Creating a Climate for Change? Carbon Pricing William Atkinson, Stav Bejerano, Victor Hua, and Long-Term Policy Reform in Mexico Jonathan Lu, Samuel Moore, Jivahn Moradian,26 Arjuna Dibley24 and Rolando Garcia-Miron25 Hamza Nishtar, Aileen Wu Since 2013, Mexico has been celebrated as an We describe a comprehensive, politically feasible international leader in carbon pricing policy, having proposal for a Carbon Fee and Dividend (CF&D) introduced both a carbon tax and an ETS. These policy in the state of New Jersey, USA. This proposal carbon pricing policies present an interesting puzzle: is informed by conversations with over 80 state democratic governments often struggle to make stakeholders, including legislators, academics, and long-term policy “investments,” in which they seek to representatives from environmental, labor, and impose short-term costs on specific groups for long- business groups. We propose a rising fee beginning term gains. Indeed, this dynamic has beleaguered at US$30/tCO2, with 70% to a household dividend carbon pricing policies in democracies around the and 30% to energy-intensive/trade-exposed world. How is it that the Mexican government has businesses, vulnerable communities, climate overcome these problems to impose two carbon change adaptation, and low-carbon technology pricing laws? In this paper, we argue that the Mexican investments. We analyze the potential economic government introduced its carbon pricing policies effects of this policy, including the positive effect without making a long-term policy “investment” in on New Jersey renewables, changes in energy either the carbon tax or the ETS. Both policies are prices, impacts on households by size and income designed structurally to impose only minimal costs level, impacts on vulnerable economic sectors, upon the industrial sectors they purport to regulate. and overall macroeconomic effects. We suggest Nonetheless, the policies allow the Mexican avenues for sustainable investment, and address government to obtain meaningful short-term potential legal barriers including the Motor Fuels “returns;” both from the revenue raised from them, Tax Act. Finally, we discuss the political feasibility of and from the international status, aid, and technical the policy, including public opinion and the results assistance they attract. These short-term returns of our stakeholder conversations. We conclude that mean that the government has limited incentives a statewide CF&D policy is a politically feasible way to impose the costly reforms needed to achieve the to reduce emissions without significantly harming benefits of carbon pricing over the long-term. We New Jersey’s economy. conclude offering some policy reform suggestions to JSD Candidate, Stanford Law School. Graduate Fellow, Steyer-Taylor Center for Energy Policy and Finance, Stanford University. 24  JSD Candidate, Stanford Law School. 25  Corresponding author: moradian@princeton.edu 26  Section Three: Carbon Pricing Design–International and Conceptual Perspectives 35 Figure 2: Carbon pricing approaches being applied by companies in the construction value chain to support decarbonization and risk management RAW MATERIALS & MANUFACTURED PRODUCTS $30/tCO2 in planning exercises for risk management to understand exposure • to carbon risk, applied to Scope 1 Reducing Scope 2 through multiple initiatives as use of renewable energy; • MEXICO asking suppliers to follow a Sustainability Code for Scope 3 $11/tCO2 shadow price applied on low-return projects with long payback • periods; target: carbon negative by 2040 • Piloted on a 9.2 MW waste-heat-recovery plant INDIA $31.19/tCO2 applied to operations in jurisdictions with existing or • upcoming carbon tax This price generates an internal P/L statement to simulate LH’s impact on triple • bottom-line; people, profit, planet FRANCE/SWITZERLAND $20/CO2 applied to new project’s financial models to assess carbon risk exposure & • influence investment decision-making Price levels higher than EU ETS, used to evaluate strategic decisions like expansion, • acquisitions, new buildings, and divestments RUSSIA • 2 parallel carbon prices €30/tCO2 applicable to Scope 1, 2 emissions for capital expenditure • projects & energy-related investments; FRANCE • €100/tCO2 applicable to Scope 1, 2, 3 emissions for R&D projects • Projects structured so that their payback accounts for the carbon price Developed a framework and initiated activities towards applying an internal carbon • price across operations GERMANY Identified 4 pillars to halve carbon footprint by 2020 & become climate neutral • by 2030, including activities that have a price premium as an implicit cost for carbon reduction 36 CPLC Research Conference Report CONSTRUCTION SERVICES Developing a Carbon Accounting Tool to track new building & retrofit lifecycle • emissions from design to operation CANADA Working with governments, companies, and coalitions to advance carbon • pricing & carbon neutrality agendas Coauthored world’s 1st carbon management standard for infrastructure • Clients are looking for clarity on how to measure Scope 3 emissions and implement • TCFD recommendations for scenario analysis Working with FSB on TCFD to create greater transparency for investors, insurers, • and other actors on carbon exposure and risk UNITED KINGDOM PROJECT DEVELOPERS & CONSTRUCTION EQUIPMENT Carbon neutral in Scope 1 and 2 since 2016, intending to continue reductions • as per SBTs Carbon pricing since 2008; additional shadow price since 2015 for new & future • investments to assess & mitigate climate risk; internal offset price in 2016 to ensure SPAIN compliance with carbon neutrality objective $23/tCO2 shadow price since 2017 applied on operation of 3 Paris airports • to encourage low-carbon decisions & operational efficiency Applicable to projects with energy impact, currently for energy efficiency • but discussing application to construction of projects FRANCE Hybrid shadow and explicit pricing in automobile activities under consideration for • replication in construction activities Current price determined as abatement cost for emissions that will have a material • impact on decision making INDIA Tata Steel: $15/tCO2 calculated by estimating investment required to meet • emissions targets • Projects evaluated on 2 IRRs, judged on a per-case basis at board level Tata Group-wide guidance for carbon pricing with price levels and structure to be • INDIA reevaluated after 2020 Source: Maheshwari, Aditi. “Carbon Pricing in the Construction Value Chain;” IFC. Presented at CPLC Carbon Pricing Research Conference, New Delhi, India, February 2019. Section Three: Carbon Pricing Design–International and Conceptual Perspectives 37 PRESENTATIONS Construction Value Chain: Carbon Pricing The distinctness of these processes, as well as the in Practice fixed-term, project-based nature of relationships Aditi Maheshwari, IFC along the supply chain, results in a highly fragmented industry structure. This structure makes The global construction industry accounts for it particularly difficult for an individual company between 25-40% of total carbon emissions in the to have an impact, and coordination across the world with projections showing a 4.2% growth value chain is needed to maximize impact of annually between 2018 and 2023 in terms of sustainability initiatives. market value. By 2050, more than 70% of the global population will live in urban areas, 60% of The report includes interviews from twelve which still remains to be built. A recent IFC study companies from sectors across the construction estimated an investment potential of almost US$25 value chain, including aluminum, cement, glass, trillion in green buildings in emerging market steel, infrastructure, construction services, and cities to 2030 alone. This expected growth and equipment manufacturing to get better insight on the need for decarbonization signaled by the Paris their existing sustainability initiatives especially in Agreement creates a massive opportunity for new relation to carbon pricing, their companies’ culture cities in emerging economies and elsewhere to and attitude, and their forward-looking plans. leapfrog traditional construction patterns and adopt Companies are applying a range of carbon pricing sustainable construction solutions. A recent IFC approaches including shadow prices; implicit pricing; and CPLC report, Construction Industry Value Chain: and internal taxes or carbon fees (Figure 2). How Companies Are Using Carbon Pricing to Address Learning more about these companies revealed Climate Risk and Find New Opportunities, highlights common concerns and themes surrounding how the construction sector is using carbon pricing carbon pricing in the value chain. The main to move towards sustainable construction, and it takeaways include: identifies common concerns and experiences. Using carbon pricing to reduce the industry’s • As there is no industry-accepted definition of the carbon footprint will work only if companies construction value chain, the report considers the can remain competitive. To address this, CPLC value chain in its entirety which is composed of has formed the High-Level Commission on specific variations within a fixed framework of Competitiveness and Carbon Pricing that brings distinct stages—design, production and conversion together private leaders to explore the concerns of raw materials into manufactured products, and of businesses on competitiveness impacts. construction itself. Each of these comprises its own internal stages, processes, stakeholders, and aspects, that interact to bring a project to fruition. 