Published alongside consultancies Ecofys and Vivid Economics, the State and Trends of Carbon Pricing 2016 report from the World Bank noted that a quarter of global emissions could be covered by a carbon price next year. This is largely driven by China, which looks set to introduce the largest carbon pricing initiative in the world that could almost double the percentage of emissions covered by pricing mechanisms from 13% to between 20 to 25% in 2017.

“The more we cooperate through carbon trading, the larger the savings and the greater the potential to increase ambition by countries in the short term,” the World Bank’s senior director for climate change John Roome said. “To be effective, carbon pricing policies must be coordinated with other energy and environmental policies –this will require collaboration within and between countries.”

According to the report, carbon pricing can play a “pivotal role” in realising the ambitions of the recently-ratified Paris Agreement. The report suggests that it would be difficult to reach a 2C pathway without expanding carbon pricing initiatives. More than 100 countries considered pricing mechanisms as part of their climate pledges at COP21, including cross-border emissions trading systems (ETS).

Country accounts

Since the Paris talks last December, 40 nations – including seven of the world’s largest 10 economies such as the UK, France and Japan – now operate with a pricing mechanism, while more than 20 cities and regions also offer similar schemes.

By 2050, it is believed that the international pricing market could reduce mitigation costs by more than 50%. Around $26bn was generated from pricing mechanisms in 2015 alone, representing a 60% increase on 2014 levels of revenue.

In fact, emissions covered by carbon pricing has increased threefold in the past decade, with the number of implemented or scheduled initiatives climbing from nine to 42 during that timeframe. This translates to around seven gigatonnes of emissions – roughly 13% of global emissions – being covered by pricing mechanisms.

While Chile and South Africa are mooted to join the ever-growing list, it is the potential inclusion on China that would see carbon pricing accounting for at least 20% of global emissions next year. France was also singled-out in the report for is plans to introduce a carbon price floor in 2017.

COP21 President and co-chair of the Carbon Price Leadership Coalition(CPLC) Ségolène Royal has overseen the implementation of a carbon price in France, which currently operates at €56 per tonne. This will grow to €100 per tonne by 2030 – while the aforementioned floor price will start at €30 for the electricity sector.

Dynamic and complimentary

In order to mobilise the pricing techniques, the report claims that the “dynamic nature” of carbon pricing can’t be overlooked by governments. The report suggests that policymakers introduce regular reviews and evaluations in order to respond to any challenges when setting and re-establishing a price.

The report also warns that the introduction of a carbon price may not lead to robust and effective gains unless it is coupled with “complementary policies in a way that enhances the performance of each of the policies”.

According to the report, the power sector could benefit if producers and consumers respond to cost-covering price signals and allocate resources to match. Issues with pricing could also be mitigated as the share of renewables in the energy mix grows. The report suggests that complimentary policies should support flexible systems that incorporate renewables, which would strengthen the price and the green economy as a whole.

It isn’t just the World Bank which is staking the claim for an international carbon price. According to CDP, the private sector is gaining traction in this market, with 1,000 companies expected to implement an internal carbon price within the next year.

Elsewhere, strange bedfellows are emerging in the call for a global price. Recently, both Exxon and actor Jack Black have outlined very different reasons as to why a global price on carbon should be introduced.

Matt Mace

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