Tag: carbon pricing

Canadian Federal Carbon Pricing System Comes into Force in Backstop Jurisdictions

The Canadian federal government is committed to pricing carbon emissions and advancing the objectives of the Pan Canadian Framework on Clean Growth and Climate Change. The main components of the  federal carbon pricing backstop system are set out in the Greenhouse Gas Pollution Pricing Act, which was passed in June 2018:

  1. federal fuel charge; and
  2. an Output-Based Pricing System for large emitters, i.e. those facilities with emissions 50,000 tonnes of carbon dioxide equivalent.

On October 23, 2018, the federal government announced that the federal carbon pricing system would come into force in 2019 in so-called “backstop jurisdictions”, i.e. those jurisdictions that have either decided not to implement a carbon price or to implement a system that does not meet federal requirements (the key requirement being a price on carbon of $20 per tonne starting in 2019, increasing by $10 per tonne annually until it reaches $50 per tonne in 2022. The backstop jurisdictions include:  Ontario, New Brunswick, Manitoba, and Saskatchewan. In October 2018, the Department of Finance released details about how proceeds from the federal carbon pricing backstop will be returned directly to residents of backstop jurisdictions through the Climate Action Incentive. Both Ontario and Saskatchewan have launched constitutional challenges to the federal government’s jurisdiction to impose the federal carbon pricing scheme on the provinces. Both cases are expected to be heard in 2019. In the meantime, the federal carbon pricing system will come into force as planned.

Alberta, British Columbia, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Quebec and Yukon have either developed their own carbon pricing systems that meet federal requirements or chosen to adopt the federal backstop.

The following table summarizes the carbon pricing initiatives across all provinces and territories as of January 1st, 2019:

Jurisdiction Carbon Pricing Approach
British Columbia:  

Carbon tax = $35 per tonne, which will increase by $5 per tonne on April 1, 2019 until it reaches $50 per tonne by 2021.
Alberta:  

Carbon levy = $30 per tonne.  No further increases planned at this time.
Saskatchewan:  

The federal backstop will apply, in part, in Saskatchewan:

·   Saskatchewan will implement its output-based performance standards system on January 1, 2019 (applicable to industrial facilities that emit ≥25,000 tonnes of CO2e per year).

·   Federal OBPS will apply to electricity generation and natural gas transmission pipelines beginning January 1, 2019 (applicable to facilities from those sectors that emit ≥50,000 tonnes of CO2e per year, with the ability for smaller facilities that emit ≥10,000 tonnes of CO2e per year to voluntarily opt-in to the system).

·   Federal fuel charge to apply from April 2019.
Manitoba:  

·   Federal OBPS will apply from January 1, 2019 (applicable to facilities from those sectors that emit ≥50,000 tonnes of CO2e per year, with the ability for smaller facilities that emit ≥10,000 tonnes of CO2e per year to voluntarily opt-in to the system).

·   Federal fuel charge to apply from April 2019.
Ontario:  

·   Federal OBPS will apply from January 1, 2019 (applicable to facilities from those sectors that emit ≥50,000 tonnes of CO2e per year, with the ability for smaller facilities that emit ≥10,000 tonnes of CO2e per year to voluntarily opt-in to the system).

·   Federal fuel charge to apply from April 2019.
Québec:  

Cap & Trade System – Allowance Price of CAD $20.27 (based on results of November 14, 2018 auction)

 
New Brunswick:  

·   Federal OBPS will apply from January 1, 2019 (applicable to facilities from those sectors that emit ≥50,000 tonnes of CO2e per year, with the ability for smaller facilities that emit ≥10,000 tonnes of CO2e per year to voluntarily opt-in to the system).

·   Federal fuel charge to apply from April 2019.
Nova Scotia:  

Cap-and-trade program will start on January 1, 2019.

 
PEI:  

The federal backstop will apply in PEI, in part:

·   A carbon levy on fuel will come into force on April 1, 2019.

·   Federal OBPS will apply from January 1, 2019 (applicable to facilities from those sectors that emit ≥50,000 tonnes of CO2e per year, with the ability for smaller facilities that emit ≥10,000 tonnes of CO2e per year to voluntarily opt-in to the system).
Newfoundland and Labrador:  

Newfoundland & Labrador’s own carbon pricing plan came into force on January 1, 2019:

·   Provincial carbon tax rate of $20 tonne will commence on January 1, 2019.