38 CPLC Research Conference Report Companies would prefer to operate on a level • Companies lack clarity on how to operationalize • playing field and seek the universal application and standardize the implementation of an of an external regulatory carbon price across internal carbon price. Businesses are their industries, applicable to all firms operating interested in learning from the experiences in the sector or jurisdiction. of other companies. The challenges faced by companies in the • All the companies surveyed advocated for the • construction value chain differ by geography and development of an integrated carbon pricing jurisdiction. No one solution is applicable across mechanism that could be applied along the all business units or stages of the value chain. construction value chain to cover lifecycle emissions from construction projects. Companies need support with managing Scope • 3 emissions and engaging with their supply IFC released another follow-up report with CPLC chains. They also need standardized and on Greening Construction—The Role of Carbon Pricing. comparable frameworks for scenario analysis This explores adjustments to existing carbon pricing as well as for rating suppliers by their low- mechanisms applicable across the construction carbon credentials. value chain for different types of construction and contracts, aimed at developing an integrated The challenge of internal “socialization” of the • approach to carbon pricing along the value chain and carbon pricing concept faced by early movers identifying optimal design and impact on emissions has eased because of a change in culture reductions across the sector. brought about by recent advances such as the Paris Agreement and the Financial Stability Board’s Task Force on Climate-related Financial Disclosures recommendations. Section Three: Carbon Pricing Design–International and Conceptual Perspectives 39 T H E M E 3 : CO N CE P TS AN D M E T H O D S RESEARCH PAPERS: ABSTRACTS Internal Corporate Carbon Pricing: An Analysis of Estimating Effective Carbon Prices: Accounting Carbon Emission Reductions for US Companies for Fossil Fuel Subsidies John W. Byrd27 and Elizabeth S. Cooperman28 Vivid Economics and Overseas Development Institute A growing trend among corporations is to utilize an internal carbon price to make energy-related Naina Khandelwal29 investment decisions, with a rise from 100 in 2014 This paper develops an improved approach to the to about 1,400 companies at the end of 2017 estimation of effective carbon prices. Effective reporting to the CDP that they do use, or plan to carbon prices provide an internationally comparable use, internal carbon pricing in the next two years measure of the incentives to reduce emissions (CDP 2018). Utilizing an internal carbon price tilts in different parts of the economy. However, to investments away from high-carbon emissions date, effective carbon price calculations have not projects toward low-carbon emission alternatives. accounted for negative carbon prices created by In this study we investigate whether early internal fossil fuel subsidies, which lead them to overstate pricing adopters in the US show any future carbon incentives for decarbonization. This paper presents emission reductions, and whether reductions, if two complementary approaches for measuring and they occur, are related to the use of an internal comparing decarbonization incentives across the carbon price. Our analysis uses CDP emissions data economy. The “revenue approach” identifies the for 2011–2016 for 201 US companies, with 52 relative fiscal stance of governments to high and currently reporting that they use an internal carbon low carbon technologies and the “price approach” price and another 30 planning to use a carbon price develops an updated measure of effective carbon within the next two years. Examining changes in prices. Both approaches account for fossil fuel industry-adjusted carbon emissions intensity, we subsidies. These approaches are applied to the find strong evidence in support of an internal carbon United Kingdom as a proof of concept, to test how price being associated with emissions reductions this analysis might be replicated for the G7 countries. with one measure, but only weak evidence with the If taken up by key governments and international second metric. These mixed results may reflect the institutions, these metrics would significantly short period of time for US companies in applying increase transparency around fossil fuel subsidies internal carbon pricing and the range of ways it is and support fiscal policy coherence through more being applied. robust carbon pricing combined with wider fiscal tools to implement climate policy. Business School, University of Colorado Denver 27  Business School, University of Colorado Denver 28  Vivid Economics 29  40 CPLC Research Conference Report The Environmental Effectiveness of Carbon Pricing Carbon to Contain Violence Taxes: A Comparative Case Study of the Shiran Victoria Shen31 Nordic Experience Violence is destructive to social order, economic Sachintha Fernando30 growth, and the human condition. The annual total This paper evaluates the reductions in carbon (CO2) cost of violence is estimated to be 11% of the emissions as a result of introducing CO2 taxes for world’s GDP. However, violence has rarely made the period 1990–2004 in four Nordic countries: its way into economic models. In the meantime, Denmark, Finland, Norway, and Sweden. These increasing scientific evidence points to an active countries were among the first to introduce CO2 link between climate change and the incidence of taxes, and hence, present a quasi-experimental interpersonal and inter-group violence. This study setting to evaluate their experience. Synthetic connects the climate-economy and the climate- controls methodology is used to construct synthetic violence systems by putting forth a new method counterfactuals, which emulate the CO2 emission to internalize the costs of climate-induced violence trajectories for each country in the absence of a CO2 in the established MERGE integrated assessment tax. This allows the comparison of synthetic and model. It finds that such internalization can double actual emission trends. Norway and Sweden, which the optimal carbon price, a relationship that holds had much higher CO2 tax rates than Finland and across different specifications regarding climate Denmark, reported statistically significant emission sensitivity, GDP growth rate, and the willingness reductions. Since ex-post evaluations of the effects to pay (WTP) to avoid nonmarket climate damages. of CO2 taxes are sparse, this study advances Normatively, under the realistic assumption that our insights into the potential environmental the WTP is at 1% of regional income, the avoided effectiveness of such measures. Further, it provides costs from climate-induced violence in sub-Saharan a comparative case study by applying a uniform Africa is modeled to reach 3.7% of the region’s method to all countries, allowing opportunities to GDP in 2200, a very significant figure for an area learn from their experiences. that is already riddled with underdevelopment and violence. The approach of this paper is a first for the modeling community, indicating directions for future research. For the policy community, this paper takes recent econometric findings to the next step toward understanding required for decisions. Contact: sachintha.s.f@gmail.com 30  Department of Political Science and Department of Civil & Environmental Engineering, Stanford University and Woodrow Wilson 31  Department of Politics, University of Virginia. Email: svshen@virginia.edu. Section Three: Concepts and Methods 41 PRESENTATIONS PRESENTATIONS Internal Carbon Price (ICP): Lessons learned from carbon pricing disclosure The Corporate Carbon Pricing Tool: Getting Ahead of Climate Risk Gargi Sharma, CDP Gautham Prabhu, Trucost The latest CDP Report found that in 2018, globally, 594 companies are implementing an internal A corporate carbon pricing tool helps a company carbon price, and 711 companies are considering understand their environmental, social, and implementing an internal carbon price in the next corporate governance exposure, including financial two years. In 2015, only 435 companies were exposure to regional carbon taxes. Companies need implementing an internal carbon price. In India, to communicate to their stakeholders on corporate latest numbers reveal that 14 companies are sustainability, specifically the environmental and implementing an internal carbon price, and 32 social benefits of a company and its products. The companies are planning to implement a price in the “Carbon Price Risk Premium” is the gap between next two years. In 2015, only two Indian companies