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National carbon prices and similar mechanisms are urgently
needed as a part of countries' concrete national net-zero policies,
International Energy Agency (IEA) Executive Director Fatih Birol
told the World Bank Group's virtual climate action event
Innovate4Climate on 26 May.
The IEA recently released a report describing how a rapid
rise in global emissions in 2021 means that various actors should
take more serious measures, such as ending fossil fuel production
this year.
Birol warned governments' net-zero declarations are not enough,
and the gap between their targets and reality is getting wider. He
explained that what is needed is a suite of policies that would
speed the transition.
Specifically, governments should declare targets that can be
monitored and tracked by the public; create policies to transition
national energy sources to, for example, offshore wind; enact
carbon pricing; and ensure a "just transition" and energy security
for the poorest in society.
"So, if we leave everything as it is, and if governments do not
take any measures such as carbon pricing, clean and renewable
energy will increase, but the pace of increase will be so slow that
we have no chance whatsoever. We need innovation, new technologies,
investing in new technologies like hydrogen, battery storage and
others in order to give the unmistakable signal to investors to
invest in these technologies," said Birol.
Carbon pricing is needed in the short term, "first to punish the
bad, and second, to incentivize the good," he said. However, carbon
pricing alone will not be sufficient, and must be paired with "a
suite of policies," emphasized Birol.
The World Bank works with countries as they design their
low-carbon development policies, said World Bank Managing Director
of Development Policy and Partnerships Mari Pangestu. It is also
helping to phase out fossil fuel subsidies that drive both
emissions and social inequality.
Pangetsu agreed with Birol that national plans are the key. They
should be backed by targets for transport, energy, and agriculture
sectors, with governments bolstering public support by touting
their positive impacts on job creation and quality of life.
Shadow carbon pricing belongs to a "toolbox" of policies serving
similar functions like emissions trading, tradable performance
standards, and fuel taxes and subsidies. Countries should pick some
to suit their circumstances, she advised.
The World Bank is taking a tailored approach to development,
Pangestu said. "So, we are working and supporting countries to
design the best policy for them. It tends to be very
country-specific. We have to listen to the countries' needs and
priorities. You know, if their priority isn't revenue, then it
probably has more to do with taxes and subsidy reforms, as well as
emissions trading systems. If it is simple governance, then
actually carbon taxes are better, but politically very difficult
compared to emission trading systems."
She added that fuel subsidy reforms are the most difficult
politically. "Policies like fuel subsidy removal lead to high price
inflation. How do you repurpose that subsidy to help the poorer
households create? We have used it also to build infrastructure,
improving growth," said Pangestu.
Global aims for carbon markets
While at the 12th Petersburg Climate Dialogue on 6 May, German
Chancellor Angela Merkel called a global carbon market "desirable,"
but despite talk of a global carbon market, there is no
international consensus on a carbon price strategy yet.
One group attempting to help form a global consensus is the Task
Force on Net Zero Goals and Carbon Pricing, which was launched by
the World Bank's voluntary initiative, Carbon Pricing Leadership
Coalition (CPLC), at the Paris Climate Conference (COP21) in
2015.
Speaking at Innovate4Climate, the two co-chairs of the Task
Force launched a draft report that they hope will
contribute to global adoption of carbon pricing.
The report said countries should use shadow carbon prices to
ensure carbon market prices remain sufficiently high. "Carbon
pricing, fortunately, already exists in about 81 countries, but the
level of government carbon prices is not high enough. We need to do
better. We need to increase the level of ambition so that carbon
prices deliver all their potential. One way of making this happen
is making governments adopt internal carbon prices, or shadow
prices, so they can guide their investment decisions. So that any
major corporation deciding about a project can incorporate this in
its decision," said co-chair Mauricio Cárdenas, who is also a
visiting Senior Research Scholar at the Center on Global Energy
Policy at Columbia University.
Funds collected with carbon prices should be used to protect the
poor during the energy transition, according to the report. "The
revenues collected with carbon prices help governments to reduce
energy poverty, and reach out to the poor. We also find these need
to be accompanied by active policies to ensure a just transition
for workers and communities, and to ensure that socially vulnerable
groups are not further marginalized in the process of reaching net
zero. This is an important recommendation from the Task Force's
work," said Cárdenas.
National and corporate internal carbon prices should also be
made public, alongside net zero trajectories and progress, so that
comparisons can be made. The availability of this data for public
scrutiny plays into what the report calls "a social license for
carbon pricing."
Posted 28 May 2021 by Cristina Brooks, Senior Journalist, Climate and Sustainability
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