·   A performance-based system for offshore and onshore industries will establish GHG reduction targets for large industrial facilities and large scale electricity generation; exemptions for certain sectors are available.
Nunavut:  

·   Federal OBPS will apply from July 1, 2019 (applicable to facilities from those sectors that emit ≥50,000 tonnes of CO2e per year, with the ability for smaller facilities that emit ≥10,000 tonnes of CO2e per year to voluntarily opt-in to the system).

·   Federal fuel charge to apply from July 1, 2019.
Yukon:  

·   Federal OBPS will apply from July 1, 2019 (applicable to facilities from those sectors that emit ≥50,000 tonnes of CO2e per year, with the ability for smaller facilities that emit ≥10,000 tonnes of CO2e per year to voluntarily opt-in to the system).

·   Federal fuel charge to apply from July 1, 2019.
Northwest Territories:  

Northwest Territories will introduce a carbon tax on fuels starting July 1, 2019 = $20/tonne of GHG emissions; this will increase annually until it reaches $50/tonne.

 

A Closer Look at the Canadian Federal Carbon Pricing Backstop

In October 2016, the federal government announced plans for a pan-Canadian carbon price, which represents a pricing benchmark and central component of the Pan-Canadian Framework on Clean Growth and Climate Change (the Framework, released in December 2016). Under the Framework, each province and territory will be required to implement a carbon price starting at $10 per tonne of CO2e in 2018 (eventually rising to $50 per tonne by 2022), either in the form of direct pricing or a cap and trade program. The benchmark provides for a federal carbon pricing backstop system that will apply in any province or territory that does not have a carbon pricing system in place by 2018 that aligns with the benchmark. The Technical Paper sets out the proposed design principles of the federal carbon pricing backstop.

Backstop Instrument

The federal government is planning to introduce new legislation and regulations to implement the carbon pricing backstop that will be applied in jurisdictions which do not have carbon pricing systems in place that meet the requirements of the federal system. In particular, all elements of the backstop will apply in each jurisdiction that does not have a carbon pricing system in place.  It should be noted that the backstop is also meant to top up systems that do not fully meet the benchmark – for example, the backstop could expand the sources covered by provincial carbon pricing or it could increase the stringency of the jurisdiction’s carbon price.

According to the Technical Paper, the backstop will comprise two key elements:

A) a carbon levy on fossil fuels (whether in liquid, gaseous or solid form); and

B) an output-based pricing for industrial facilities with emissions above a specific threshold, as well as opt-in possibility for smaller facilities emitting below the threshold.

Scope of the Carbon Levy

Carbon levy rates will initially be set for the period from 2018 to 2022 – rates for each fuel subject to the levy will be established in such a way that they are equivalent to $10 per tonne of CO2e in 2018 and increase by 10 per tonne annually until it reaches $50 per tonne in 2022. The Technical Paper sets out the rates for liquid fuels, gaseous fuels and solid fuels over the initial 5-year period. In generally, the carbon levy will apply to fuels that are used in a backstop jurisdiction, irrespective of whether the fuels were produced in, or brought into, the backstop jurisdiction. It is anticipated that the carbon levy will be applied early in the supply chain of each fuel, and will be payable by the producer or distributor. The proposed system differentiates among four categories of persons along the supply chain:

  • Registered Fuel Distributors – will generally include producers of fuel, large wholesale distributors of fuel, and natural gas retailers.
  • Registered Fuel Importers – will generally include entities that cannot become Registered Fuel Distributors and that import fuel from outside Canada at a location in a backstop jurisdiction, or that bring fuel into a backstop jurisdiction from another jurisdiction in Canada.
  • Registered Fuel Users – will generally include persons that cannot become Registered Fuel Distributors and that are required to report on fuel used in a backstop jurisdiction and, in certain circumstances, may be required to pay the carbon levy or be entitled to claim relief from the levy where it has already been paid. The following entities will be required to become Registered Fuel Users: commercial carriers (including operators of transport trucks, rail transportation, marine transportation, and air carriers), operators of facilities whose emissions are covered under the output-based pricing system, certain businesses that burn waste that is subject to the carbon levy, and certain businesses that use fuel as a raw material, dilulent or solvent in a manufacturing process that does not produce heat or energy.
  • Non-Registered Persons – will generally include retailers (other than natural gas retailers) and end-users, including individuals and business consumers.