current carbon prices and future carbon price targets were implementing a carbon price. Figure 3 and varies by sector and geography. It reflects the below shows the sectoral representation of these additional financial exposure of a company, sector, companies adopting a price on carbon. Carbon or facility to carbon pricing regulations in the future prices in Indian companies ranges from US$2 per and can be a useful benchmark for setting internal ton of CO2 (Shree Cement) to about US$47 (ACC carbon prices. Companies tend to use GHG intensity Limited). There are different variations of carbon as an indicator for carbon pricing risk exposure prices being adopted: which can be an imperfect tool, as it creates blind spots to carbon pricing risk. Estimates indicate Shadow price: attaching a hypothetical cost of • that carbon pricing risk exposure is high in 2030 carbon to each ton of CO2e to assess hidden for many sectors.32 Robust tools that are built on risk and opportunities and for decision making strong methodologies can provide insights on the of future investments; potential range of estimated internal carbon prices, help benchmark carbon regulation risk exposure mplicit price: some companies with emissions •i against key competitors, conduct scenario analysis, reduction or renewable energy targets calculate and better understand current and future financial their “implicit carbon price” by dividing the cost implications of carbon regulation risk on operating of abatement/procurement by the ton of CO2e; costs and margins, and prioritize low-carbon internal fee: charging responsible business units • innovation in a business. for their carbon emissions and reinvesting the collected revenue into clean technology; Trucost Analysis, 2018, based on an analysis of automotive companies’ 2016 publicly disclosed GHG data on Scope 1 and 2 for a 32  two degree scenario. https://us.spindices.com/documents/research/research-carbon-pricing-discover-your-blind-spots-on-risk-and- opportunity.pdf 42 CPLC Research Conference Report Figure 3: Sectoral Representation of Companies Adopting a Carbon Price Source: Sharma, Gargi. “Internal Carbon Price: Lessons Learned from Carbon Pricing Disclosure;” CDP. Presented at CPLC Carbon Pricing Research Conference, New Delhi, India, February 2019. Section Three: Concepts and Methods 43 • use of offsets: utilizing the voluntary carbon  esigning the approach, using the 2. D markets to offset their emissions, internalizing 4-dimensional framework developed by CDP; this cost per ton of CO2e;  esting, planning, and rolling-out of the 3. T internal trading: allowing the business units to • approach through clear communication trade allocated carbon credits. and messaging; and Three main drivers exist for implementing a  onitoring and evaluation of the approach. 4. M carbon price: 1) policy risk; 2) transition risk; and In 2017, CDP and We Mean Business Coalition 3) stakeholder expectations. The objectives for launched the Carbon Pricing Corridors initiative implementing a price are to assess and manage with the aim of enabling large market players to climate-related risks and opportunities, and for use define the carbon prices needed for industry to meet as a transition tool. the Paris Agreement. It aims to provide a valuable Most companies start by internalizing the existing, benchmark for business and investors who are expected, or potential price of carbon—from an seeking to make strategic decisions consistent with ETS, carbon tax, or implicit carbon pricing policy—to a low-carbon economy, but who struggle with a lack assess its risk exposure. Some have also discovered of information about the risks and opportunities that internal carbon price reveals potential business involved in the transition. The initiative can also opportunities that may emerge as policy and legal, inform governments who are turning to carbon market, technological and reputational factors shift. pricing as a mechanism to achieve their climate When used as a proxy in this way, an internal carbon goals as well as those seeking to reform existing price can help guide strategic decisions, such as carbon pricing policies to strengthen market signals. low-carbon research and development to create the products and services of the future. A best practice approach has been developed for companies that consider implementing an internal carbon price. This consists of four steps: 1.  Engaging the business by establishing a diverse governance board representing various key departments across the business, setting clear objectives, and building a strong business case to get buy-in for the internal carbon price approach, from decision makers to operational employees; 44 CPLC Research Conference Report T H E M E 4 : P O L I T I CAL ECO N O M Y – DIST R IB U T IO N AL E F F ECTS , P O L I T I CAL ACC E P TA N C E, RE VE N UE US E RESEARCH PAPERS: ABSTRACTS Making Carbon Pricing Work for Citizens33 We argue that traditional economic lessons on David Klenert,34 Linus Mattauch,35 Emmanuel efficiency and equity are subsidiary to the primary Combet,36 Ottmar Edenhofer,37 Cameron Hepburn,38 challenge of garnering greater political acceptability Ryan Rafaty,39 Nicholas Stern40 and make recommendations for enhancing political support through appropriate revenue uses under The gap between actual carbon prices and those different economic and political circumstances. required to achieve ambitious climate change mitigation could be closed by enhancing the Lobbying, relocation risk and allocation of free public acceptability of carbon pricing through the allowances in the EU ETS appropriate use of the revenues raised. In this Kerstin Burghaus,41 Nicolas Koch,42 Julian Bauer,43 Perspective, we synthesize findings regarding the Ottmar Edenhofer44 optimal use of carbon revenues from traditional We study the nexus between permit allocation, economic analyses, and studies in behavioral and lobbying and relocation risk. Using new data from political science focused on public acceptability. the EU Transparency Register and the European We then compare real-world carbon pricing regimes Union Transaction Log, we start with an empirical with theoretical insights on distributional fairness, analysis of how the number of free emission revenue salience, political trust, and policy stability. Published in Nature Climate Change 8, 669-677 (2018): https:/ 33  /doi.org/10.1038/s41558-018-0201-2 Mercator Research Institute on Global Commons and Climate Change, Berlin. Corresponding author. E-Mail: klenert@mcc-berlin.net 34  Institute for New Economic Thinking at the Oxford Martin School and Environmental Change Institute, School of Geography and the 35  Environment, University of Oxford Centre International de Recherche sur l’Environnement et le Développement (CNRS, Agro ParisTech, Ponts ParisTech, EHESS, CIRAD) 36  and French Environment and Energy Management Agency Mercator Research Institute on Global Commons and Climate Change, Berlin, Potsdam-Institute for Climate Impact Research, Technical 37  University of Berlin Institute for New Economic Thinking at the Oxford Martin School, Smith School for Enterprise and the Environment and New College, 38  Oxford. Grantham Research Institute on Climate Change and the Environment, London School of Economics Institute for New Economic Thinking at the Oxford Martin School, University of Oxford. Centre for Environment, Energy and Natural 39  Resource Governance, University of Cambridge London School of Economics 40  Mercator Research Institute on Global Commons and Climate Change (MCC), Torgauer Str. 12 - 15, 10829 Berlin - Germany. Email: 41  burghaus@mcc-berlin.net Mercator Research Institute on Global Commons and Climate Change (MCC), Torgauer Str. 12 - 15, 10829 Berlin - Germany. Email: 42  Koch@mcc-berlin.net Mercator Research Institute on Global Commons and Climate Change (MCC), Torgauer Str. 12 - 15, 10829 Berlin - Germany. Email: 43  Bauer@mcc-berlin.net Mercator Research Institute on Global Commons and Climate Change (MCC), Potsdam Institute for Climate Impact Research (PIK), 44  and Technische Universität Berlin (TU-Berlin). Email: edenhofer@pik-potsdam.de. Section Three: Political Economy–Distributional Effects, Political Acceptance, Revenue Use 45 allowances under the EU Emissions Trading System the 2- and 4-digit HS level of aggregation with the (EU ETS) is linked to lobbying activity. Although greatest overall weight in global trade, and products registration is voluntary and data limitations remain, with the longest distance travel between trading the register constitutes a considerable improvement country pairs. Elasticities are in the range -0.4 to over previous data on lobbying in terms of reliability -0.5. Since changes in fuel price can serve as a proxy and coverage. With the data, we establish a robust of a fuel tax, these results indicate that there could positive link between lobbying and the number of be substantial impacts of fuel taxes on the weight free allowances. To offer an explanation for our of exported products. An estimate is that a global empirical findings, we then develop an analytical US$40 per ton CO2 tax on carbon emissions from model of a signaling game