On December 2nd, a high-level group of business leaders from international organizations and a Minister from Finland came together by invitation of Climate Leadership Coalition and the Call on Carbon initiative to discuss the global momentum of carbon pricing. The panelists agreed that while there is little progress towards global carbon pricing, many regional initiatives are currently under planning.
The speakers emphasised that ambition, action, and alignment of different approaches are needed, and that businesses’ requests are clear: there is pressure to find ways to do more for the climate, and it does not seem likely that net zero targets will be reached without market instruments.
“In the end, businesses want a properly aligned set of global policies” said John W.H. Denton AO, Secretary General of the International Chamber of Commerce.
Indeed, according to the World Bank, currently 73 different carbon pricing schemes (either ETS or tax-based mechanisms) cover almost a quarter (23%) of global greenhouse gas emissions, whereas a decade ago only 7% were covered. Although the percentage has increased overall, it has stagnated in recent years. Additionally, the average price of said carbon pricing instruments is well below the level recommended by the OECD and the IMF to effectively drive decarbonization.
“Systems are currently too fragmented and mechanisms vary so much that businesses have difficulties understanding and benefiting from them. Pricing mechanisms are especially needed in emerging markets, we have to make this fairer to ordinary people as well”, said Dr. Ngozi Okonjo-Iweala, Director-General of WTO.
“Why don’t we try to look for a way to harmonize these approaches?”, asked Dr. Okonjo-Iweala. The other speakers supported Dr. Okonjo-Iweala’s idea.
All the participating organizations (WTO, IMF, OECD, World Bank and ICC) are working to increase global support for carbon pricing mechanisms, as well as to provide tools to clarify their use to governments and businesses. The trickiest partner in the carbon pricing dialogue is the US, where it seems unlikely that carbon pricing will be discussed at the federal level, and instead supporting mechanisms like the Inflation Reduction Act (IRA) are being used. However, even US companies will face the carbon pricing question after the EU’s Carbon Border Adjustment Mechanism (CBAM) entered into its transitional phase in October 2023 and introduced a pricing instrument for exports from countries with no internal pricing systems.
Minister Anders Adlercreutz also raised the question of market mechanisms for carbon sinks and removals. These instruments would benefit forest owners in European countries (e.g., Finland), but also those in emerging markets (like many African countries), where there are vast natural resources. The discussion touched upon voluntary carbon markets as well, which are also under the discussion in COP28, as the details of Article 6 of the Paris Agreement are still unfinished.
The aim of the event was to discuss the role of intergovernmental organizations and possibilities for future collaboration in increasing the use of carbon pricing mechanisms globally. The participants were John W.H. Denton AO (Secretary General, ICC), Dr. Ngozi Okonjo-Iweala (Director-General, WTO), Ruud de Mooij (Deputy Director of the Fiscal Affairs Department, IMF), Axel van Trotsenburg (Senior Managing Director, World Bank Group), and Jo Tyndall (Director of the Environment Directorate, OECD). Anders Adlercreutz, Finnish Minister for European Affairs and Ownership Steering represented the governmental side in the discussion. The event was moderated by Tuuli Kaskinen, CEO of CLC.
What is next for Call on Carbon?
“This was a remarkable occasion as all international economic organizations were seated around the same table looking for a way to consolidate fragmented markets. Encouraging dialogue and boosting carbon pricing as a main tool to ramp-up climate investments continues, in the context of the COP official agenda too. Also, we will continue the collaboration with the Finance Ministers Coalition for Climate Action, which brings together fiscal and economic policymakers from over 90 countries”, tells Tuuli Kaskinen, CEO of Climate Leadership Coalition. “Our goal remains the same: Call on Carbon asks for effective, robust, reliable and fit-for-purpose carbon pricing instruments, as well as for governments to align their carbon pricing instruments to create a stable and predictable investment environment”, Kaskinen concludes.
The Call on Carbon initiative was founded in 2021 by CLC, Haga Initiative and Skift Climate Business Leaders. Leaders from more than 150 businesses, cities, universities and business associations with over USD 25 trillion market capitalisation and over USD 120 trillion assets under management in over 100 countries call on governments to ramp up carbon pricing.
More information: Tuuli Kaskinen, CEO, Climate Leadership Coalition, firstname.lastname@example.org, +358 50 5149752.