The carbon levy will generally be payable when a Registered Fuel Distributor uses fuel in a backstop jurisdiction or delivers fuel to a person in the backstop jurisdiction that is not a Registered Fuel Importer. However, there are certain exemptions from the carbon levy, including fuel that is used at industrial facilities that are subject to output-based pricing, or fuel used in farming activities by registered farmers.

Overview of Administrative Requirements

Registered Fuel Distributors, Registered Fuel Importers and Registered Fuel Users will be required to register with the Canada Revenue Agency (CRA) file monthly returns. Furthermore, Registered Fuel Distributors and Registered Fuel Importers will be required to provide information on fuel amounts produced, brought into and imported into every jurisdiction as well as fuel amounts used and delivered in or outside a jurisdiction. Registered persons will also need to calculate the total amount of carbon levy payable for each backstop jurisdiction and remit that amount to the Receiver General of Canada.

Requirements with Respect to Inter-Jurisdictional Commercial Transportation

It should be noted that commercial carriers (that transport passengers, freight or both) that operate in a backstop jurisdiction and in at least one other jurisdiction, will be required to register with the CRA as Registered Fuel Users. For commercial road and rail transportation, the carbon levy will apply to only the fuel that is used within a backstop jurisdiction, meaning that the levy will apply to both fuel that is used during an intra-jurisdictional journey (i.e. one that starts and ends in the same jurisdiction) and to fuel that is used during the portion of an inter-jurisdictional or international journey that occurs in a backstop jurisdiction. For fuels used in commercial marine transportation, the carbon levy will only apply to fuel used in intra-jurisdictional travel. In the aviation sector, it is anticipated that the carbon levy will only apply to fuel used in intra-jurisdictional travel; however the federal government sees the introduction of the backstop pricing mechanism as an opportunity for federal and provincial/territorial governments to develop a nationally consistent approach to aviation emission as it relates to inter-jurisdictional commercial air transportation.

Designing an Output-based Carbon Pricing System

The output-based system will apply the carbon price to the portion of a covered source’s emissions that exceed those allowed by the emissions-intensity standard for the regulated activity. In terms of scope, the system will apply the carbon price to industrial facilities with annual emissions of 50,000 tonnes or more of CO2e. However the system will apply to facilities in certain sectors including buildings (e.g. hospitals, schools, municipal buildings) as well as waste and wastewater, regardless of the amount of emissions. The proposed output-based system will provide facilities with annual emissions below 50,000 tonnes of CO2e the ability to “opt-in” to the system. If a facility emits less than its regulatory limit, it will be able to earn surplus credits that it can sell to other regulated entities.

If a facility emits more than its regulatory limit in a given year, it can choose one or a combination of the following compliance options:

– Payment based at the carbon price that will be set in the backstop legislation ($10 per tonne in 2018, increasing to $50 per tonne in 2022)

– Use of eligible carbon offset credits (the proposed system could include foreign compliance units)

– Use of surplus credits that are issued to facilities with emissions below their annual limits.

In terms of administration, each regulated facility will be required to prepare and submit an annual compliance report on its emission levels and annual emissions limit.

Looking Ahead

As noted above, the federal government is in the process of finalizing the details of the carbon pricing backstop mechanism. The carbon levy will come into effect in 2018, while it is anticipated that the output-based pricing system will not come into effect before January 1, 2019.  Until the output-based pricing system comes into force, the carbon levy will apply fully to fuels used by all industrial facilities.

 

Climate Policy Innovation: California Considers a New Approach Post-2020 – The End of the Offsets System?

