Leading global businesses back carbon pricing

Over 100 international companies, including Shell, Unilever, Cathay Pacific, EDF Energy, Braskem, Statoil, Swiss Re, Ricoh and Skanska, have endorsed the Carbon Price Communiqué, which was presented to the European Commissioner for Climate Action, Connie Hedegaard, and Ambassadors to the EU last week in Brussels.

The Communiqué, signed by over 80 international companies, calls on policymakers to focus on achieving a clear and effective global carbon price as a way of driving substantial reductions in greenhouse gas emissions.

It cites the progress made in some advanced developing countries and regions that are starting to implement cap and trade programmes alongside other measures and calls for such measures to be expanded.

The Communiqué notes that the growing variability, intensity and uncertainty of the Earth’s climate is already affecting communities, markets and business operations, and calls for a clear, stable, ambitious and cost-effective policy framework is essential to underpin the investment needed to deliver substantial greenhouse gas emissions reductions by mid-century.

However a convincing strategy to reduce emissions at a pace and scale commensurate with the 2°C goal agreed at the UN climate negotiations in Cancun continues to evade the global community the Communiqué notes. Progress at both national and international levels, while laudable, remains piecemeal and inadequate.

To emphasize the importance of concrete action, the Communiqué notes the private sector invests trillions of dollars into energy and other infrastructure projects, but, in most cases the goal of reducing GHG emissions does not guide such spending. A more effective approach is required, one that provides the right incentives to shift this private investment and makes best use of the limited pool of public funds.

Putting a clear, transparent and unambiguous price on carbon emissions must be a core policy objective, it states

“Although there are a number of mechanisms that can be used to do this, as businesses we would focus on working through the market, utilizing approaches such as emissions trading which offer both environmental integrity and flexibility for business. A price on carbon will reveal the lowest cost pathway to existing emissions reduction goals and can open the door to increased ambition. Such increased ambition is vital if we are to prevent dangerous anthropogenic interference with the climate system”.

The Communiqué argues that with the right approach a carbon price will also help engage consumers and incentivize behaviour change. It therefore urges policy-makers to focus on introducing a clear carbon price framework in a stable and timely manner, namely:

•Make carbon pricing a central part of national policy responses.

•Work towards the long term objective of a carbon price throughout the global economy.

•Set sufficient ambition through internationally agreed targets to drive change at a pace commensurate with the 2°C goal.

To meet the longer term aspiration of embedding a carbon emissions price within the entire global economy, governments should work bilaterally and multilaterally to ensure common design elements between different market systems and to link up compatible systems. This will offer the greatest opportunity for business investment and deliver the maximum achievable ambition without unwarranted economic disruption.

The Communiqué states that effective carbon pricing offers the potential to mobilize finance at a scale that can impact the climate challenge.

“The investment signal of a strong carbon price leverages finance from the private sector and redirects it to lower emission outcomes.”

Carbon pricing schemes can also provide public revenue to supplement private investment in the development and demonstration of new low-carbon technologies, it notes, a point that has been stressed in recent work by GLOBE Advisors in its analysis of the clean economies of California, Washington, Oregon and british Columbia.

However, notes the Communiqué, a key lesson from existing policies is that “without sufficient ambition the carbon price signal will not effectively drive investment or raise significant funds.”

The Communiqué recognizes that carbon pricing can be contentious, noting that in economic downturns businesses, consumers, and governments all worry about constraints on the economy.

“But experience has shown that carbon pricing as an approach can deliver greater emissions reductions at lower cost than predicted which in turn offers the opportunity for greater ambition.” it states.

While it is vital that placing a price on carbon is essential for long term economic growth, the Communiqué warns that carbon pricing alone should not be considered a silver bullet, but must be deployed in combination with other locally appropriate policies.

Noting that the scope for change is enormous, the signatories to the Communiqué call upon policymakers nationally, regionally and internationally to show leadership and deliver this change.

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