A new call for carbon pricing
In the lead up to the UN Climate Summit in September this year, the Abu Dhabi Ascent was held on May 4-5th as the only preparatory event. Former Vice President Al Gore was one of the keynote speakers and perhaps got the most tweeted line, which came in response to a question from the moderator regarding the single policy he would ask for if he had only one choice. He said, “. . . . put a price on carbon in markets and put a price on denial in politics”. In fact this is two things, but I wouldn’t expect anything less of Al Gore.
This comment set the scene for Rachel Kyte of the World Bank to launch their call for countries and companies to put a price on carbon. This isn’t the first time such a call has been made, but it is perhaps the first time such a call has been made directly to governments at a forum designed for governments by a multilateral agency linked with governments.
The call is a relatively simple one at this stage and fills a glaring gap in the UNFCCC agenda as it has been developing over recent years. Arguably the UNFCCC started the multilateral process back in the 1990s with a carbon pricing approach, in that the Kyoto Protocol is in part built around the idea of allowances, offsets and trading which in turn implies a price on carbon. Over time as the Kyoto Protocol has waned, talk of carbon pricing at the international level has gone in a similar direction. By the end of the Warsaw COP last year, all talk of markets and carbon pricing had been largely put to one side in favour of the efforts just to get everybody around the table and talking about contributions.
“Contributions” may be the political language of the day, but they will do little to stem emissions if carbon pricing isn’t core to the national effort underpinning said contributions. Some countries seem to have figured this out, but the actual price on carbon that currently prevails in those economies that have tried to create it is a far cry from anything that might actually make a difference. While the efforts to date may be a good start from the perspective of building the necessary national institutional capacity for carbon pricing, there is little evidence that governments, business and consumers are actually prepared to accept a carbon price that will deliver a tangible change in energy investment.
I would suggest that this is where The World Bank most needs to focus its attention. If not, I believe that we may end up with a complex system of carbon markets, linkages, trade and compliance all operating at under $10, which will look impressive on paper but in reality won’t make a difference to global emissions. The acid test for a carbon pricing system is its ability to deliver carbon capture and storage (probably with some additional fiscal support for the first generation of projects). At least for the next few decades, carbon pricing below this point may put a dent in the profitability of fossil fuels, but it won’t make them go away. This will inevitably lead to one thing – regulation. That might sound like the answer for some, but the reality will be a much higher cost for economies to bear for the same mitigation effort.