The phrase put a price on carbon has now become well known with momentum growing among countries and business to put a price on carbon pollution as a means of bringing down emissions and drive investment into cleaner options.
So what does it mean to put a price on carbon, and why do many government and business leaders support it?
There are several paths governments can take to price carbon, all leading to the same result. They begin to capture what are known as the external costs of carbon emissions – costs that the public pays for in other ways, such as damage to crops and health care costs from heat waves and droughts or to property from flooding and sea level rise – and tie them to their sources through a price on carbon.
A price on carbon helps shift the burden for the damage back to those who are responsible for it, and who can reduce it. Instead of dictating who should reduce emissions where and how, a carbon price gives an economic signal and polluters decide for themselves whether to discontinue their polluting activity, reduce emissions, or continue polluting and pay for it. In this way, the overall environmental goal is achieved in the most flexible and least-cost way to society. The carbon price also stimulates clean technology and market innovation, fuelling new, low-carbon drivers of economic growth.
There are two main types of carbon pricing: emissions trading systems (ETS) and carbon taxes.
An ETS – sometimes referred to as a cap-and-trade system – caps the total level of greenhouse gas emissions and allows those industries with low emissions to sell their extra allowances to larger emitters. By creating supply and demand for emissions allowances, an ETS establishes a market price for greenhouse gas emissions. The cap helps ensure that the required emission reductions will take place to keep the emitters (in aggregate) within their pre-allocated carbon budget.
A carbon tax directly sets a price on carbon by defining a tax rate on greenhouse gas emissions or – more commonly – on the carbon content of fossil fuels. It is different from an ETS in that the emission reduction outcome of a carbon tax is not pre-defined but the carbon price is.
The choice of the instrument will depend on national and economic circumstances. There are also more indirect ways of more accurately pricing carbon, such as through fuel taxes, the removal of fossil fuel subsidies, and regulations that may incorporate a “social cost of carbon.” Greenhouse gas emissions can also be priced through payments for emission reductions. Private entities or sovereigns can purchase emission reductions to compensate for their own emissions (so-called offsets) or to support mitigation activities through results-based finance.
Some 40 countries and more than 20 cities, states and provinces already use carbon pricing mechanisms, with more planning to implement them in the future. Together the carbon pricing schemes now in place cover about half their emissions, which translates to about 13 percent of annual global greenhouse gas emissions.
Climate change is one of the greatest global challenges of our time. It threatens to roll back decades of development progress and puts lives, livelihoods, and economic growth at risk.
Today, the science is unequivocal: Humans have been driving global warming through the extensive burning of fossil fuels. We are already seeing changes in the climate that our current economies were built on. Fourteen of the 15 hottest years since record keeping began over 130 years ago have been since the turn of this century. The intensity of extreme weather-related events has also increased.
Recent reports from the Intergovernmental Panel on Climate Change (IPCC) and the Turn Down the Heat reports, prepared for the Word Bank by the Potsdam Institute for Climate Impact Research, provide snapshots of the science. They warn of dangerous effects on agriculture, water resources, ecosystems, and human health if countries do not take action. If the world warms by just 2°C (3.6°F)—warming which may be reached in 20 to 30 years—we could see widespread food shortages, unprecedented heat-waves, and more intense storms. Already, studies suggest that about 1.5°C warming is locked in.
To stay below 2°C, the IPCC says the world will need to get to zero net emissions before the end of this century. That means action now. Carbon pricing is an essential part of the solution.
The economic arguments for action are also compelling. Action now can open doors to opportunity, as the Adding Up the Benefits, New Climate Economy and Risky Business reports all reflect. Delaying action, the IPCC warns, will only raise the costs.
Statement
Putting a Price on Carbon
June 3, 2014
Climate change poses one of the greatest global challenges and threatens to roll back decades of development and prosperity.
The latest report from the United Nations Intergovernmental Panel on Climate Change makes clear the importance of putting a price on carbon to help limit the increase in global mean temperature to two degrees Celsius above pre-industrial levels.
Depending on each country’s different circumstances and priorities, various instruments can be used to price carbon to efficiently and cost effectively reduce emissions, such as domestic emissions trading systems, carbon taxes, use of a social cost of carbon and/or payments for emission reductions.