with asymmetric ships reduces bunker oil consumption, and carbon information about relocation cost. We examine emissions from the shipping fleet, by up to 12%. under which conditions sectors have an incentive Global Carbon Pricing System as a Mechanism to to systematically understate their cost of relocating Strengthen Competitiveness and Reduce GHG in to a country without emissions regulations, thus Energy-Intensive Trade Exposed Sectors, such as exaggerating relocation risk. Further, we analyze Primary Aluminum Production when this strategy indeed leads to an overallocation of free emissions allowances compared to a Sergey Chestnoy46 and Dinara Gershinkova47 benchmark allocation without lobbying. The absence of global carbon pricing distorts the Carbon pricing of international transport fuels: competitive environment. Countries that have Impacts on carbon emissions and trade activity carbon-pricing point out the additional competitive advantages the producers have in countries without B. Gabriela Mundaca, Jon Strand, Heinrich Bofinger45 carbon pricing. Universal charge for CO2 emissions We study impacts of carbon pricing for international would create an unbiased competitive environment transport fuels on fuel consumption and carbon for all producers. The sectoral approach in basic emissions, trade activity, and welfare, focusing on sectors may be the first step in creation of a sea freight, which constitutes the most important global framework for carbon regulation, although international trade-related activity. We use the it is a long-term objective. Using the example of WITS global dataset for international trade for emissions-intensive, trade-exposed industries such the years 2009–2017 to estimate the impacts of as aluminum production, which accounts for 3.5% changes in the global average bunker fuel price on of global electricity consumption, the authors two aspects of international trade transported by considered low carbon initiatives that already have sea: the weight of goods transported and the number been implemented by aluminum producers (mostly of products that are traded between country pair promotion of clean energy use and aluminum trading partners. We find strong negative effects recycling) and analyzed how carbon pricing may of fuel cost increases on weight, for products at foster those. World Bank 45  PhD, Advisor on Sustainable Development, UC RUSAL 46  Advisor on Climate, Directorate of International Projects, UC RUSAL 47  46 CPLC Research Conference Report The obvious advantages of sectoral approach Making carbon taxes pro-poor using cash are a small group of countries’ negotiators and transfers in Latin America and the Caribbean a relatively uniform production processes and Adrien Vogt-Schilb,48 Brian Walsh,49 Kuishuang technologies in the industry around the globe. Feng,50 Laura Di Capua,51 Yu Liu,52 Daniela Zuluaga,53 That makes the negotiations easier, compared Marcos Robles,54 Klaus Hubaceck55 with the UNFCCC process. There are a number of Carbon taxes are advocated as efficient options for intergovernmental decision-making environmental policies, but they have proven difficult on this, including regional and intergovernmental to implement in both developed and developing platforms such as APEC and G20. Negotiators countries. Indeed, carbon taxes can be perceived as should address such questions as the size of carbon working against other political priorities. They can price itself, who will pay, who will collect money, aggravate poverty by increasing prices of basic goods how to use them and how to ensure transparency of and services such as food, heating, and commuting. the entire process. Meanwhile, direct cash transfer programs have been A decision on the method of carbon pricing (cap established as some of the most efficient poverty- and trade or carbon tax) could be taken at the final reducing policies used in developing countries. stage of negotiations, considering the financial and Here, we show how governments can mitigate economic impact of introducing regulation as well the negative social consequences of carbon taxes as the preparedness of countries in adopting the by recycling revenues leveraging existing cash method. Article 6 of the Paris Agreement might transfer programs. We focus on Latin American be another incentive mechanism for low carbon and the Caribbean, a region that has pioneered development of the global aluminum sector. cash transfer programs, that increasingly aspires to contribute to the climate stabilization agenda, and that faces inequality and limited fiscal space. Our study demonstrates concrete quantified options to correct distributional impacts of carbon taxes in developing countries while reducing fiscal deficits. Inter-American Development Bank, Washington, D.C. 20577, USA 48  Inter-American Development Bank, Washington, D.C. 20577, USA 49  Institute of Blue and Green Development, Shandong University, Weihai, 264209; China and Department of Geographical Sciences, 50  University of Maryland, College Park, MD 20742, USA. Corresponding Author Inter-American Development Bank, Washington, D.C. 20577, USA 51  Institutes of Science and Development, Chinese Academy of Sciences, Beijing 100190, China 52  Inter-American Development Bank, Washington, D.C. 20577, USA 53  Inter-American Development Bank, Washington, D.C. 20577, USA 54  Department of Geographical Sciences, University of Maryland, College Park, MD 20742, USA; Center for Energy and Environmental 55  Sciences (IVEM), Energy and Sustainability Research Institute Groningen (ESRIG), University of Groningen, Groningen, 9747 AG, the Netherlands; Department of Environmental Studies, Masaryk University, Jostova 10, 602 00 Brno, Czech Republic; and International Institute for Applied Systems Analysis, Schlossplatz 1-A-2361, Laxenburg, Austria Section Three: Political Economy–Distributional Effects, Political Acceptance, Revenue Use 47 PRESENTATIONS Carbon pricing and Competitiveness be addressed through policy design, and, in fact, at the Global Level all existing programs have protections for EITE Nathaniel Keohane, EDF sectors. These include output-based allocations (e.g. California), benchmarking (e.g. EU ETS), and border One of the main barriers to the adoption of carbon tax adjustment (not implemented in practice). pricing policies and measures is the competitiveness A carbon price creates a cost differential within concerns of businesses. These concerns arise in countries and sectors; some of this is inevitable two ways: 1.) from lower carbon competitors with and desirable. From an economic point of view the products easily substituted, and 2.) from foreign increased cost of production is passed through to competitors with comparable products without consumers that creates the positive driver for a similar environmental constraints. At a macro- low-carbon transition. Winners and losers will be level, while competitive risks for firms, sectors, created within a country, and even within an EITE and countries are real, these risks should not sector, with those innovating and transitioning be overstated. These risks tend to be limited to to low-carbon products having a competitive emission intensive trade exposed (EITE) sectors. advantage over those that are unable to do so. While There exists a general concern that reduced policies can dampen the impacts of competitiveness competitiveness due to carbon pricing can result in and assist with the transition of EITE sectors, relocation of the production of goods and services. completely eliminating the cost differential is self- Currently, the evidence of the materialization of defeating, as this will eliminate the price signal for these risks remains limited. This could be due to low-carbon transition. the low carbon prices in most jurisdictions, as well as the fact that decisions related to relocation It was with the intention to clarify and address of production are driven by several other factors the competitiveness concerns relating to carbon beyond the carbon price. Furthermore, as more pricing that the CPLC established the High-Level countries adopt climate policies in line with the Commission on Carbon Pricing and Competitiveness. Paris Agreement, competitiveness concerns should This Commission is scheduled to present its findings be less of an issue. Competitiveness concerns can in fall 2019. 