With the introduction of Senate Bill SB 775 (California Global Warming Solutions Act of 2006: Market-based Compliance Mechanisms) into the California Senate on May 2, 2017, California is innovating on climate policy once again. Although it has a long journey to complete before becoming law, SB 775 is significant because it would completely revamp California’s cap and trade system once the current program ends in 2020.  Under SB 775, the key features of California’s proposed new system are as follows:

  • The cap and trade system would be completely overhauled with a new program commencing on January 1, 2021; no allowances and offsets from the current system would be transferred over.
  • All allowances under the proposed new program would be auctioned, meaning that no allowances will be allocated for free. Further, no offsets will be permitted for use as a compliance mechanism.
  • A price collar would be established in 2021, with the price floor starting at US $20 and a price ceiling of US $30 (the initial auction price would be set at US $30 per allowance). The price floor would rise at $5 per year plus inflation; while the price ceiling would rise at US $10 per year plus inflation. The proposed program is designed to operate in perpetuity, so in the absence of amendments to the program, the price ceiling could exceed US $300 by 2050.
  • A broad revenue structure would be established to allocate revenue into three programs: (1) California Climate Dividend Program, which will rebate revenue on a per-capita basis; (2) public infrastructure investments and investments in disadvantaged communities; and (3) climate and clean energy research and development.
  • The new cap-and-trade program will not link to any other jurisdiction until that jurisdiction has a minimum carbon price that is equal to or greater than California’s. Also, the Governor must be satisfied that the linkage will not adversely impact California dividends.
  • The proposed cap-and-trade program would impose a border adjustment tax on imports based on their carbon intensity, which would be administered by a newly created Economic Competitiveness Assurance Program. The border adjustment tax would seek to ensure that in-state industry is not unduly impacted by California’s carbon pricing regime. In the event that a border adjustment tax is reduced or eliminated following a legal decision, SB 775 provides a safety net for California businesses in the event the border adjustment tax is reduced or eliminated following a legal challenge. In particular, free allowances, would be made available to eligible companies for the purpose of maintaining economic parity between producers of carbon intensive goods that are subject to the cap and trade system and those who produce or sell similar products that are not.

The introduction of SB 775 comes on the heels of Bill SB 584, which was introduced in February 2017 and calls for 100% of the state’s electricity to come from renewable sources by 2045. Bill SB 32, which was passed in 2016, establishes an ambitious emissions reduction target for 2030 – i.e. beyond the current emissions reduction target of returning to 1990 emission levels by 2020, SB 32 mandates a reduction of an additional 40% in emissions by 2030.

The passage of SB 775 in its current form will no doubt have implications for the existing cap and trade programs in Québec and Ontario. Since 2014, California’s cap and trade program has been linked to Québec’s emissions trading system and Ontario is expected to link to both California and Québec’s cap-and-trade programs in 2018. Since any jurisdiction looking to link with California’s program from post-2020 would first need to match the state’s level of carbon pricing, Québec and Ontario may have limited incentive to link to California from 2021, since California’s minimum carbon price in 2021 will already be close to or exceed the carbon pricing requirements of the Canadian federal government (starting in 2018, provinces and territories are expected to implement a carbon price of CAD $10, which will increase by $10 per year until it reaches CAD $50 in 2022). SB 775 is now undergoing review by the Committee on Environmental Quality, after which it will be sent to the state Senate and then on to the state Assembly, before it is sent back fro reconciliation. California Governor Jerry Brown has asked for reauthorization of the cap and trade program by July 2017.

Pan-Canadian Framework is effective – More Provinces act – A review of provincial level Climate Change Action in Atlantic Canada

Since the signing of the Vancouver Declaration on Clean Growth and Climate Change in March 2017 and in the lead-up to the release of the Pan-Canadian Framework on Clean Growth and Climate Change (December 2017) (the “Framework”), the Atlantic provinces have been taking steps to update their climate change action plans and implement policies to meet the requirements of the Framework, including the need to implement carbon pricing (whether in the form of a carbon tax or cap and trade system) in 2018. Below is a round up of the latest climate change policy developments from the Maritimes.

 New Brunswick

New Brunswick released its new climate change action plan – Transitioning to a Low-carbon Economy – in December 2016. The plan sets out more than 100 action items to combat climate change including plans to make government carbon neutral by 2030, implementation of energy efficiency programs, phase-out of coal as a source of electricity, and the establishment of a price on carbon that will meet requirements under the Framework. The Nova Scotia government has said that proceeds from the province’s carbon pricing regime will be directed to a dedicated fund for climate change initiatives.

