Around the world, about 40 nations and 23 cities, states and regions have implemented or are putting a price on carbon with programs and mechanisms covering about 12 percent of global greenhouse gas emissions.
The number of implemented or scheduled carbon pricing instruments has nearly doubled since 2012, reaching an aggregate market value of about $50 billion.
And already more than 400 businesses around the world are using a voluntary, internal price on carbon as part of their investment strategies, with prices ranging from US$4 to over US$100 per ton of CO2. This is a tripling in the number of companies compared with last year reporting that they price their emissions.
Carbon pricing delivers a triple dividend.
Firstly, it is good for the environment and it reduces emissions - lowering social costs of health impacts on people, as well as tackling the global warming. A price on carbon can help alleviate health and environmental problems like premature deaths from exposure to outdoor air pollution. According to the World health Organization, an estimated 3.7 million people die prematurely from outdoor air pollution.
Secondly, carbon pricing is an essential part of getting prices right for the move to a low carbon more resilient growth. It raises revenue efficiently, making it possible to reduce more distortionary taxes, and it allows for targeted support for clean energy solutions rather than harmful subsidies that do little for poor people or the environment.
And thirdly, it drives innovation and critically needed investments in low-carbon solutions, boosting private sector investment in clean tech research and development, and offering the prospect of job creation in the sectors of the future.
Why is is it important to act now on carbon pricing? Because strong public policy gives the private sector the certainty and predictability to make the necessary long-term investments in climate-smart development and prevent catastrophic impacts from climate change. Carbon pricing is the cornerstone of a package of policy measures designed to achieve emission reductions at lowest cost.
Today, countries and regions are learning from one another and creating a set of successful approaches to pricing carbon. Some early lessons are described in the World Bank Group publication The FASTER Principles for Successful Carbon Pricing – which lays out principles for effective, efficient and fair pricing of carbon.
Some examples include:
- The Canadian province of British Columbia was an early mover on carbon pricing, with the creation of a carbon tax in 2008, with the tax used to cut income taxes and fund tax credits. Also, British Columbia is home to a growing clean technology sector, with more than 150 firms in 2013, accounting for 22% of Canada’s clean tech presence in a province with only 12% of Canada’s GDP. Several experts attribute this growth to the carbon tax.
- California, Quebec and the European Union allocate a portion of their emissions trading scheme (ETS) auction revenues to designated green technology funds and innovation, to support sectors affected directly or indirectly by higher carbon costs.
- In Chile, the government has passed legislation on a carbon tax – effective as of 2017 - as part of a much larger tax reform package with the explicit aim of providing additional resources for education and other social protection programs.
- In Northeastern United States, the Regional Greenhouse Gas Initiative is expected to save people money on energy bills. The RGGI states have invested over $1 billion from ETS proceeds in energy-efficiency program, which are expected to return more than $2.3 billion in lifetime energy bills savings to 1.2 million participating households. Also, from 2008-2012, RGGI invested more than $130 million to help energy and electricity customers in need.
The high level panel provides political momentum to complement the voices of government and industry leaders in the Carbon Pricing Leadership Coalition (CPLC), a working coalition that is being formed on the back of support for carbon pricing from 74 countries and 1,000 companies, at the 20014 UN summit on climate change.
Putting a price on carbon can be done in many ways: using an emissions trading system (ETS), like the one in Europe, or introducing carbon taxes and fees, like in Sweden and Norway. Most importantly, the “polluter pays” principle applies – those who are responsible for the pollution face the cost of it.