48 CPLC Research Conference Report T H E M E 5 : DECARBO N I Z I N G T H E ECO N OM Y: CARBO N P R I CI N G A N D DE V E LO P M E N T RESEARCH PAPERS: ABSTRACTS Designing a US Carbon Pricing Policy to Ensure climate benefits, and helps ensure those benefits Greater, and More Equitably Distributed, Public are shared in a more equitable way with a broader Health Benefits from Co-Pollutant Reductions segment of the population. Rachel Cleetus and Julie McNamara Financing Low-Carbon Transitions through Carbon pricing programs to date have been Carbon Pricing and Green Bonds designed with the primary objective of lowering Arkady Gevorkyan,56 Dirk Heine,57 Mariana energy-related CO2 emissions. However, it has Mazzucato,58 Michael Flaherty,59 Siavash Radpour,60 been well documented that a carbon price can also Willi Semmler61 drive significant simultaneous reductions of co- To finance the transition to low-carbon economies pollutants alongside cuts in carbon emissions. Here, required to mitigate climate change, countries are we explore policy design options to help enhance increasingly using a combination of carbon pricing these co-pollutant reduction benefits, especially for and green bonds. This paper studies the reasoning communities that face a disproportionate burden behind such policy mixes and the economic from conventional and toxic pollution related to fossil interaction effects that result from these different fuel use. Because co-pollutant hotspots in some policy instruments. We model these interactions communities are a problem presently unresolved using an intertemporal model, related to Sachs by existing policies, and because a rare window of (2015),62 which suggests a burden sharing between opportunity is emerging for a federal carbon pricing current and future generations. The issuance of program in the US, we argue that carbon pricing green bonds helps to enable immediate investment policy design should be intentionally considerate of in climate change mitigation and adaptation, and its distributional impacts on co-pollutant reductions. the bonds would be repaid by future generations Our research shows that flexible, innovative design in such a way that those who benefit from reduced options can be incorporated into or alongside future environmental damage share in the burden carbon pricing programs to help ensure that multiple of financing mitigation efforts undertaken today. pollution externalities are addressed in a way that We examine the effects of combining green bonds delivers near-term public health benefits alongside Federal Reserve Bank of Cleveland - Surveillance and Macro Analysis, 1455 E 6th Street, Cleveland, OH 44114. 56  World Bank, Macroeconomics, Trade & Investment Global Practice, Global Macro and Debt Analysis Unit, 1818 H Street NW, 57  Washington, DC Professor in the Economics of Innovation and Public Value, University College London, Gower Street, London, WC1E 6BT 58  New School for Social Research, Department of Economics, 6 East 16th Street, New York, NY 10003. 59  New School for Social Research, Department of Economics, 6 East 16th Street, New York, NY 10003. 60  Henry Arnhold Professor of Economics, New School for Social Research, Department of Economics, 6 East 16th Street, D-1123, New 61  York, NY 10003. e-mail: semmlerw@newschool.edu Sachs, J. 2015. Climate Change and Intergenerational Well-Being, The Oxford Handbook of the Macroeconomics of Global Warming, 62  Lucas Bernard & Willi Semmler (Ed.). Oxford: Oxford University Press, 248-259. Section Three: Decarbonizing the Economy: Carbon Pricing and Development 49 and carbon pricing in a three-phase model using However, the realization of such potentials is nonlinear model predictive control (NMPC), which hindered by high prime lending rates ranging allows for finite-horizon solutions and phase from 15.5-19.3% and the other barriers such changes. We show that the bonds issued can be as technology, regulatory and foreign currency repaid and that the debt is sustainable within a finite risks. To enable more favorable commercial sector time horizon. Moreover, we show that green bonds lending terms, an efficient performance-based perform better when they are combined with carbon carbon pricing instrument blended together with pricing. Our proposed policy option appears to be appropriate risk guarantee instrument is proposed, politically more feasible, speeds up the transition, which significantly reduces cost of financing to and offers a fair intergenerational burden sharing. incentivize uptake within a short payback period, while ensuring that only the marginal abatement Leveraging Private Sector Investment in Energy costs of individual interventions are credited. Efficiency: Pilot Case Studies of Selected Sub- Saharan African Countries Interaction between the carbon tax and Martin Burian, Joachim Schnurr, Grant A. Kirkman renewable energy support schemes in and Janak Shrestha Colombia: Complementary or overlapping? Daniela Gutiérrez Torres63 Current climate change policy negotiations consider private sector involvement for structuring the Colombia is advancing its climate change mitigation significant investments needed for implementing and renewable energy policy instruments. the Paris Agreement and its objectives. Private Specifically, the country has introduced support sector involvement may be effectively stimulated schemes for electricity generation from renewable through appropriate policies which allow reducing energy sources (RES-E) and a national carbon tax. emissions/reducing costs of the private sector over Therefore, these two instruments interact within the lifetime of interventions, and reduce public the climate-energy policy mix. However, the sector costs. interaction between them could be complementary or overlapping depending on the policy design of The Article 6.2 of the Paris Agreement allows for the each instrument. The main objective of this paper establishment of international cooperative exchange is to analyze if the policy design elements of the of GHG emissions towards nationally determined carbon tax and the RES-E support schemes make contributions, applying robust GHG accounting and, them complementary or overlapping instruments. among others, ensuring environmental integrity. The methodology is mainly qualitative and This article discusses the example of a carbon encompasses descriptive, as well as interpretative, finance instrument for reducing technical losses in stages. Additionally, it comprises a comprehensive electricity grid and how it could potentially support literature review and a content analysis based on 4 pilot countries (Mozambique, Uganda, Zambia, interviews with related stakeholders. The analysis and Zimbabwe) in realizing economically viable is made primarily through the comparison of the interventions at demand side. Crediting sectoral instruments’ policy objectives. Results show that the baselines is also developed as a test case example policy objective design element from the instruments under Article 6.2 for the purpose of quantifying was crucial to classify them as complementary and transferable mitigation units. The analysis indicates to conclude that their coexistence is justified. That an energy saving potential of 458.3 GWh/yr, is, the mitigation objective of the carbon tax and the private sector investment costs of 80.6 million energy security aim of the RES-E support schemes US$ as well as reduction of electricity costs of 19.8 suggest the two instruments are complementary. million US$/yr. Environmental Engineer, Universidad el Bosque, Colombia, MSc. Environmental Management and Policy International Institute for 63  Industrial Environmental Economics at Lund University, Sweden. Email:daniguttor@gmail.com 50 CPLC Research Conference Report PRESENTATIONS Emissions Trading and Electricity Sector in which consumers transition to more energy regulation: A Conceptual Framework for efficient appliances. There is both static efficiency Understanding Interaction between Carbon and dynamic efficiency in such a market, and in such Prices and Electricity Prices a scenario regulators favor the decommissioning of William Acworth, ICAP a fossil-based asset to retrofitting it. An ETS is a market-based mechanism that places a However, the reality is different where varying quantity constraint on emissions aiming to achieve levels of regulation exist in electricity markets and emissions targets at least cost. ETS has static can serve as a barrier to the promise of ETS. In a efficiency—marginal abatement costs are equivalent recent study, conceptual frameworks were designed across covered entities—and dynamic efficiency— to better understand the varying levels of regulation marginal abatement costs are equivalent through in electricity markets, and the functioning of an time. In theory, ETS establishes a clear reduction ETS in such markets and the impact it can have pathway and sends a signal to investors that high on emissions. Four frameworks were considered, emission investments will not be profitable over the ranging from most regulated to low levels long term. of regulation: In a competitive wholesale electricity sector, Retail price regulation is where the price • relevant actors act as follows: Generators offer pass through to consumers does not occur. electricity at a price that reflects their marginal costs This results in no immediate incentive for of production. Those generators offering the lowest consumers to shift their consumption patterns. cost electricity are dispatched to the market first, However, consumers may shift their patterns with increasingly expensive options utilized until based on how the electricity rates and tariffs demand is met. In this way, electricity is supplied at are set. Wholesale markets send the required least cost. The order in which electricity is supplied investment signals. Complementary policies to the grid is called the “merit order curve.” The final can be implemented to address this lack of bid required to meet demand or the willingness to