Nova Scotia

A large proportion of Nova Scotia’s greenhouse gas (GHG) emissions come from the electricity sector and as a result, the province’s emission reduction strategy has focused mainly on electricity emissions. In particular, in 2009, Nova Scotia imposed a GHG reduction requirement of 25% by 2020 to support the transition away from coal. Following the province’s adoption of the Framework in December 2016, the Nova Scotia government said that it will implement a cap and trade program which will cover approximately 90% of Nova Scotia’s GHG emissions. As part of the development of the province’s cap and trade program, Nova Scotia Environment has released a discussion paper entitled Nova Scotia Cap and Trade Program Design Options. Since Nova Scotia does not wish to see the transfer of emissions in or out of the province, it has no plans to link with a cap-and-trade program in any other jurisdiction at this time. Nova Scotia Environment will be accepting comments on the discussion paper until March 31, 2017.

Prince Edward Island

Prince Edward Island (PEI) is in the process of developing strategies for both mitigation and adaptation measures. Last year, PEI launched a process to develop a 2016 Provincial Climate Change Mitigation Strategy, which resulted in the release of PEI’s Climate Change Mitigation Strategy Discussion Document in July 2016. Following public consultations, a draft report – Recommendations for a 2016 Provincial Climate Change Mitigation Strategy – was released in October 2016.  While the report does not articulate the type of carbon pricing that PEI will implement, it does acknowledge that a vast majority of respondents in the consultation process indicated their support for a carbon-pricing model that is revenue neutral. The draft recommendations report will be further refined before it is finalized. PEI’s mitigation strategy is being developed first, in parallel with a new energy strategy that is focused on sustainable energy policies that support energy efficiency, renewable energy, and economic growth. A second draft of PEI’s 2016 Provincial Energy Strategy was released in June 2016 and sets out action items to be pursued over the next 5 to 10 year period in the following areas: (i) energy efficiency and conservation; (ii) electricity generation; (iii) energy storage; (iv) biomass; (v) transportation; and (vi) cross-sectoral initiatives. Implementation steps will be announced following the finalization of the strategy.

Newfoundland & Labrador

In June 2016, Newfoundland & Labrador passed the Management of Greenhouse Gas Act, which establishes a legislative framework for reducing GHG emissions by industrial emitters (i.e. industrial facilities emitting 15,000 tonnes of carbon dioxide equivalent (CO2e) per year). The legislation requires two years of emissions monitoring that will help establish reduction targets for large industrial facilities (i.e. those emitting 25,000 tonnes of CO2e per year). The legislation requires facilities meeting the 15,000 tonne threshold to submit annual GHG reports. Further, the legislation establishes a compliance fund that will support the development of emissions reduction technologies. In particular, the fund will provide companies with flexibility in achieving emissions reductions at a lower cost, while supporting emission reduction projects. A third party has been retained to help develop Newfoundland & Labrador’s first carbon offset protocols that will focus on energy efficiency, fuel switching and renewable energy projects. Finally, the province announced in February 2017 that the Office of Climate Change now operates within the Executive Council.

Manitoba Releases Updated Climate Change Strategy and Confirms Implementation of Cap & Trade

On December 3, 2015, Manitoba released its Climate Change and Green Economy Action Plan (the Plan), which updates the province’s 2008 Climate Action Plan, Beyond Kyoto. The Plan sets out Manitoba’s medium and long-term GHG reduction targets:

  • By 2030, Manitoba will reduce its greenhouse gas emissions by one-third over 2005 levels.
  • By 2050, Manitoba will reduce its greenhouse gas emissions by one-half over 2005 levels.
  • By 2080, Manitoba will be carbon neutral.

