Even as the first generation of the carbon market stutters, a robust price on carbon has never been more important if we are to avert dangerous climate change.
Current greenhouse gas emission pledges place the world on a trajectory for warming of well over 2°C, even if they are fully met. We know now that the goal adopted by the international community, to keep the average global temperature increase to 2° C – brings serious risks. A disastrously warming planet is not just an environmental challenge – it is a fundamental threat to any effort to end poverty and threatens to put prosperity out of the reach of millions.
In order to better understand the impact of climate change on development, the World Bank commissioned a scientific report, Turn Down the Heat: Why a 4°C Warmer World Must Be Avoided. The report concluded that the world will warm by 4°C, on average, by the end of this century with devastating consequences if we don’t take concerted action now.
Inside the World Bank Group, we are stepping up our mitigation, adaptation and disaster risk management work, and immediately ramping up our work with others to:
i) build low-carbon, climate-resilient cities by mobilising direct finance and expertise, and by helping fast-growing cities avoid locking in carbon-intensive infrastructure;
ii) move forward on climate-smart agriculture through building an action alliance to realise the triple win of increased yields and income, making farms more resilient to climate change, and helping to sequester carbon in the soil; and
iii) work with others to accelerate energy efficiency, investment in renewables and universal access to modern energy.
But we recognise that our work, alone, is not enough. We need a global response that will drive mitigation action in top emitting countries, get incentives and prices right, and get finance flowing to drive low-carbon growth. We need a response equal to the scale of the climate problem, a response that puts us on a new path to ending poverty and building shared prosperity.
In our view, that global response should include supporting the removal of harmful fossil fuel subsidies and placing a robust and predictable value on carbon. We are committed to continue working with others to pursue both ideas.
Let’s be clear: as a first step towards climate action, we need high-level political commitment and ambitious national emission reduction targets.
A strong price signal in major economies is essential to establish the right incentives and to direct financial flows away from carbon-intensive growth to low-carbon investments.
A carbon price can be achieved through markets or taxes, and different instruments will be appropriate in different countries for different sectors of the economy. But market-based mechanisms are likely to deliver large-scale emission reductions more efficiently and quickly – and with the climate problem, time is not our friend.
A larger and liquid global market will also support the necessary level of ambition for reducing emissions as it would drive down the cost of mitigation, catalyse innovation and mobilise investment in low-carbon technology worldwide.