Principles and proposals for effective carbon pricing

Why is carbon pricing considered important to reduce emissions?    

Putting a price on carbon represents an important way for governments to drive emissions reduction, needed to achieve the goals of the Paris Agreement. The goal is to discourage the use of carbon dioxide–emitting fossil fuels to protect the environment.

As a result, carbon pricing is gaining momentum globally, with over 70 carbon pricing systems in existence and studies showing that 80% of countries have expressed interest in using international market mechanisms to meet their climate targets. This broad range of carbon pricing systems has created a fragmented international climate policy landscape, compounded by administrative complexity.  

What is ICC doing to support policymakers in their approaches to carbon pricing? 

As local and regional carbon pricing instruments are being put in place, there is a growing risk of shifting emissions outside the countries that take action to mitigate emissions domestically. Several countries and regions, which have led change on carbon pricing, have introduced measures or are planning to do so to mitigate the risk.

Recognising the growing concern around the risk of leakage, ICC provides guidance for governments and policymakers to support the development of effective carbon pricing policies that allow countries to increase cooperation – which can ultimately lead to increased climate ambition. ICC is convinced that international cooperation is essential to develop a consistent and coherent international approach built on broader principles for effective emission reduction.Such an approach is key to creating a global framework that better facilitates cross-border trade, investment and economic growth.

ICC key messages on carbon pricing at a glance

• Carbon pricing is an essential tool for comprehensive climate policy packages. It can assist governments in achieving existing nationally determined contributions at the lowest possible cost, scaling up investment for further climate mitigation and adaption efforts and ratcheting up ambition.
• The overriding common objective of carbon pricing should be to reduce greenhouse gas emissions. The development of sustained and robust carbon markets maximises the effect of carbon pricing in achieving that objective.
• When developing, designing and implementing national carbon pricing approaches, governments are encouraged to build on the ICC Carbon Pricing Principles and other existing guidance to increase effectiveness, minimise risks related to carbon leakage and promote linkage for greater international cooperation and coordination.
• Any approaches to prevent carbon leakage should be considered and designed carefully and proportionately and without compromising trade rules.
• National legal, regulatory and policy frameworks for carbon pricing market mechanisms should consider (i) linkage across national and sub-national compliance mechanisms to prevent greenhouse gas emissions leakage between countries; (ii) broader linkages between domestic compliance mechanisms, Article 6 mechanisms and the voluntary carbon markets, and (iii) broader climate, energy, trade and taxation policies. 
• Article 6 of the Paris Agreement on cross-border emissions trading itself is not designed to lead to a global carbon price. However, with the right operating rules, it has the potential to create the necessary transparency to forge a more cohesive multilateral approach to carbon pricing.
  
  

Related reports on carbon pricing

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