The Plan also outlines projects that will be undertaken through Manitoba’s new five-year $5 million Climate Change Action Fund. Funds will be invested across sectors to continue driving innovation in the province’s transportation and agriculture sectors, assess local climate risks and develop solutions, expand climate change work on the ground by partnering with communities, and expand innovative energy projects in First Nation communities. Manitoba will also look at how carbon pricing can be used as a tool to drive innovation and boost economic growth while reducing GHG emissions. Manitoba, a member of the Western Climate Initiative, reiterated its commitment to implement a cap and trade program for 20 large emitters in the province and will look at other innovative measures, such as a made-in-Manitoba Carbon Stewardship model for sectors not covered by cap and trade. To that end, Manitoba will carry out public consultations on carbon pricing to explore a range of opportunities. Under the Plan, the Manitoba government will also reduce emissions from government operations through increased energy efficiency, a greener vehicle fleet and equipment, greener office spaces, and waste reduction. Manitoba will provide a complete inventory of its own GHG emissions and develop a comprehensive policy framework to enable it to become a carbon neutral government. The Plan also addresses key sectors such as buildings, transportation and agriculture. Manitoba has demonstrated its climate leadership with the development of new zero-emission battery electric transit buses and transformative research into new crops and natural bio-products.

Alberta Releases Details of Climate Leadership Plan in Advance of Federal/Provincial Climate Change Meeting and COP 21

In advance of a meeting with Prime Minister Justin Trudeau and fellow premiers, Alberta Premier Rachel Notley unveiled the details of the province’s Climate Leadership Plan on November 22, 2015. The plan, which is based on the advice of the Climate Change Advisory Panel (the Panel, led by Dr. Andrew Leach), will also be promoted by Premier Notley at the United Nations Climate Change conference that will take place in Paris from November 30 to December 11, 2015.

Alberta’s Climate Leadership Plan accelerates the province’s transition from coal to renewable electricity sources and sets an emissions limits of 100 megatonnes for the oil sands with provisions for new upgrading and co-generation (the level of current emissions from the oil sands is approximately 70 megatonnes). To ensure that the policy is progressive and protects the competitiveness of Alberta’s core industries, the Panel has recommended a consumer credit which will offset the impact of the policy for households and allocations of emissions credits for industrial emitters. A copy of the Panel’s Report to the Minister, which was also released on November 22nd, is available Leadership Report Online.
Alberta’s Climate Leadership Plan sets out the following policy objectives:

Carbon Pricing
Carbon pricing provides the backbone of the Panel’s proposed policy architecture. Alberta will phase in carbon pricing in two steps:
o $20/tonne economy-wide in January 2017.
o $30/tonne economy-wide in January 2018.

The Panel has also proposed that the existing Specified Gas Emitters Regulation be replaced by a Carbon Competitiveness Regulation in 2018, which would:
a) broaden the carbon pricing signal in Alberta to cover approximately 90% of the province’s emissions, up from less than 50% today;
b) provide a consumer rebate to mitigate the impacts of carbon pricing on low- and middle-income Albertans, fund complementary emissions-abatement programs and, where applicable, support a sound and just transition for labour and communities and strategies to protect small- and medium-sized businesses;
c) improve the mechanism by which trade-exposed industries are protected to ensure their competitiveness while encouraging and rewarding top performance;
d) increase stringency at the same pace as peer and competing jurisdictions; and
e) avoid the transfer of wealth outside of Alberta.

Electricity and Renewables
• Alberta will phase out all pollution created by burning coal and transition to more renewable energy and natural gas generation by 2030.
• Three principles will shape the coal phase-out: (i) maintaining reliability; (ii) providing reasonable stability in prices to consumers and business; and (iii) ensuring that capital is not unnecessarily stranded.
• Two-thirds of coal-generated electricity will be replaced by renewables – primarily wind power – while natural gas generation will continue to provide firm base load reliability.
• Renewable energy sources will comprise up to 30 per cent of Alberta’s electricity production by 2030.

Methane Reduction
• In collaboration with industry, environmental organizations, and affected First Nations, Alberta will implement a methane reduction strategy to reduce emissions by 45% from 2014 levels by 2025.

Revenue Neutral
• One-hundred per cent of proceeds from carbon pricing will be reinvested in Alberta.
• A portion of collected revenues will be invested directly into measures to reduce pollution (including clean energy research and technology), green infrastructure (such as public transit), and programs to help Albertans reduce their energy use.
• Other revenues will be invested in an adjustment fund that will help individuals and families make ends meet; provide transition support to small businesses, First Nations, and people working in affected coal facilities.

Alberta’s Climate Leadership Plan is expected to reduce emissions from current trends by approximately 20 Mt by 2020, and approximately 50 Mt by 2030. This would roughly stabilize emissions, by 2030, just above current levels at approximately 270 Mt.

