On April 14, S&W hosted a stakeholder dialogue sponsored by the Citizens Climate Lobby (CCL), Partnership for Change and the Nobel Peace Prize Forum as a part of the ancillary discussions surrounding the spring International Monetary Fund (IMF)/World Bank meetings. The dialogue focused on carbon pricing—a principal focus of many global leaders after the success in Paris this past December at the United Nations Framework Convention on Climate Change (UNFCCC) Twenty-First Conference of the Parties (COP 21). Last week, the Carbon Pricing Panel released a Vision Statement with signatures by Prime Minister of Canada Justin Trudeau, President of Chile Michelle Bachelet, Prime Minister of the Federal Republic of Ethiopia Hailemariam Dessalegn, President of France François Hollande, and Chancellor of the Federal Republic of Germany Angela Merkel.

Carbon Pricing and Emissions Regulation-- An Overview

Placing a price on carbon emissions is viewed by many policy-makers as the most efficient method of addressing climate change; however, this strategy is rife with challenges. First, the international community would need to agree on a universal price per tonne of carbon emitted in order to prevent nations from choosing a “race to the bottom” strategy in which some countries would seek to get ahead by not implementing the carbon price or implementing a low pricing scheme. Next, each nation would need to develop a scheme for carbon pricing and enforcement mechanisms.

The agreement reached at COP 21 lays the groundwork for global action to limit warming well below 2 degrees Celsius. Multinational organizations have been at the forefront of advocating carbon pricing among the various mechanisms that may be useful in lower greenhouse gas emissions. The World Bank and IMF have long supported a carbon-pricing regime either in the form of a carbon tax or a cap-and-trade system, and have committed to get the pricing right.

As of 2016, some form of carbon pricing arrangement covers 12 percent of all carbon emissions. The goal articulated by Carbon Pricing Panel is to increase that percentage to 25 percent of carbon emissions by 2020, and to double that percentage to 50 percent within a decade.

Currently, carbon pricing has not been widely embraced in the United States; however, China and the United States are the two countries with the largest volume of emissions covered by carbon pricing instruments. Both the east and west coasts have robust state-based trading schemes, such as the Regional Greenhouse Gas Initiative (RGGI), which includes Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont, and the California/Ontario Western Climate Initiative.

Congress came close to adopting a greenhouse gas cap-and-trade system in 2010 with the Waxman bill; however, the legislature ultimately balked at passing the bill and discussions involving climate change on Capitol Hill have been somewhat toxic ever since. Thus, any type of binding international agreement on a price for carbon will be difficult to adopt given the aggressive opposition towards President Obama’s Clean Power Plan (CPP). The CPP is a carbon reduction scheme where each state is assigned an emissions target capable of achieving reductions through a series of building blocks: 1) retiring coal plants; 2) improving the efficiency of natural gas plants; 3) building more renewable energy. The CPP also envisions a trading scheme, and states may be able to capitalize on the lessons learned from the existing RGGI and the California/Ontario Western Climate Initiative.

The CPP is also currently facing attack by Congressional Republicans and an omnibus litigation brought by twenty-seven states and an amalgam of private actors. The Supreme Court recently granted a delay for implementation of the CPP, creating some uncertainty in the ultimate strategy for lowering carbon emissions domestically. However, a number of corporations doing business in the United States are supportive of the CPP and have joined the litigation as amici curiae. These include Mars Incorporated, Ikea North America Services, LLC, Blue Cross and Blue Shield of Massachusetts, Adobe Systems, Inc., Google, Inc., Microsoft, Inc., and Amazon, Inc.

Moreover, many private companies have unilaterally begun to incorporate carbon pricing into their internal strategies. Microsoft is leading the way, and industry leaders have observed that the company’s carbon pricing strategy is both changing internal behaviors and saving the company more than $10 million annually. Additionally, many traditional fossil fuel companies are incorporating carbon pricing considerations into their business plans. For example, ExxonMobil is assuming a cost of $60 per metric ton by 2030, BP currently uses $40 per metric ton, and Royal Dutch Shell uses a price of $40 per ton.

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The Citizens Climate Lobby (CCL) is an organization that promotes dialogue among stakeholders with the goal of raising climate change awareness focused on carbon pricing. CCL lobbies for the creation of a “Carbon Fee and Dividend” in which greenhouse gas emitters would pay a fee to emit, with the proceeds returned to households or a trust fund in the form of “dividends.” The insights on climate policy that resulted from the dialogue can be found here.