The path to­wards car­bon pric­ing

Financial Mirror (Cyprus) - - FRONT PAGE -

In just six weeks, world lead­ers will meet in Paris to ne­go­ti­ate a new global cli­mate-change agree­ment. To date, 150 coun­tries have sub­mit­ted plans de­tail­ing how they will move their economies along a more re­silient low-car­bon tra­jec­tory. Th­ese plans rep­re­sent the first gen­er­a­tion of in­vest­ments to be made in or­der to build a com­pet­i­tive fu­ture with­out the dan­ger­ous lev­els of car­bon-diox­ide emis­sions that are now driv­ing global warm­ing.

The tran­si­tion to a cleaner fu­ture will re­quire both gov­ern­ment ac­tion and the right in­cen­tives for the pri­vate sec­tor. At the cen­ter should be a strong pub­lic pol­icy that puts a price on car­bon pol­lu­tion. Plac­ing a higher price on car­bon-based fu­els, elec­tric­ity, and in­dus­trial ac­tiv­i­ties will cre­ate in­cen­tives for the use of cleaner fu­els, save en­ergy, and pro­mote a shift to greener in­vest­ments. Mea­sures such as car­bon taxes and fees, emis­sions-trad­ing pro­grammes and other pric­ing mech­a­nisms, and re­moval of in­ef­fi­cient sub­si­dies can give busi­nesses and house­holds the cer­tainty and pre­dictabil­ity they need to make long-term in­vest­ments in cli­mate-smart de­vel­op­ment.

At the In­ter­na­tional Mone­tary Fund, the fo­cus is on re­form­ing its mem­ber coun­tries’ fis­cal sys­tems in or­der to raise more rev­enue from taxes on car­bon-in­ten­sive fu­els and less rev­enue from other taxes that are detri­men­tal to eco­nomic per­for­mance, such as taxes on labour and cap­i­tal. Pric­ing car­bon can be about smarter, more ef­fi­cient tax sys­tems, rather than higher taxes.

Car­bon taxes should be ap­plied

com­pre­hen­sively

to emis­sions from fos­sil fu­els. The price must be high enough to achieve am­bi­tious en­vi­ron­men­tal goals, in align­ment with na­tional cir­cum­stances, and it must be sta­ble, in or­der to en­cour­age busi­nesses and house­holds to in­vest in clean tech­nolo­gies. Ad­min­is­ter­ing car­bon taxes is straight­for­ward and can build on ex­ist­ing road fuel taxes, which are well es­tab­lished in most coun­tries.

Car­bon pric­ing will be in many coun­tries’ best in­ter­ests, ow­ing to the many do­mes­tic en­vi­ron­men­tal ben­e­fits. For ex­am­ple, burn­ing cleaner fu­els helps to re­duce out­door air pol­lu­tion, which, ac­cord­ing to the World Health Or­gan­i­sa­tion, cur­rently causes about 3.7 mil­lion pre­ma­ture deaths a year.

It is vi­tally im­por­tant to ad­dress the im­pact of en­er­gyprice re­forms on vul­ner­a­ble groups in ev­ery so­ci­ety. So th­ese re­forms will need to be ac­com­pa­nied by ad­just­ments to fis­cal sys­tems and safety nets, among other things, to en­sure that the poor are not harmed.

The World Bank Group is sup­port­ing coun­tries and busi­nesses as they de­velop cli­mate-friendly pub­lic poli­cies, in­vest in car­bon mar­kets, and ex­plore financial in­no­va­tions to ease into low-car­bon tran­si­tions. The Group is lever­ag­ing its ex­pe­ri­ence and global reach for learn­ing and knowl­edge ex­change through pro­grams like the Part­ner­ship for Mar­ket Readi­ness.

From that ex­pe­ri­ence, we have de­vel­oped, along­side the OECD, ini­tial prin­ci­ples to help guide and in­spire fu­ture car­bon-pric­ing schemes. By draw­ing on th­ese prin­ci­ples, coun­tries, re­gions, states, and busi­nesses can move faster to tackle the cli­mate chal­lenge con­fronting us all. The prin­ci­ples are based on fair­ness; align­ment of poli­cies and ob­jec­tives; sta­bil­ity and pre­dictabil­ity; trans­parency; ef­fi­ciency and cost­ef­fec­tive­ness; and re­li­a­bil­ity and en­vi­ron­men­tal in­tegrity.

To help achieve our cli­mate ob­jec­tives, we need to pro­mote di­a­logue about the nec­es­sary pol­icy mea­sures be­fore and be­yond the cli­mate-change con­fer­ence in Paris. That is why we are an­nounc­ing a “Car­bon Pric­ing Panel,” which will bring to­gether heads of state, city and state lead­ers, and rep­re­sen­ta­tives of top com­pa­nies to urge coun­tries and busi­nesses around the world to put a price on car­bon.

Th­ese lead­ers have taken steps to price car­bon pol­lu­tion and catal­yse greener in­vest­ment in their own coun­tries and re­gions. They in­clude Ger­man Chan­cel­lor An­gela Merkel, Chilean Pres­i­dent Michelle Bachelet, French Pres­i­dent François Hol­lande, Ethiopian Prime Min­is­ter Haile­mariam De­salegn, Philip­pines Pres­i­dent Benigno Aquino III, Mex­i­can Pres­i­dent En­rique Peña Ni­eto, Gover­nor Jerry Brown of Cal­i­for­nia, and Mayor Ed­uardo Paes of Rio de Janeiro.

Car­bon pric­ing poli­cies are al­ready be­ing im­ple­mented by some 40 na­tional gov­ern­ments, in­clud­ing that of China, the world’s largest emit­ter, and 23 ci­ties, states, and re­gions that are putting a price on car­bon. Many other gov­ern­ments also are re­form­ing en­ergy prices, and more than 400 com­pa­nies re­port us­ing a vol­un­tary, in­ter­nal car­bon price. That makes sense. Top com­pa­nies must ef­fec­tively man­age ex­po­sure to cli­mate risk in or­der to gen­er­ate higher prof­its and en­sure more sta­ble earn­ings.

All of th­ese ac­tions are wel­come; but we view them as be­ing only ini­tial steps. To­gether with the lead­ers of the Car­bon Pric­ing Panel, we call on gov­ern­ments to seize the mo­ment – for the sake of the planet and fu­ture gen­er­a­tions – to put a price on car­bon pol­lu­tion that re­flects the en­vi­ron­men­tal dam­age it causes. We stand ready to sup­port gov­ern­ments that act. The longer we wait, the costlier and more dif­fi­cult it will be for us – and our chil­dren and grand­chil­dren – to pro­tect the planet.

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