Governments are taking action. In 2014, about 40 national and over 20 sub-national jurisdictions have already implemented or scheduled emissions trading schemes or carbon taxes. Together, these jurisdictions account for more than 22 percent of global emissions. Many more countries and jurisdictions are advancing preparation for pricing carbon. Together, these represent almost half of global GHG emissions.
Corporations are responding. A growing number of companies are already working within carbon pricing systems and are developing expertise in managing their emissions. Others are incorporating greenhouse gas reduction targets in their business planning. In 2013, over 100 companies worldwide publicly disclosed to CDP that they already use carbon pricing as a tool to manage the risks and opportunities to their current operations and future profitability. Businesses see that carbon pricing is the most efficient and cost effective means of reducing emissions, leading them to voice support for carbon pricing.
The momentum is growing. Pricing carbon is inevitable if we are to produce a package of effective and cost-efficient policies to support scaled up mitigation.
Greater international cooperation is essential. Governments pledge to work with each other and companies pledge to work with governments towards the long-term objective of a carbon price applied throughout the global economy by:
• strengthening carbon pricing policies to redirect investment commensurate with the scale of the climate challenge;
• bringing forward and strengthening the implementation of existing carbon pricing policies to better manage investment risks and opportunities;
• enhancing cooperation to share information, expertise and lessons learned on developing and implementing carbon pricing through various “readiness” platforms.
We invite all countries, companies and other stakeholders to join this growing coalition of the working.
Download the statement (pdf): English | Español | Français | 中文
Supporters list: English
Statement
Putting a Price on Carbon
June 3, 2014
Climate change poses one of the greatest global challenges and threatens to roll back decades of development and prosperity.
The latest report from the United Nations Intergovernmental Panel on Climate Change makes clear the importance of putting a price on carbon to help limit the increase in global mean temperature to two degrees Celsius above pre-industrial levels.
Depending on each country’s different circumstances and priorities, various instruments can be used to price carbon to efficiently and cost effectively reduce emissions, such as domestic emissions trading systems, carbon taxes, use of a social cost of carbon and/or payments for emission reductions.
Governments are taking action. In 2014, about 40 national and over 20 sub-national jurisdictions have already implemented or scheduled emissions trading schemes or carbon taxes. Together, these jurisdictions account for more than 22 percent of global emissions. Many more countries and jurisdictions are advancing preparation for pricing carbon. Together, these represent almost half of global GHG emissions.
Corporations are responding. A growing number of companies are already working within carbon pricing systems and are developing expertise in managing their emissions. Others are incorporating greenhouse gas reduction targets in their business planning. In 2013, over 100 companies worldwide publicly disclosed to CDP that they already use carbon pricing as a tool to manage the risks and opportunities to their current operations and future profitability. Businesses see that carbon pricing is the most efficient and cost effective means of reducing emissions, leading them to voice support for carbon pricing.
The momentum is growing. Pricing carbon is inevitable if we are to produce a package of effective and cost-efficient policies to support scaled up mitigation.
Greater international cooperation is essential. Governments pledge to work with each other and companies pledge to work with governments towards the long-term objective of a carbon price applied throughout the global economy by:
• strengthening carbon pricing policies to redirect investment commensurate with the scale of the climate challenge;
• bringing forward and strengthening the implementation of existing carbon pricing policies to better manage investment risks and opportunities;
• enhancing cooperation to share information, expertise and lessons learned on developing and implementing carbon pricing through various “readiness” platforms.
We invite all countries, companies and other stakeholders to join this growing coalition of the working.
Download the statement (pdf): English | Español | Français | 中文
Statement
Putting a Price on Carbon
June 3, 2014
Climate change poses one of the greatest global challenges and threatens to roll back decades of development and prosperity.
The latest report from the United Nations Intergovernmental Panel on Climate Change makes clear the importance of putting a price on carbon to help limit the increase in global mean temperature to two degrees Celsius above pre-industrial levels.