New Report from World Bank Points to Global Shift Towards Carbon Pricing

On September 20, 2015, the World Bank released its 2015 State and Trends of Carbon Pricing report (the Report), which shows the number of implemented or planned carbon pricing schemes around the world have almost doubled since 2012, and are now worth about $50 billion.

The Report indicates that about 40 national and 23 city, states and regions around the world are using carbon pricing schemes, like emissions trading systems (ETS) or carbon taxes. This represents about 7 gigatons of carbon dioxide equivalent, or 12% of global greenhouse gas emissions, a threefold increase over the past decade.

Based on a review of carbon pricing initiatives around the world (including emissions trading systems and taxes in places like British Columbia, the European Union, Denmark, Sweden, and the United Kingdom), the Report reinforces lessons learned to date – in particular, that well-designed carbon pricing schemes are a powerful and flexible tool that can cut emissions and if adequately designed and implemented, they can play a key role in enhancing innovation and smoothing the transition to a low-carbon global economy.

The Report points to a number of examples to demonstrate the shift to carbon pricing instruments worldwide, including:

• Launch of the South Korean ETS in January 2015.
• Approval of a national carbon tax by Chile to start in 2017.
• The European Union ETS is the largest carbon instrument in terms of value, followed by the trading systems in Korea and California.
• Ontario announced in April that it is joining California and Québec’s emissions trading systems.
• The EU and South Korea recently announced plans this week to explore linkage between their emissions trading systems.
• The US and China – the world’s largest greenhouse gas emitters – host the two largest national carbon pricing initiatives in terms of volume covered (as driven by initiatives in their states and provinces). In China, the carbon initiatives cover the equivalent of 1 gigaton of CO2e, while in the US, they cover the equivalent of 0.5 gigatons of CO2e.
• China currently has seven pilot carbon markets operating in major cities and provinces, and has plans to launch a national system in 2016.

It was also announced in September 2015 that more than two dozen cities in China and the US are making new pledges to lower emissions.

The Report also considers the issue of “carbon leakage”, whereby carbon pricing leads some industries and lead them to move production to other countries or jurisdictions where emission costs are lower. The Report notes that ex-post analysis of the EU ETS, the biggest cap-and-trade system in place today, shows that so far, carbon leakage has not materialized on any significant scale. The risk of carbon leakage will remain real as long as carbon price signals are strong and differ significantly between jurisdictions. However, this risk tends to affect a limited number of carbon intensive and trade-exposed sectors, which risk can be effectively mitigated through policy design.

The Report also discusses the enormous savings that can be made through cooperation between countries. Compared to domestic action alone, cooperation and linking of carbon pricing instruments across borders could significantly lower the cost of achieving a 2°C stabilization goal, because countries have more flexibility in choosing who undertakes emission reductions, and who pays for them. Based on an analysis of studies made over the years, the Report shows that this cooperation can mobilize resources and transfers between countries and investors, and result in net annual flows of financial resources of up to $400 billion by 2030 and up to $2.2 trillion by 2050.

Finally, the Report says that carbon prices that converge have a positive impact on competitiveness by favouring more efficient and cleaner sectors, leading to a more efficient economy.

The FASTER Principles

To help countries navigate the carbon pricing landscape, the World Bank Group, together with the OECD and with input from the IMF, also released a report on the FASTER Principles, which aims to help governments and businesses develop efficient and cost-effective carbon pricing instruments.

The FASTER principles are: F for fairness; A for alignment of policies and objectives; S for stability and predictability; T for transparency; E for efficiency and cost-effectiveness and R for reliability and environmental integrity.

Climate Change in the Spotlight

The spotlight is now on New York with the upcoming United Nations meeting on the new Sustainable Development Goals, Climate Week New York, and in about two months, global leaders will meet again in Paris for COP 21.

The decisions made in New York and Paris will set the course for development for years to come. But while these are top level, pivotal meetings, actors around the world are not waiting for a global agreement to act. They are already putting a price on carbon dioxide and other greenhouse gas emissions to drive clean investment. This includes the private sector. And we’ve seen companies from the oil and gas industry – calling for widespread carbon pricing. Today, over 400 businesses worldwide are using an internal price on carbon to guide their investments.