Strong carbon pricing essential to combat climate change

08 August 2019

Carbon pricing was first introduced to make clearer to people the cost of their consumption on the wider global climate. However, current carbon price schemes are neither extensive enough nor do they have a sufficiently high impact, according to a recent report.

Transforming the global economy to meet the Paris Agreement will require considerable effort on behalf of consumers, businesses and governments globally. In line with this, a group of super funds and investors with $34 trillion under management recently called on world leaders to limit warming via an adequate price on carbon emissions.

A recent report from The World Bank, in association with Navigant, has explored current trends in global carbon pricing mechanisms. A large number of such schemes exist across the globe, with wildly varying levels of commitment, price and efficacy.

Carbon emissions covered by current schemes

As it stands, around 15% of global carbon emissions are covered by one of the 56 various schemes set up globally. This is projected to increase to around 20% in 2020, when the China national ETS comes into effect. The schemes, however, tend to have relatively limited scope in the jurisdictions in which they are set up.

The study notes that while there are currently 57 up and running or planned schemes, as part of the wider planning around governments meeting the Paris Accord, around 96 countries, representing 55% of GHG emissions, have indicated that carbon pricing is set to be part of their NDC. Of those, 84 mention an international price on carbon as part of their NDC.

For instance, the EU’s ETS covers less than half of the region’s carbon emissions, while the UK carbon price floor covers just over 20% of emissions. Few schemes are higher than 50%, with notable exceptions the Quebec CaT and the California CaT which respectively cover 85% of emissions.

Current scheme emission coverage and relative pricing

Meanwhile the actual price of carbon covered remains well below the level required to meet the 2C Paris Accord targets. The price for cost-effective fulfilment of the agreement would be $40–80/tCO2 by 2020 and US$50–100/tCO2 by 2030. As it stands, the EU ETS is closer to $25/tCO2, with a similar level for the UK scheme. The only countries to be above the low-end range with their pricing are France, Finland, Lichtenstein, Switzerland and Sweden.

John Roome, Senior Director, Climate Change Group, World Bank, said of the findings, “Article 6 of the Paris Agreement offers a major opportunity to lower the costs of mitigation action and enable higher climate ambition… Several pilot programmes have started, some of which are being supported by the World Bank that can enable us to test design options and identify challenges and innovative solutions. Pricing carbon pollution is a crucial tool for driving investment and action in the right direction. Getting our prices right, and doing it now, is key to achieving climate and development goals.”