Depending on each country’s different circumstances and priorities, various instruments can be used to price carbon to efficiently and cost effectively reduce emissions, such as domestic emissions trading systems, carbon taxes, use of a social cost of carbon and/or payments for emission reductions.
Governments are taking action. In 2014, about 40 national and over 20 sub-national jurisdictions have already implemented or scheduled emissions trading schemes or carbon taxes. Together, these jurisdictions account for more than 22 percent of global emissions. Many more countries and jurisdictions are advancing preparation for pricing carbon. Together, these represent almost half of global GHG emissions.
Corporations are responding. A growing number of companies are already working within carbon pricing systems and are developing expertise in managing their emissions. Others are incorporating greenhouse gas reduction targets in their business planning. In 2013, over 100 companies worldwide publicly disclosed to CDP that they already use carbon pricing as a tool to manage the risks and opportunities to their current operations and future profitability. Businesses see that carbon pricing is the most efficient and cost effective means of reducing emissions, leading them to voice support for carbon pricing.
The momentum is growing. Pricing carbon is inevitable if we are to produce a package of effective and cost-efficient policies to support scaled up mitigation.
Greater international cooperation is essential. Governments pledge to work with each other and companies pledge to work with governments towards the long-term objective of a carbon price applied throughout the global economy by:
• strengthening carbon pricing policies to redirect investment commensurate with the scale of the climate challenge;
• bringing forward and strengthening the implementation of existing carbon pricing policies to better manage investment risks and opportunities;
• enhancing cooperation to share information, expertise and lessons learned on developing and implementing carbon pricing through various “readiness” platforms.
We invite all countries, companies and other stakeholders to join this growing coalition of the working.
Download the statement (pdf): English | Español | Français | 中文
Statement
Putting a Price on Carbon
June 3, 2014
Climate change poses one of the greatest global challenges and threatens to roll back decades of development and prosperity.
The latest report from the United Nations Intergovernmental Panel on Climate Change makes clear the importance of putting a price on carbon to help limit the increase in global mean temperature to two degrees Celsius above pre-industrial levels.
Depending on each country’s different circumstances and priorities, various instruments can be used to price carbon to efficiently and cost effectively reduce emissions, such as domestic emissions trading systems, carbon taxes, use of a social cost of carbon and/or payments for emission reductions.
Governments are taking action. In 2014, about 40 national and over 20 sub-national jurisdictions have already implemented or scheduled emissions trading schemes or carbon taxes. Together, these jurisdictions account for more than 22 percent of global emissions. Many more countries and jurisdictions are advancing preparation for pricing carbon. Together, these represent almost half of global GHG emissions.
Corporations are responding. A growing number of companies are already working within carbon pricing systems and are developing expertise in managing their emissions. Others are incorporating greenhouse gas reduction targets in their business planning. In 2013, over 100 companies worldwide publicly disclosed to CDP that they already use carbon pricing as a tool to manage the risks and opportunities to their current operations and future profitability. Businesses see that carbon pricing is the most efficient and cost effective means of reducing emissions, leading them to voice support for carbon pricing.
The momentum is growing. Pricing carbon is inevitable if we are to produce a package of effective and cost-efficient policies to support scaled up mitigation.
Greater international cooperation is essential. Governments pledge to work with each other and companies pledge to work with governments towards the long-term objective of a carbon price applied throughout the global economy by:
• strengthening carbon pricing policies to redirect investment commensurate with the scale of the climate challenge;
• bringing forward and strengthening the implementation of existing carbon pricing policies to better manage investment risks and opportunities;
• enhancing cooperation to share information, expertise and lessons learned on developing and implementing carbon pricing through various “readiness” platforms.
We invite all countries, companies and other stakeholders to join this growing coalition of the working.
Download the statement (pdf): English | Español | Français | 中文
The Carbon Pricing Leadership Coalition brings together leaders from government, private sector, academia, and civil society to expand the use of carbon pricing policies.
The World Bank’s Partnership for Market Readiness (PMR) supports countries to assess, prepare, and implement carbon pricing instruments in order to scale up greenhouse gas mitigation. It also serves as a platform for countries to share knowledge and work together to shape the future of cost-effective climate change mitigation.