consumer shift. pay from the consumer side if no additional supply Wholesale market regulation is a scenario where • is available determines the wholesale market price, the merit order curve gets distorted in different which all generators are paid. Under these (ideal) ways depending on the type of regulation. Price conditions, operations and investment decisions caps may exist, in which case the true cost are based on the market and the expected profits. of carbon is not reflected. In cases wherein a A carbon price impacts this in a number of ways. It power purchasing agreement may exist, these increases the cost of fossil-based generators making generators are not subject to a price and, thus, them less competitive. This results in a shift in the the carbon price is distorted, and its impact is merit order curve, resulting initially in a coal to limited. The coal-gas shift and cost-effectiveness gas shift, wherein gas becomes more competitive for renewables might not occur. than coal and moves up the merit order curve. Renewables are also impacted and become more Regulation of investment occurs when • competitive driving low-carbon investments. Prices governments request coal-based generators are passed through to consumers in this scenario to remain online due to current or anticipated Section Three: Decarbonizing the Economy: Carbon Pricing and Development 51 capacity constraints, and may pay fees to do so, need to be carefully designed. Understanding the or have a regular tendering contract. In such a barriers that exist, the mitigation potential that is scenario, the carbon price signal can become lost due to regulated markets, and ways in which detached and not play a role in low carbon complementary polices can address these barriers, investment. The criteria of the government will be important going forward. Strong case studies procurement process will determine the of success with ETSs in regulated markets where impact to some extent. policy design has enabled the strengthening of the allowance price signal, are also important. Regulation of production is when a government • plans the production, sometimes through a Carbon Pricing and the Energy Sector: quota system. This is based on factors such as Optimizing Policy Packages capacity, but not driven by market condition and Peter Janoska, IEA results in a scenario where there is no channel for the carbon price to impact the electricity To transition to sustainable clean energy systems, markets. There is little role carbon can play an integrated policy strategy is necessary. In this in the dispatch channel and there is no pass- context, policies that drive change in all energy through to consumers. If an ETS were to be sub-sectors, act in both the short- and long-term, introduced in such a market, there would be are cost-effective, and support innovation and declining emissions due to the existence of a diffusion of clean technologies will be essential cap. There might be weaker long-term signals (Figure 4). However, different country contexts that could encourage low-carbon shifts. and national circumstances will lead to different policies that play different roles. Design of these Several options exist to restore abatement levers policies will vary depending on the national context under different forms of power sector regulation, and they will evolve over time. Policy packages that namely: consignment auctions, coverage of indirect are designed for long-term transition will inevitably emissions, establishment of pricing and investment contain different elements than one for a shorter committees, and establishment of a consumption timeframe given that current policies need to unlock charge. For example, Korean ETS and Chinese technologies and infrastructure that will be needed pilot schemes have broadened the coverage of in the future. their ETS to include indirect emissions. This helps to strengthen the downstream price signal in their To effectively implement this complex mixture of markets where wholesale prices are regulated. policies, the interactions and overlaps between Korea requires both electricity generators to multiple policy goals need to be taken into account. surrender allowances for their direct emissions, and Objectives of the three SDGs that are most closely large electricity consumers to surrender allowances related to energy—addressing climate change, for the indirect emissions associated with achieving universal energy access, and improving air electricity consumption. quality along with water scarcity (SDG Goals 13, 3, 7, 6)—can be effectively addressed in an integrated Emissions trading is most effective in liberalized manner with considerable synergies across the three markets where market actors are free to reflect areas. As IEA’s Sustainable Development Scenario, allowance costs in product price and able to make which integrates the three objectives, shows, low- (dis)investment decisions based on market principles. carbon measures play a critical role in reducing air In the real world, where electricity markets tend pollution at no extra cost (Figure 5). to be regulated, ETS can still be effective, but 52 CPLC Research Conference Report Figure 4: Indicative Policy Packages Pathways Source: Janoska, Peter. “Policy Packages for Energy Transitions;” IEA. Presented at CPLC Carbon Pricing Research Conference, New Delhi, India, February 2019. Carbon pricing plays a critical role in driving change incentives that drive improved energy use, such as under this integrated policy approach (Figure 6). targeted energy efficiency policies); optimization However, real-world policymaking is challenging based on pricing (primarily when increased investor and complementary policies are needed to achieve confidence in rising future carbon prices can drive the objectives of the clean energy transition. No investment in low-carbon alternatives in power single policy can deliver the changes needed given and industry and phase-out of current high-carbon the complexity of energy sector transitions. Policy or polluting assets, or the use of policies such packages that drive a whole-scale shift in energy as standards, regulations, etc. when prices are systems in all sub-sectors cover three domains: lower); and based on short-term investment for negative cost opportunities (in energy end-use long-term returns (ability to shift the boundary of sectors such as transport and buildings, where achievable emissions reductions by supporting there is potential to reduce emissions through the underpinning infrastructure and markets such Section Three: Decarbonizing the Economy: Carbon Pricing and Development 53 Figure 5: Impact of Low-Carbon Measures on Air Pollution Source: Janoska, Peter. “Policy Packages for Energy Transitions;” IEA. Presented at CPLC Carbon Pricing Research Conference, New Delhi, India, February 2019. as electric vehicle (EV) charging networks); and As comprehensive policy packages are designed investing in technology research development at the national level, governments must consider demonstration and deployment to unlock deeper policy interactions, both positive and negative, mitigation potential on a larger scale. of these policies. For example, China has several climate and energy policies that address climate, IEA analysis shows that while targeted policies can air pollution, energy supply and demand, and peak emissions, high carbon prices and advanced industrial restructure, and all these policies will technologies are required to generate deeper interact directly or indirectly with China’s ETS and decarbonization consistent with climate goals. For carbon price. In China’s case, the design of its ETS example, in power generation and industry, high needs to take into account how it will interact carbon prices are needed to drive early retirement with the power market reform, and if the ETS is of coal plant and retrofit for carbon capture and designed in an integrated manner, the development storage. In the transportation sector, carbon of carbon pricing and power sector reform can be pricing helps offset the effects of lower oil prices mutually supportive. in a decarbonized world. But it alone cannot unlock substantial technology shifts such as electrification For the international community to transition to a or advanced biofuels development. For these shifts low-carbon pathway, governments must be clear to occur, standards, mandates and subsidies are about the role of carbon pricing within a country’s needed as part of a comprehensive policy package. policy mix, better understand the interactions within its suite of policies, and ensure that a comprehensive policy package is coherent and aligned towards the achievement of its objectives. 