Last January, the Carbon Pricing Leadership Coalition convened a meeting of experts from governments, industry, financing institutions, civil society, research and academia to discuss the concept of net-zero and carbon neutrality and the role of carbon pricing policies and measures in this regard. The dialogue was conducted under Chatham house rules. The discussions focused on three questions.
What is meant by net zero or carbon neutrality from a business, sector or jurisdictional perspective?
What policies and measures are needed to decarbonize the global supply chains? What specific considerations need to be made for countries and hard- to-abate industries?
What is the role of carbon in the context of the broad policies and measures needed for deep decarbonization? How can a price on carbon be designed to achieve deep decarbonization while taking other considerations into account – such as competitiveness, distributional impacts, revenue generation.
Key issues highlighted in the discussions:
Long Term Strategies (LTS) is a process which requires clear boundaries around targets. Implementing Long Term Strategies compatible with a 1.5-degree temperature goal will be a process that will take time and significant effort. As such it is imperative that the transition to a low carbon future starts without further delay. In this context it is imperative to have clarity on what the boundaries of the targets are, what the baselines are and how to avoid double counting.
Short term targets must be aligned with long term vision. This is critical to avoid tensions, maintain momentum and sustain efforts over the long term.
LTS requires a continuum of policies. Implementing net zero or carbon neutrality targets will require a continuum of policies and measures, including carbon pricing instruments, regulations, sector specific policies and other general measures such as subsidies, R&D, information for informed decision making, social funds and measures to stimulate investments.
The achievement of Net zero targets require deep decarbonization, use of offsets as well as carbon removals. It will entail addressing the circular economy and a just transition in the context of the climate policies and strategies.
All decarbonization options (reductions, offsets and removals -both technological and natural) must be considered. It is important to ensure that offsets are not the only mitigation strategy used towards a net zero goal. In addition, the important role of the agriculture sector- where emissions continue to grow unabated – is an important consideration in the context of achieving long-term strategies and net zero targets. The aviation and maritime sectors are also critical sectors to engage with if Paris aligned net zero targets are to be achieved.
Net zero looks very different depending on where an entity is in the supply chain and depending on economic circumstances. Thus, decarbonization along a company’s supply chain should consider three things:
Going deep and thinking through every aspect of the supply chain
Determining the extent to which you can influence behavior based on incentives that matter to each supplier and entity in the supply chain (i.e. Funding)
Determining incentives to ensure that all stakeholders involved in the value and supply chain perform in line the targets set forward by the brand.
Achieving net-zero will hinge on sustaining public engagement and their acceptance of the policies and measures being implemented, including those that put a price on carbon. This will require good visibility of benefits and results, fairness and the existence of alternatives to what is subjected to the pricing measure. As such, communication and advocacy are important to realizing the long-term vision and targets.
Carbon pricing policies must be included in the broader package of policies and measures. Smart design and appropriate deployment is critical. Considering how the air quality debate catalyzed the uptake of renewables and electrical vehicles, it may be strategic to leverage the potential of utilizing carbon pricing instruments in the context of broader development challenges such as the just transition, as this would accelerate its uptake and impacts in driving change.
Constraints to advancing carbon pricing need to be addressed. These include competitiveness, leakage, distributional and perception issues, as well as consumer preferences.
The use of carbon pricing revenues needs to be focused on long term solutions. There is no single way to redistribute revenues from carbon taxes. Presently only 6% of taxes globally cover environmental pollution and there is significant scope to increase this further. However, overreliance on carbon pricing should be cautioned, with calls to consider how to increase the agility in the revenue raising options for government. The CPLC was requested to focus on strengthening the knowledge base on the best practices for revenue use and redistribution based on experiences form the public and private sector.
The role of the financing and investor community is critical in how the net zero targets can be financed. The CPLC was called on to engage these stakeholders in subsequent discussions around how to incentivize and drive long term strategies and mobilize the needed resources.
In conclusion the group underscored that while net zero does not always mean zero emissions, targets need to be compatible with the Paris agreement’s 1.5-degree Celsius temperature goal, and thus should be ambitious. There was consensus that carbon pricing has a central role to play and will be effective if well designed and deployed appropriately to maximize on the benefits and impacts.
There is a need to be more precise on what data and information is needed to support the definition of such targets and more efforts to understand and implement measures to redistribution of proceeds to enable social acceptability of carbon pricing.
