COMMENT: Carbon Pricing – an upward trend driven by credible expectations

Published 16:54 on September 13, 2016  /  Last updated at 16:55 on September 13, 2016  /  Contributed Content, Other Content  /  No Comments

Philippe Joubert of the Global Electricity Initiative writes on how companies are increasingly taking the initiative in setting their own carbon pricing to prepare for policies to come.

By Philippe Joubert, Executive Chair, Global Electricity Initiative, World Energy Council France and speaker at the World Energy Congress 2016, Istanbul.

With almost 40 countries and more than 20 cities and states already using a carbon pricing mechanisms in 2016, there is no doubt that we are already seeing an upward trend in carbon pricing globally. In the last decade, the share of CO2 emissions covered by a carbon pricing mechanism has increased threefold to 7GtCO2 or around 13% of overall greenhouse gas (GHG) emissions.

When we look at the rise of companies putting an internal ‘shadow price’ on carbon as reported by CDP last year, we can see 400+ organisations reporting. And very encouragingly, the largest increase from 2014 to 2015 came from emerging markets, particularly Africa and Asia.  Equally as encouraging is that close to 600 companies have said they will report on carbon in the next two years, showing this trend is just beginning.

The reason we are seeing carbon pricing increasingly supported by business, is not because they like the idea of increasing costs, but because they know the current price system is not sustainable.  They know a mandatory price on carbon will come eventually, but they do not know how high it will be, when it will come, and in which form. Above all, they want this price to reduce uncertainties.

Companies are starting to understand that adopting an internal carbon pricing is a great move for them. On top of helping to prepare for carbon pricing policies to come, it also helps to translate climate change risks and opportunities into credible financial terms, respond to increasing investor and customer demands on this matter, and finally test and learn the best approaches to carbon pricing for when policies do become mandatory. Finally, and critically, it helps companies to start orientating their portfolio of research projects and investments in the right direction and avoid future stranded assets, protecting enterprise value.

Countries are also moving to organise their local markets, which will be soon interconnected. We have already seen this at the European level, and the convergence will accelerate once China has joined, bringing the share of emissions covered from 13% to 25%.

The Carbon Pricing Leadership Coalition, officially launched in Paris during COP21, is a key part of this upward trend.  It’s aim being to accelerate carbon pricing around the world.  At the beginning of this year it set out a vision statement to increase coverage of GHG emissions by carbon pricing tools two-fold by 2020 and four-fold by 2030, to reach 50% coverage of global emissions.

We know that business acts on expectation, and with a coalition of 26 governments some represented by their finance ministers, 120 companies including emblematic CEOs and banks, NGOs, academics and international institutions like the IMF and World Bank, the Carbon Pricing Leadership Coalition has the credibility and reach to bolster the effort and create a virtuous circle involving more and more economic agents.

Mr Joubert will discuss these issues and more at the upcoming 23rd World Energy Congress in Istanbul, Turkey.