54 CPLC Research Conference Report Figure 6: Role of Carbon Pricing in Policy Choices and Objectives Source: Janoska, Peter. “Policy Packages for Energy Transitions;” IEA. Presented at CPLC Carbon Pricing Research Conference, New Delhi, India, February 2019. Section Three: Decarbonizing the Economy: Carbon Pricing and Development 55 T H E M E 6 : E M E RG I N G F RO N T I E RS RESEARCH PAPERS: ABSTRACTS Preparing India for Future Carbon Markets: Comparative Analysis of the Stringency of Building on India’s PAT and REC Schemes Heterogeneous Carbon Pricing Instruments: for the Post 2020 Markets An exploration of an applied approach Tamiksha Singh and Karan Mangotra64 Johannes Ackva Over the last decade, an extensive and complex Diverse carbon pricing instruments are spreading climate change regime has emerged, comprising across heterogeneous economies. Policy crediting a wide range of initiatives and institutions. There (e.g. in the context of Article 6 of the Paris is now a need to develop methods for building Agreement), harmonization of sub-national carbon fungibility for heterogeneous climate actions, pricing efforts (e.g. in the Canadian context), with the aim of creating an efficient and effective and a policy landscape of moving towards newly international carbon market. implementing and reforming existing carbon pricing instruments all raise the question of how to assess As we get closer to 2020, it is important for “stringency,” the ability of a carbon pricing system countries to plan on how best they can participate to set incentives for abatement. This paper seeks in the new market mechanisms for financing their to make progress on this question by combining climate actions, being mindful of the learnings from conceptual analysis with illustrative application the failure of some of the past systems, and prepare across a number of carbon pricing instruments. In their existing mechanisms or markets to be effective particular, given the importance of investment for under the post 2020 regime. While India has not deep decarbonization, this paper develops and yet established a carbon market or carbon pricing evaluates a set of increasingly refined metrics of policy, it has two proxy carbon market schemes in average carbon prices that express the investment place: the Perform, Achieve and Trade (PAT), and incentives of carbon pricing policies. While results the tradable Renewable Energy Certificates (REC). and metrics are preliminary, the paper seeks Through this paper, we intend to analyze the steps to advance the development of an integrated required to prepare these two Indian market-based stringency metric. mechanisms for the post 2020 period, by potentially linking these two carbon pricing methodologies. The Energy and Research Institute (TERI), India 64  56 CPLC Research Conference Report Blockchain, Double Counting, and the will face several fossil fuel producers and exporters Paris Agreement who are particularly reluctant to cooperate through Henrique Schneider traditional carbon prices, which extract their resource rents and transfer them to fuel importers. This essay explores possibilities and limitations of This paper argues that one way to align incentives applying blockchain distributed ledger technology for increased climate policy ambition is to shift the to select aspects of the Paris Agreement, especially base of carbon taxes upstream to where fossil fuels to issues under Article 6 (and, where relevant, are first extracted from the ground. This could be Articles 4, and 13). Through the application of implemented through cooperative wellhead carbon blockchain, double counting (and similar concerns) tax treaties between fuel exporters and importers can be mitigated while making reporting, tracking with revenue sharing agreements. Producers’ and managing corresponding adjustments efficient. carbon tax would cover domestic emissions in Blockchain enables accounting for nationally fossil-fuel dependent countries but allow them to determined contributions (NDCs) and increases retain (a portion of) revenues otherwise collected the transparency in the implementation of the Paris abroad. This proposition is first illustrated in a Agreement. This, on the other hand, depends on partial equilibrium welfare economic framework a careful institutional set-up. This essay lays out and then quantified with a global, dynamic, the requirements for a blockchain system (or a set recursive general equilibrium model integrated with of blockchain) under Article 6. At the same time, global partial equilibrium fuel extraction models. it considers the limitations of applying blockchain. Design, implementation and political economy These limitations arise not only due to the distributed issues are discussed. ledger technology itself, but also due to the nature of international negotiations in connection with the Estimating the Power of International Carbon Paris Agreement. Markets to Increase Global Climate Ambition Carbon taxes that even fuel exporters would like Pedro Piris-Cabezas, Ruben Lubowski, and Gabriela Leslie68 Grzegorz Peszko,65 Alexander Golub,66 Dominique van der Mensbrugghe67 By helping achieve emissions targets more inexpensively than expected, emissions trading Economists often argue that the Paris Agreement systems can lower political resistance to more will deliver on its two degree goal when the self- ambitious targets, enabling deeper and faster cuts interests between a “club” of primary movers on in climate pollution over time. Using a dynamic climate action and more reluctant parties are aligned. global partial-equilibrium carbon market model, A joint and reciprocal commitment to minimum we quantify cost savings under scenarios for domestic carbon prices and international transfers emissions trading both within and across countries, is often identified as an efficient instrument of as well as the corresponding potential to escalate this alignment. The climate policy leaders have not reductions if those cost savings were translated mobilized the political will to form such a club yet, into greater mitigation. We examine the potential let alone mobilized adequate transfers to induce for emissions trading to allocate reductions cost- comprehensive cooperation. Even if they do, they World Bank 65  American University 66  Purdue University 67  Environmental Defense Fund (EDF) 68  Section Three: Emerging Frontiers 57 effectively over time, and also assess the possible Australia-EU ETS linking – lessons for the impact of including emissions reductions from post-Paris world avoided deforestation within international carbon Stuart Evans and Aaron Wu markets. Finally, given that substantial political and The Australia-EU ETS linking negotiations were implementation hurdles remain to full international the first attempt to link emissions trading systems trading, we evaluate scenarios in which future policy (ETS) with substantively different designs. While developments are uncertain as well as scenarios in negotiations were cut short by the subsequent which only partial subsets of the nations participate repeal of Australia’s carbon price, the progress in international market cooperation. We find the made toward developing the link brings lessons for global use of carbon markets could allow the world bottom-up cooperation, as envisioned under the to nearly double climate ambition relative to current Paris Agreement. This paper draws on the authors’ Paris pledges (NDCs) over 2020–2035, without first-hand experience negotiating the link, and increasing total global costs compared to a base interviews with key players in the negotiations to case without international markets. Since avoided draw lessons regarding the drivers of, and barriers deforestation is such a large source of low-cost to, cooperation. Moreover, it considers several mitigation, linking reduced deforestation to an unanswered questions regarding the practical international carbon market is a key driver of the design of international linking agreements. In doing potential ambition gains. Significant ambition gains so, the paper addresses the broader implications of remain under partial coverage scenarios with less linking for the political economy of carbon markets than half of global emissions linked via markets, and climate clubs, to assess how linking policy based on a “heat map” analysis of countries’ market design interacts with domestic and international readiness, and scenarios with policy uncertainty political processes. that causes market actors to delay mitigation. 