Carbon Pricing Principles
Carbon pricing instruments are a policy option that a growing number of countries and regions are utilizing to implement 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 anticipated Paris climate agreement will combine a broad range of national and local policy approaches in what will be a novel form of bottom-up global architecture. Carbon pricing instruments are a policy option that a growing number of countries and regions are utilizing to implement national climate and energy policies and to achieve emission reductions.
While carbon pricing can be the most cost-effective climate solution in many countries, other approaches – such as incentive-based systems or efficiency standards – can be a more viable option in other countries. 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.
Carbon pricing is also foreseen to play a role in the Paris Agreement being referred to inter alia as “Framework for Various Approaches and the New Market Mechanism” but its form and content is yet to be finalized. ICC is supportive of the notion that the Paris Agreement and its implementation should include and enable market–oriented instruments. Market-oriented instruments continue to be an essential part of the international climate policy, reflecting the global challenge of ambitious mitigation action.
Business therefore urges policymakers to agree on how the market-based approaches under the UNFCCC can be further developed.
Many companies and sectors already have experience with carbon pricing instruments. 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.
Based on this range of experiences, ICC has developed the following principles on carbon pricing, which we believe form an essential part of national and international approaches to climate change of the growing number of countries which decide to use a carbon pricing instrument. 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 cost to consumers and society;
- avoid economic and competitive distortions between regions and sectors in order to achieve net emission reductions on a global scale, while preventing the shifting of emissions within sectors and between regions;
- give companies a long-term, reliable framework and policy clarity to support their investment decisions.
These principles are aimed at helping policymakers find a balance when implementing a carbon pricing instrument that allows to achieve two 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.