The year 2016 could become a good starting point for reaching new milestones for climate protection. The climate summit in Paris at the end of 2015 has finished with a great success. The Agreement has laid the foundation for going a major step forward: Carbon pricing is explicitly mentioned in the text. It is now time for implementation.
In contrast with the many climate change conferences of recent years, with the conference in Paris a new and more realistic vision of climate diplomacy was born. Almost all countries have put their planned climate protection efforts on the table. More importantly, this was done on a voluntary basis. In this way the Intended Nationally Determined Contributions (INDCs) have partly abolished the dichotomy between developed and developing countries, which had been enshrined in the Kyoto Protocol. This is certainly a success story of the Paris process.
However, the problems outweigh the success. The increase in global greenhouse gas emissions will not be stopped through the implementation of the INDCs; the growth up to 2030 will just be a little slower. The most crucial problem is that only 20 out of 150 countries submitted concrete policies and implementation plans, such as renewable supporting schemes, efficiency standards or carbon pricing, for realizing their intended national contributions. It is important to back the rather vague and loose intentions of the INDCs with substantive instruments. The implementation of these instruments, however, is unlikely to be successful as part of climate change negotiations under the umbrella of the UNFCCC. It would overburden a process that is already at its limit with the coordination of targets, timetables and collecting commitments for climate finance. Therefore, other institutions must take on this task. The G20, representing the 20 largest economies worldwide, would be an appropriate forum; not as a substitute but as a supplement. Climate protection must be lifted from the environmental to the economic agenda.
Climate change is no longer a purely environmental topic. Both climate change itself with its disastrous impacts, and any action to mitigate its effects, will deeply affect economic processes. History tells us that economic development has been largely based on the consumption of fossil fuels. In order to mitigate climate change it is therefore crucial to decouple economic growth from emissions growth. There is currently an abundant supply of fossil fuels still available in the ground. Coal is especially cheap in comparison to other energy carriers as the resulting emissions are currently able to freely pollute the atmosphere as global commons. An effective instrument to steer investments in the right direction, and ultimately avoid emissions, would be a price on carbon, either through a tax or a functioning emissions trading system.
The Paris Decisions explicitly mention carbon pricing by recognizing “the important role of providing incentives for emission reduction activities, including tools such as domestic policies and carbon pricing” (#137). Most promising are the newly defined “internationally transferred mitigation outcomes” (Art. 6.3). They could, for example, imply the linking of emission trading schemes between different countries. This throws the ball into the court of the respective institutions. The G20 are one of them.
The political momentum for implementing such an instrument seems greater than ever. In the wake of the G7 summit in Elmau in 2015, the German government has initiated a Global Carbon Pricing Platform in order to stimulate a dialogue on carbon pricing. The comments of the leaders of international organizations are also remarkable: Christine Lagarde, managing director of the International Monetary Fund (IMF), has been outspoken in her support for a CO2 tax. The same holds for Jim Yong Kim, the president of the World Bank. Furthermore, under the umbrella of the IMF, World Bank and OECD, the Carbon Pricing Leadership Coalition was launched at the beginning of the negotiations in Paris. This coalition brings together key governments such as those of Mexico, Germany, France, Chile and California, along with nearly 90 global businesses and NGOs, to advocate pricing CO2 emissions. Even the financial market now recognizes that climate change may pose a significant risk to the stability of financial systems. Mark Carney, Governor of the Bank of England, and also Chairman of the G20 Financial Stability Board, proposes carbon pricing as a remedy against this risk.
This places the topic where it belongs. The G20 would be the ideal forum in which to promote the idea of carbon pricing and drive forward the so far only vague promises of the INDCs by putting them into action. One reason for this is that the G20 are responsible for about three-quarters of global emissions, and are thus heavyweight players in climate policy. In addition, all G20 countries have submitted their INDCs and some G20 countries, namely Germany, France and Mexico, are members of the above-mentioned Carbon Pricing Coalition. Above all, it is none other than China who will hold the G20 Presidency in 2016. China has recently announced the introduction of the world's largest emissions trading scheme from 2017 onwards. Pilot projects in several Chinese provinces are already under way. This suggests that even the world's largest emitter of greenhouse gases would have a strong interest in promoting carbon pricing within the G20. Combined with the German G20 Presidency in 2017, this could generate a strong momentum for action.
However, some of the G20 countries, for example India, reject an overly ambitious climate policy and would like to let their emissions grow further before reducing them at a later date. They argue that they have the right to development, and that is certainly justified. A closer look, however, reveals that this argument can be refuted. Research undertaken by MCC shows that with carbon pricing, climate protection and development can be achieved simultaneously. Carbon pricing generates a new source of revenue for the government and even a moderate CO2 price could finance, in many countries for example, universal access to clean water and sanitation.
Carbon pricing must therefore be considered, not only in the narrow context of climate protection, but in the broader context, such as in financing the sustainable development goals (SDG) adopted by all countries in September 2015. Climate change mitigation will only be implemented if developing countries understand that it will not hinder their development; it needs to be recognized as a success story. After Paris, the G20 should seize the chance to write the first chapter of this story.