58 CPLC Research Conference Report ANNEX ONE P RO G RAM AG E N DA* DAY 1: FEBRUARY 14, 2019 TIME SESSION SPEAKERS 8:00am Registration INAUGURAL SESSION: STEIN AUDITORIUM 9:00am Welcome Remarks John Roome, World Bank Gérard Mestrallet, CPLC High-Level Assembly Co-Chair 9:20am Keynote Address Lord Nicholas Stern, London School of Economics 9:40am Opening Panel: Panel discussion on the importance Mahendra Singhi, Dalmia Cement of research and evidence for effective carbon pricing VK Duggal, Asian Development Bank design and implementation Sergey Paltsev, Massachusetts Institute of Technology Chair: Susanne Åkerfeldt, Ministry of Finance, Sweden Tomasz Chruszczow, Ministry of Environment, Poland 10:40am CPLC Secretariat Messages Angela Naneu Churie Kallhauge, CPLC Secretariat Conference Co-Chair Messages and Context-Setting Andrei Marcu, European Roundtable on Climate and Sustainable Transition Michael Mehling, Massachusetts Institute of Technology 11:00am Break MORNING SESSIONS: Concurrent Sessions for Themes 1–3 Theme 1: Learning from Theme 2: Carbon Pricing Theme 3: Concepts and Methods—Theory, Assessment, Experience Design—International and and Performance Review (Silver Oak 1) Conceptual Perspectives (Amaltas) Chair: Malin Ahlberg (Gulmohar Hall) Chair: Grzegorz Peszko Chair: Sergey Paltsev William Acworth Alexander Golub Gautham Prabhu Emissions Trading around Theoretical Analysis of Carbon Pricing Risk Premium: Theory and the World: A Status Update a Twin Deferral Strategy Concepts, with Live Demonstration and the Risk-Adjusted Price of Carbon 11:30am- 1:00pm Ryan Rafaty Meriem Hamdi-Cherif Global Gargi Sharma Has Pricing Carbon Carbon Pricing: When and Lessons Learned from Carbon Pricing Disclosure Reduced Aggregate What Flexibilities Revisited in CDP Data Emissions? Evidence in a Second-best Framework from 25 OECD Countries Govinda R. Timilsina Arjuna Dibley and Rolando John Byrd Carbon Pricing: What Garcia Miron Internal Carbon Pricing and Carbon Emission Reductions: have we learned from Creating a Climate for An Analysis of Early and Second Round Adopters versus Empirical Studies Change? Carbon Pricing Non-Adopters and Long-Term Policy Reform in México 1:00pm Lunch AFTERNOON SESSIONS: Concurrent Sessions for Themes 2–3 (continued) Theme 1: Learning from Theme 2: Carbon Pricing Theme 3: Concepts and Methods—Theory, Assessment, Experience Design—Subnational and and Performance Review 2:00- (Silver Oak 1) Corporate Perspectives (Amaltas) 3:00pm Chair: William Acworth (Gulmohar Hall) Chair: Rachael Jonassen Chair: Neha Mukhi *For the thematic tracks, some titles of the research papers were modified to accommodate the agenda. Annexes 59 Susanne Åkerfeldt Martin Rabbia Naina Khandelwal An Update on Work on Patterns of Electricity Estimating Effective Carbon Prices at the Sector and Carbon Taxation within the Consumption and Carbon National Level: Taking into National Level: Taking into UN Committee Pricing in Subnational Account Fossil Fuel Subsidies Jurisdictions in Argentina Luisa Dressler Aditi Maheshwari Sachintha Fernando 2:00- The Use of Revenue Construction Value Chain: The Environmental Effectiveness of Carbon Taxes: 3:00pm from Carbon Pricing A Practical Application A Comparative Case Study of the Nordic Experience Perspective Jens Ewald Jivahn Moradian Shiran Victoria Shen Carbon Tax in the Building A Proposal for a Carbon Fee Pricing Carbon to Sector: A Comparison of and Dividend Policy in the Contain Violence European Countries State of New Jersey PLENARY: STEIN AUDITORIUM 3:00- Conversation on Article 6: Lessons from Katowice 4:00pm •Abdelrahman M. Al-Gwaiz, Ministry of Energy, Industry and Mineral Res., Saudi Arabia VK Duggal, Asian Development Bank (ADB) •Dirk Forrister, International Emissions Trading Association (IETA) •Nathaniel Keohane, Environmental Defense Fund (EDF) •Chair: Andrei Marcu, European Roundtable on Climate and Sustainable Transition 4:00pm Break PLENARY: STEIN AUDITORIUM 4:30- Roundup Session Designated Rapporteurs, facilitated by the 5:30pm Reporting back and reflecting on the day’s discussions and Conference Co-Chairs their relevance for decision making in policy and practice 5:30pm Adjourn 6:30pm Reception DAY 2: FEBRUARY 15, 2019 TIME SESSION SPEAKERS 8:00am Registration PLENARY: STEIN AUDITORIUM 9:00am- Carbon Pricing in Practice - Experiences from Around Vivek Adhia, WRI India 10:00am the World with updates on: Susanne Åkerfeldt, Ministry of Finance, Sweden • World Bank efforts to build market readiness Enrique Lendo Fuentes, CPLC Steering Committee, Mexico • Acceptance of the Swedish carbon tax Jackie Mercer, Government of Canada • Canada’s experience with carbon pricing Venkata Putti, World Bank Latin American experiences with carbon taxation • Carbon pricing and the private sector in India • Chair: Michael Mehling, MIT • 10:00am Setting the Context for Themes 4–6 Conference Co-Chairs 10:30am Break MORNING SESSIONS: Concurrent Sessions for Themes 4-6 Theme 4: Political Theme 5: Decarbonizing Theme 6: Emerging Frontiers Economy: Distributional the Economy: Carbon (Amaltas) Effects, Political Pricing and Development Chair: Michael Mehling Acceptance, Revenue Use (Gulmohar Hall) (Silver Oak 1) Chair: Emilio Lèbre La Rovere Chair: Andrei Marcu 11:00am- Ryan Rafaty Rachel Cleetus Tamiksha Singh 12:30pm Making Carbon Pricing Carbon Pricing Design Preparing India for Future Carbon Markets Work for Citizens Options to Address Building on India’s PAT and REC Schemes for the CoPollutant Hotspots Post2020 Markets Kerstin Burghaus Michael Flaherty Johannes Ackva Lobbying, Relocation Risk Financing Low-Carbon Comparative Analysis of the Stringency of Heterogenous and Allocation of Free Transitions through Carbon Carbon Pricing Instruments: An Applied Approach Allowances in the EU ETS Pricing and Green Bonds 60 CPLC Research Conference Report Gabriela Mundaca Martin Burian Henrique Schneider Carbon Pricing to Reduce Leveraging Private Sector Blockchain and Double Counting 11:00am- Carbon Emissions from Investment in Energy 12:30pm International Goods Efficiency: Pilot Case Transport Studies of Selected African Countries 12:30pm Lunch PLENARY: STEIN AUDITORIUM 1:30pm Carbon Pricing and Air Quality Marta Martinez Sanchez, Iberdrola Annela Anger-Kraavi, University of Cambridge and Climate Strategies Chair: Neha Mukhi, World Bank Group AFTERNOON SESSIONS: Concurrent Sessions for Themes 4-6 (continued) Theme 4: Political Theme 5: Decarbonizing Theme 6: Emerging Frontiers Economy—Distributional the Economy—Policy (Amaltas) Effects, Political Choice and Interactions Chair: Malin Ahlberg Acceptance, Revenue Use (Gulmohar Hall) (Silver Oak 1) Chair: Rachael Jonassen Chair: Susanne Åkerfeldt Sergey Chestnoy Daniela Gutiérrez Torres Grzegorz Peszko Global Carbon Pricing as a Interaction between the Carbon Taxes that even Fuel Mechanism to Strengthen Carbon Tax and Renewable Exporters Could Like Competitiveness and Energy Support Schemes in Reduce GHG in Colombia: Complementary Energy-intensive or Overlapping 2:30- Trade-exposed Sectors 4:00pm Brian Walsh William Acworth Ruben Lubowski Making carbon taxes Emissions Trading Estimating the Power of International propoor using cash and Electricity Sector Carbon Markets to Increase Ambition transfers in Latin America Regulation: A Conceptual Framework for Understanding Interaction between Carbon Prices and Electricity Prices Nathaniel Keohane Peter Janoska Carbon Stuart Evans Competitiveness of pricing and the energy Australia–EU ETS Linking Negotiations: Emissionsintensive Trade- sector: optimizing Lessons for the Post-Paris World exposed Sectors in Canada policy packages 4:00pm Break PLENARY: STEIN AUDITORIUM 4:30- Roundup Session Designated Rapporteurs, facilitated by the 5:00pm Reporting back and reflecting on the day’s discussions and Conference Co-Chairs their relevance for decision making in policy and practice 5:00- Closing Plenary Ajay Mathur, The Energy and Resources Institute (TERI) 6:00pm •Panel discussion on the key takeaways from the Anirban Ghosh, Mahindra Group conference, their relevance for decision making, issues David Hone, Shell International requiring further reflection, and possible directions for Juan Angulo, Embassy of Chile future research •Facilitated by Andrei Marcu, European Roundtable on Climate and Sustainable Transition, and Michael Mehling, Massachusetts Institute of Technology •Message from Chile on the Road to COP25 CONFERENCE CLOSE 6:00pm Closing Remarks John Roome, World Bank Annexes 61 ANNEX TWO L IST O F ACRO N Y M S APEC Asia-Pacific Economic Cooperation CDM Clean Development Mechanism CEEPR Center for Energy and Environmental Policy Research CF&D Carbon Fee and Dividend CMA Conference of the Parties serving as the meeting of the Parties to the Paris Agreement COP Conference of the Parties CORSIA Carbon Offsetting and Reduction Scheme for International Aviation CO carbon monoxide CO2 carbon dioxide CPLC Carbon Pricing Leadership Coalition EITE emissions-intensive trade exposed ETS emissions trading scheme EU European Union EV electric vehicle GDP Gross Domestic Product GHG greenhouse gas GWh/yr gigawatt hours per year G7 Group of Seven G20 Group of Twenty ICP internal carbon price IEA International Energy Agency ITMOs internationally transferred mitigation outcomes JCM Joint Crediting Mechanism MIT Massachusetts Institute of Technology MSMEs micro, small, and medium enterprises NDCs Nationally Determined Contributions 62 CPLC Research Conference Report NMPC nonlinear model predictive control NOx nitrous oxide OBPS Output-based Pricing System OECD Organization for Economic Co-operation and Development PAT Perform, Achieve, and Trade PM Particulate Matter PMR Partnership for Market Readiness REC Renewable Energy Certificates REDD+ Reducing Emissions from Deforestation and Degradation RES-E renewable energy sources RGGI Regional Greenhouse Gas Initiative SDGs Sustainable Development Goals SOx sulfur oxide TCFD Taskforce on Climate-Related Financial Disclosures tCO2 metric ton carbon dioxide tCO2e metric ton carbon dioxide equivalent TERI The Energy Resources Institute UNFCCC United Nations Framework Convention on Climate Change US United States US$ US dollar VOC Volatile Organic Compounds WCI Western Climate Initiative WTP willingness to pay € euro Annexes 63 64 CPLC Research Conference Report