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Momentum for carbon pricing is growing (and the private sector is fueling it)


Blog by Cristina Belda Font

Cristina is a Spanish journalist working towards her master’s in journalism and globalisation at City University, London. You can follow her twitter on: @belda_font

From the beginning of the Paris Climate Summit, the world has expected a global agreement to cut greenhouse gas emissions and tackle climate change. Carbon pricing is seen as part of the solution.

Carbon pricing is the cost applied to carbon pollution to encourage polluters to reduce the amount of greenhouse gas they emit into the atmosphere. While no global carbon pricing policy has yet been broadly agreed to, the private sector is doing their homework. The scene has so far been dominated by negotiations about government commitments to reduce their carbon emissions. But there are other actors that are seeking to play a bigger role in the green economy transition: multinationals.

Business, the game changers

Countries and companies are more and more aware of the fact that polluting is not (or it should not be) free. The Carbon Pricing Leadership Coalition at COP1 is evidence of that. In fact, according to the World Bank, around 40 national jurisdictions and over 20 cities, states and regions, have adopted carbon prices, covering about 12% of global greenhouse gas emissions. These carbon prices, which come mostly as taxes, have increased three-fold over the past decade. Now, even crucial actors like China are expected to launch a national carbon market within four years.

In this context, even it is yet unclear whether an agreement in a global carbon pricing will be agreed upon soon, preparations are already underway in several companies. What’s more, corporations are incentivizing action on carbon reductions. Last June, six leading oil and gas companies called energetically for a framework that encourages global carbon pricing, saying this would be the most effective way of cutting the emission of greenhouse gases.

From Creative Commons:
Credit: Nubrig

Additionally, the 2014 Global Investor Statement on Climate Change, signed by more than 360 investors with more than $24 trillion in assets, also included a call for “stable, reliable and economically meaningful carbon pricing.”

The Carbon Disclosure Project, a not-for-profit organization that works with 822 institutional investors with assets of US$95 trillion, has been witnessing this trend for years. According to Kate Levick, director of policy and regulation, “An agreement in Paris which sets out a long term decarbonisation goal will inevitably lead to a greater interest in carbon pricing”.  For her, the willingness is already there.

“Expectations of disclosure and transparency for companies have been growing steadily for more than a decade. This accountability and ability to measure/manage is one of the underlying trends which has led to the real paradigm shift – that we now see a tipping point of companies prepared to take ambitious action on climate change in preparation for the transition to a 2 degree world”.

The 2015 report on carbon pricing from CDP, showed that 437 companies reporting using internal carbon pricing to gauge their risks and costs. The number increased from 150 companies in 2014.  Moreover, 638 companies report that they recognize that carbon regulation presents business opportunities.

The internal carbon price is voluntary but is used mostly as a financial planning tool. They can range from $20 per ton in the US to $150 per ton in Sweden. In some cases corporations use a much higher price than the one they currently have to pay in places with a government-mandated carbon pricing scheme, such as the EU’s emissions trading system, the world’s largest carbon market.

The benefits of environmental responsibility

There is no secret that more and more CEOs are buying the idea that pro-active disclosure of impacts and steps to address them would raise the recognition and stature of companies in the eyes of consumers, governments and shareholders. As the Huffington Post article Carbon Pricing and Investor Momentum: Game Changing Convergence and a New International Financial Language recalled “as investors become more attuned to minimizing environmental risks, and put together more environmentally favourable portfolios and funds, carbon pricing will concomitantly become a new factor to help decision-making”.

Mohan Kumar, lead researcher of Price Carbon Now!, a Canadian organization said: “Being socially responsible would lead to cost savings, innovation, brand differentiation, and customer and employee engagement”.  Also, it’s estimated that, on average, companies that voluntarily report their carbon emissions can save $1.5 million every year in interest repayments. In contrast, non-disclosure may result in penalties, loss of revenue and a tarnished reputation.

Companies generally tackle climate change in three ways: firstly, make emission reductions. Secondly, publicly disclose emissions reduction targets and finally invest in emissions reduction projects with positive returns. As Kumar remarks, many industries have already supported and/or adopted a shadow carbon price, which is the voluntary use of a notional market price for carbon in internal corporate financial analysis and decision-making processes.

Others are calling for system of tradeable permits, known as cap and trade, this has had echos in Paris.

There is still a long way to progres in this field but the experts agree that the next step is governments providing a clear, stable, and long-term policy framework to encourage companies to keep reducing carbon emissions.

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