ICC Perspective On The 2015 UN Climate Agreement And International Climate Change Policy

Carbon Pricing Principles

Carbon pricing instruments are a policy option that a growing number of countries and regions are utilizing to implement new and complement existing national climate and energy policies and to achieve emission reductions. This policy paper outlines a number of basic principles and recommendations for governments and policy makers to take into account if they decide on the development and implementation of such instruments.

The Paris Agreement accommodates and encourages a broad range of national and local policy approaches in a novel form of bottom-up global architecture.

Business strongly supports the use of market based approaches under the Paris Agreement and the successful implementation of a new phase of emissions trading under the Convention. With only a few years left until the first period of Nationally Determined Contributions (NDCs) are to be implemented, we urge parties to progress with guidance and adopt rules, modalities and procedures as determined in paragraph 7 of Article 6 of the Paris Agreement, ensuring linkages to transparency and avoidance of double counting.

Many companies and sectors already have experience with carbon pricing instruments in public policy and regulation. The energy sector and other industry sectors often have significant emission reduction obligations under national climate policies. New business opportunities can arise when carbon pricing leads to efficiency investments in industry and private households — or indeed other areas of the economy. Individual companies have also explored internal carbon pricing and trading in order to incentivize energy efficiency and to help identifying risks and guide investment decisions.

Based on this range of experiences, ICC has developed the following 8 principles on carbon pricing. We believe those should form an essential part of national and international approaches to climate change for the growing number of countries that decide to use carbon pricing instruments. These principles should also be taken into account for developing market-based instruments under the UNFCCC in order to:

  • tackle climate change at the scale needed, irrespective of location, and at the lowest costto consumers and society;
  • avoid economic and competitive distortions between regions and sectors in order toachieve net emission reductions on a global scale, while preventing any shifting ofemissions within sectors and between regions (carbon leakage);
  • give companies a long-term framework and policy clarity to support their investmentdecisions.

The principles are aimed at helping policymakers to find a balance when implementing a carbon pricing instrument that achieves three main objectives:

  • reducing emissions and triggering investments in low carbon technologies, while at the same time;
  • keeping energy prices at a level that does not overburden industry and does not impede consumer access to energy; and
  • allowing the continued efficient conduct of business.
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