I4CE– InstituteforClimateEconomics
FORMSOFCARBONPRICINGANDAVENUESFORINTERNATIONALCOOPERATIVEAPPROACHES
FromoperationalcarbonpricingtomainstreamingclimateBENOITLEGUET03/07/2017
TRIGGERINGTHELOWCARBONTRANSITION:ARTICULATINGCARBONPRICINGAND
CLIMATEFINANCE
I4CE
What is intheParisAgreement?
1. Limit global warming well below 2°C while aiming at bringing it to 1.5° with an aim to reach global peaking of GHG emissions as soon as possible” and zero-net emissions by the second half of this century.
2. Increasing the ability to adapt tothe adverse impacts of climate change by promoting resilienceand low-carbon development, in a manner that does not threaten food production;
3. Making financial flows “consistent” with low-carbon climate-resilient development.
I4CE
REDIRECTING(andreaching)5,000G$peryear ofpublic&private investment
Source: New Climate Economy, 2016
Keymessages1. Carbon pricing policies can help mainstream
climate into macroeconomic policies
2. Explicit carbon pricing is only one of the options, and carbon pricing is a piece of a broader policy package
3. Carbon revenues can help bridge the gap to mainstreaming climate in public policies
4. The PA provides a platform for international cooperative approaches for carbon pricing
5. Need for ambition on the demand and the supply side of finance
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- Leadtofuel-switchingfromcoaltogas.- Incentivetoproductionandconsumptionefficiency i.e EE- Makenear-to-marketlow-carbontechnologiescost-effective
- Backstopotherlow-carbonsupportpolicies
- Driveallnecessarylow-carboninvestmentsinenergyandindustrysectors- Forceearlyretirementofhigh-carbonassets
-Stimulateshiftsinconsumptionpatterns- Spurinnovationinlow-carbontechnologies
- Mainstreamclimateinfiscalpolicies,andpublicpolicies;- Scale-up low-emissioninfrastructures;- Multiple co-benefits- AchievedevelopmentpathwayswithlowGHGandhighresiliencetotheeffectsofclimatechange-
1 | The role of carbon pricingIncreasing contribution to mainstreaming climate in macroeconomics policies
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CAN
CANNOT
COULD
Withoutcomplementary policies
Withanefficientcarbonrevenuesmanagement
+Awell-alignedpolicyframework
Operationalstep Transformativestep Targetedgrowthstep
MIC
ROM
ITIG
ATIO
NIM
PACTS
MACROM
ITIG
ATIO
NIM
PACTS
2 |DifferentoptionsforcarbonpricingTheglobalmapofexplicitcarbonpricing:alimitedviewoftheimplicitreality
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2 |DifferentoptionsforcarbonpricingWhywouldthefinancialsectorcare?
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EmissionsTradingSystemLimitsthequantityofGHGsthatcanbeemittedoveraperiodoftime
CarbonTaxAppliesacosttothedistribution,saleoruseoffossilfuelsandcanbebasedonthecarbonintensityofanactivityorproduct.
OffsetMechanismTocompensateforonetonneofemissionsreductionsbyinvestinginonetonneofemissionsreductionselsewhere
FinancialinstrumentsToreducetheupfrontcostsofmitigationactionsusingtoolssuchaspublicguarantees,interestratesubsidiesandtaxbreaks
ShadowpricinginpublicsectorTohelpreorientinvestmentdecisions,oraccountforindirectimpactsonemissions(e.g.,whenpublicinfrastructureinvestmentsaffectemissions)
InternalcarbonpriceTohelpcompaniestoguideinvestmentdecisionsforacleanerfuture,anticipatefuturepricingpoliciesorfuturechangesinthecarbonprice,orhelpmitigaterisks.
2 | Carbon pricing: a piece of a broader package of energy and climate policiesAligningallpoliciesamongthemselvestoclimateobjectivesisachallengeforpolicymakers.
Renewableenergypolicies
Energyefficiencypolicies
Energytaxes
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Carbonpricing
InnovationandR&Dpolicies
Sectoralpolicies
Socialpolicies
Employmentpolicies
• Avoidingoverlappingpolicies,
• Removingcountervailingpolicies
• Pushingupcomplementarypolicies.
3 |Howtousecarbonrevenues:bridgingthegaptomainstreamclimate?
« Environmental »carbontax• ImplementingParisAgreement• Env.Min.Authority• Greenspending,earmarking
Changeindestinationofrevenues:fromearmarkingtowardsFinanceMin.takeover
Mainstreamingclimateactioninafiscalreform
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“Designthinking”forcarbonrevenuesshouldhelpphaseininclusivefiscalreforms
Source:« StateandTrendsofcarbon pricing »,WorldBankOctober 2016
• International cooperative approaches can play a significant role in:– Reducing costs of GHG emission reduction– Achieving a more ambitious GHG reduction target– Facilitating financial flows between cooperative states
4 |InternationalcooperativeapproachesA potential tool for achieving the Paris agreement’s objectives
4|Internationalcooperativeapproaches
AVENUESINTHEPARISAGREEMENTUNDERCONSTRUCTION
§ Article2– Redirectionoffinancialflows
§ Article6– 6.2&6.3:Cooperative
approaches– 6.4:Marketcooperative
approaches– 6.7:Non-Marketcooperative
approaches§ Article10
– Atechnologyframework– ATechnologymechanism
AFEWCONCRETEAVENUESFORINTERNATIONALCOOPERATION
§ Creditingmechanism(offsets)§ Sectoralagreements(“carbon
clubs”)§ R&Dandtechnologytransfers§ Capacitybuilding§ InfrastructuresPrivatePublic
Partnerships§ Alignmentofpracticesfor
publicdevelopmentbanks
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Which framework to stimulate bottom-up action?
5 |Nextchallenge:Scalingupcarbonpricingpoliciestoclimateambition
Whatarethemajorconditionstoenhanceawell-alignedpolicyframeworktooptimizecarbonpricingpotential?
§ 4potentialconditions:1. Politicalsignals2. Economicsignals3. Governance4. Socialacceptability
§ Learningmattersandthepaceofchangematterstoo.– Consideringadynamicapproach:needtothinkandpresent
transitionintermsofpoliticallearningcurvesandprocesses,notsnapshots.
§ Pathways,motivationsandnarrativesfordevelopingcountriesarenotsimilartothosefordevelopedcountries:– Consideringnationalcontexts:weneedtoadaptmaterialsfor
encouragingthisalignmentindevelopingcountries.
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5 |Onthesupply side:also needs tobe takeninto account
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NationalLow-CarbonPathway NationalPolicyFramework
EconomicEnvironment
Demandandeconomic
environmentforprojectsandsectors
FinancialValueChain
Projectdevelopers/SMEs
LCCRProjects
LCCRProjects
LCCRProjects
€€€Sources of capitalIntermediariesInstruments
Risk-Return ProfileEconomic Conditions
UncertaintyIntegration of externalitiesInvestment Opportunities
€€€
€€€
Source: I4CE 2016
5 |Onthesupply side:climate finance,accelerating thepace
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Disclosure
PortfolioDecarbonization
Engagement
Divestment
Policy
GreeningPortfolios
Art. 173, French Law on Energy
Transition
I4CE– InstituteforClimateEconomics24AvenueMarceau75008PARISwww.i4ce.org|[email protected]|
Thank you for your attention
Contact: [email protected]@I4CE_ @BenoitLeguet
