BRIEFING: The World Bank’s triple-play for the future of carbon pricing

Published 09:16 on March 8, 2016  /  Last updated at 12:38 on March 10, 2016  /  Climate Talks, Conversations, International, Kyoto Mechanisms, New Market Mechanisms  /  No Comments

During its more than 15 years of involvement in carbon finance, the World Bank has shifted focus several times but remains keen on having a prominent role in shaping the carbon instruments of the future by spearheading three major initiatives.

During its more than 15 years of involvement in carbon finance, the World Bank has shifted focus several times but remains keen on having a prominent role in shaping the carbon instruments of the future by spearheading three major initiatives.

It has widened its outlook from an initial, more direct role of raising and managing funds from industrialised nations for buying carbon credits generated by activities in the developing world – an approach that has had mixed results.

The Bank aims to have a leadership role in shaping the next generation of carbon pricing instruments by convening experts and stakeholders around three groups in particular.

They all meet this week in Zurich with the aims of maintaining momentum built up at the December UN climate summit and beginning work on how carbon pricing is incorporated into the Paris Agreement.

The four-day session includes the formal launch of an ETS Handbook by the World Bank and ICAP that intends to guide policymakers in designing carbon markets, gleaning lessons from the programmes already operating across four continents, 35 countries, 12 states/provinces and seven cities, which collectively cover 40% of global GDP.

Below are profiles of the three World Bank-led initiatives, including interviews with the three senior World Bank officials driving each of them to learn how they see each one progressing:

 

CREATING – The Partnership for Market Readiness (PMR)

The $127 million PMR was formed in 2012 as a programme to promote and encourage carbon pricing in emerging economies beyond developing. Despite some worries about the pace of its delivery, it is now reaching the stage where much of its activity is shifting from preparing proposals and allocating funding to implementing those plans.

Last year, several of the 13 industrialised donor nations, as well as an independent evaluation, flagged concerns about transparency and the rate the PMR was channelling cash and the transparency of this process.

A year on, the process has inched forward. Three more nations – Brazil, Costa Rica and Morocco – have joined Chile, China and Turkey in completing the work required to start receiving and allocating cash.

“For some of these countries almost all their initial grant amount has been committed. It’s out the door,” said Adrien de Bassompierre, the World Bank’s lead PMR official.

A total $46 million has been allocated in 13 grants of $3-8 million each for this policy design and planning work.

The remaining four recipient nations have yet to complete their proposals, with Jordan and Peru on course to finish by the next PMR meeting in April, leaving only India and Tunisia.

Last year, California, Quebec, and Alberta all joined the PMR as technical partners, aiming to benefit from its knowledge sharing and market expertise as they refine their carbon pricing policies.

Kazakhstan has also joined the PMR as a technical partner eligible for funding, distinct from the other recipients as it already has an ETS in place, though the government’s commitment is in serious doubt after it last month suspended its carbon market until 2018.

With much of its current funding committed, de Bassompierre said that the PMR is approaching a crossroads where its members must decide whether to expand the partnership to new countries or give more money to the existing ones.

“We are considering expressions of interest from additional countries at the next meeting,” he said.

That session will be held in Lima, Peru, on Apr. 24-28.

 

STRENGTHENING – Carbon Pricing Leadership Coalition (CPLC)

The newest of the three initiatives, the CPLC had some high-level patrons help it off the ground, having been officially launched at last year’s UN climate summit by the leaders of Chile, Ethiopia, France, Germany and Mexico.

This high-level support is set to continue, though the likes of Angela Merkel, Francois Hollande and Michelle Bachelet could be substituted with other leaders from among the CPLC’s other 20+ national and sub-national jurisdiction members.

“We are looking to reconstitute the high-level dialogues this year to inspire actions. We are deciding on the next steps,” said Tom Kerr, the World Bank’s lead official on the CPLC.

One of the coalition’s aims is to provide a talking shop for governments and multinational corporations, with the aim of smoothing any potential roadblocks to carbon pricing legislation.

This might work to avoid the delays or indefinite halts to such efforts that have occurred in places like Brazil’s Rio de Janeiro or South Africa, while South Korea’s policies could be about to undergo substantial changes after fierce industry protests.

For the CPLC, it might involve global-level discussions about policy or acting as in-country facilitators.

“The idea is to come in as an interested third party to broker solutions,” said Kerr.

Around 100 companies are now CPLC members, with the group aiming to expand its fee-free membership beyond the current EU-heavy weighting towards the energy and consumer goods sectors.

“We are trying to bring in more from energy markets, aviation, and banking, for example. We want to make sure we have a full view of those involved,” said Kerr.

While many big companies have historically been seen as putting the brakes on climate action, Kerr hopes the CPLC will help firms speed up the expansion of carbon pricing with the aim of creating a global level playing field.

“A lot are doing internal carbon pricing and we want to push them to take it to the next level to engaging with countries.”

Part of this work will involve studying what kind of prices are required to deliver effective levels of abatement.  Most existing regimes are currently oversupplied, with prices below $10 a tonne.

“Measuring the effectiveness of carbon pricing is a bit of a political minefield, but we will be having discussions around what kind of prices we might get to, the possibility of introducing pricing bands, and what levels might be needed.”

The CPLC is also aiming to curate studies and experience from around the world, intended to aid jurisdictions as they implement carbon pricing.

“We are drawing lessons from the emerging experience,” said Kerr, who picked out California’s green fund, the EU’s bundling of its climate and energy ambitions under a single package, and British Colombia’s safeguards for its poorer citizens as particular stand-outs.

 

CONNECTING – Networked Carbon Markets (NCM)

International carbon pricing has undergone a massive shift from the top-down, global market that some envisaged would have been in place by now to the reality of a much looser situation of over 60 carbon pricing instruments worldwide, most of which are fundamentally different from each other.

For three years, the NCM has taken stock of these bottom-up developments.  It has examined how the various approaches could be compared, in a tentative step towards improving the prospects of linking them and tapping into the resulting economic efficiencies that could ensue.

“We are exploring what it might take to recognise differences as a basis for trade. This is very much still a blue sky thinking,” said Bianca Sylvester, a World Bank official heading the initiative, whose members are drawn from civil society, governments and the private sector.

The work is politically sensitive though, as negotiations towards a global carbon market initially floundered.  They were hampered by mistrust among developing countries that such a regime could open loopholes for the industrialised world to buy its way out of cutting emissions while doing little to foster sustainable development in poorer nations.

Much of this work has involved funding academic studies and taking soundings from the private sector, as well as assessing what information would be useful to promote linking beyond the very similar markets that have tried it so far, such as California and Quebec, and the EU and Switzerland.

Part of this has been to break down the elements of different mitigation efforts to enable a way of rating the initiatives, as ratings agencies do now for corporate and government debt, to give jurisdictions more confidence to attempt to link them.

The NCM aims to be ready in the coming months to test how the various theories would apply.

“Our end goal this year is to be in a position to test some of these in a linking simulation exercise,” said Sylvester.

“To get to that point, we need to do a lot of quantitative modelling work over the next six months on the potential impact of trade flows and the direction of trade for different options.”

By Ben Garside – ben@carbon-pulse.com

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