Delivering on the Paris Agreement: Is there a Carbon Pricing Opportunity for India?

Negotiators in Paris last December achieved a previously unattainable consensus among all countries — large and small, industrialized and developing — on a target for minimizing climate change.
 
They agreed to hold planetary warming to below 2 degrees Celsius, which can only happen by drastically cutting the greenhouse gas emissions that cause climate change.
 
Adhering to the target requires a de facto energy revolution that transforms economies and societies by weaning the world from dependence on fossil fuels. The magnitude of the task means strategies and spending on a scale far exceeding previous efforts. 

More than 180 countries submitted national plans that now must be turned into investment blueprints.
 
A lot of future investment is at stake. From now through 2030, the global economy will require $89 trillion in infrastructure investment across cities, energy and land-use systems as well as $4.1 trillion in incremental investments for the essential low-carbon growth plan.
 
Such need dwarfs available public funding, making the private sector a vital participant, along with innovation to help spur and leverage increased investment.
 
At the recent Investor Summit on Climate Risks in New York, U.N. Secretary-General Ban Ki-moon called on pension funds, the banking sector, the insurance industry and others to at least double their clean energy investments by 2020.
 
More and more, economists and business leaders believe the only way to forge solutions at the necessary scale is to put a price on carbon emissions to make polluting an operating cost factored into bottom-line calculations.
 
If emissions become an economic decision, they argue, the private sector will have the fiscal incentive to embrace the necessary global transformation to a zero-carbon future.
 
What is the carbon pricing opportunity for Indian business?
 
A rapidly growing number of global companies are committing to use carbon pricing as a way to “climate proof” their business models for an increasingly low-carbon future. Businesses also are working with governments to help pilot emissions trading, offering lessons learned to ensure efficient system design. 
 
For India, there is a clear opportunity here. Under the national plan India submitted to the United Nations, the government set a target to increase renewable energy capacity from 30 percent today to 40 percent by 2030. The plan also calls for installing 175 gigawatts of renewable energy capacity by 2022 — an ambitious goal considering the world’s total installed solar power capacity was 181 gigawatts in 2014. The government estimates that $2.5 trillion in investment will be needed to achieve its plan by 2030.
 
Major Indian companies — including Dalmia Cement, Mahindra Group and Tata Group — have stepped up to become sustainability champions by taking action to support carbon pricing.
 
These and other Indian companies are partners of the Carbon Pricing Leadership Coalition, a new initiative designed to support successful carbon pricing across the globe.
 
This week, Indian business leaders will gather in Delhi and Mumbai at the Indian Climate Policy and Business Conclave organized by the Federation of Indian Chambers of Commerce and Industry (FICCI) in partnership with the Indian Ministry of Environment, Forest & Climate Change, the German Federal Ministry for the Environment, and the World Bank Group.
 
In discussion groups and training sessions, they will examine the issues and opportunities facing India in confronting the changing climate, and explore how to advance carbon pricing in their internal business models. They will learn at what levels they can set a carbon price internally, and how to apply it so that it helps to accelerate their transition to a lower-carbon footprint.
 
Carbon pricing is not always an easy policy to implement. Each jurisdiction and company faces its own challenges, with fears that a carbon price will affect competitiveness or raise energy costs.
 
But experience through years of study, testing and trial and error shows carbon pricing can work, bringing both reduced emissions and economic growth. We know that because of leaders like California, the European Union, Korea, China and Mexico that are successfully running carbon pricing programs today.  They have navigated concerns about competitiveness, fairness and supporting training and job transition through stakeholder engagement, smart policy design and regular reassessments of progress—building a set of principles for good practice that India can borrow from as it tries to unlock the private investment needed to transform its economy.  

Carbon Pricing At Center Stage in Climate Negotiations

Top 10 Carbon Pricing Stories from Paris

On December 12, international negotiators representing 195 countries adopted The Paris Agreement to combat climate change. Among the key provisions of the Agreement was a new mechanism to ensure that carbon emissions reductions are “real, measurable and long-term” - a provision that gives investors and the private sector a strong signal to begin to shift their portfolios toward lower-carbon assets.  The Agreement also paves the way toward enacting successful carbon pricing and carbon market regimes.

While most leading climate scientists, economists, and policy experts have long been in agreement on the need for some form of carbon price, the Paris climate summit saw a dramatic uptick in discussions of carbon pricing, at the highest levels of business and government. At dozens of side events and media briefings, government leaders, from Presidents and Prime Ministers to finance and environment chiefs, called for a carbon price as a necessary tool in decarbonizing entire economies, and establishing international standards for carbon reductions.

At the same time, business leaders from around the globe - including oil and gas executives - pushed a carbon price as the most efficient mechanism for the private sector to squeeze carbon out of their operations and supply chains.

Leading the charge were the members of the Carbon Pricing Leadership Coalition, a self-selecting group of leading governments, companies and civil society organizations convened by the World Bank Group who are embracing carbon pricing as an efficient and effective means of slashing emissions across enterprises and entire economies.

The support and momentum for carbon pricing was picked up throughout the Paris negotiations. Following is one take on the “Top Ten” carbon pricing stories out of Paris:

1. World Leaders Call For Price On CO2 Emissions (International Business Times):  Six heads of state leaders and major global economic actors are urging diplomats gathering in Paris to adopt a price on carbon dioxide emissions. “We’ve come together in the shadow of an undeniable truth: We simply cannot afford to continue polluting the planet at the current pace,” Jim Yong Kim, President of World Bank Group.

2. A Growing Push to Price Carbon (New York Times): Should there be a global price on carbon? Many countries say yes. About 40 countries and 23 regions, states and cities, representing about 12 percent of global greenhouse gas emissions, have mechanisms to put a price on carbon.

3. The best is the enemy of the green (The Economist):  Carbon prices tackle the problem of emissions head on. When people engage in a carbon-intensive activity, such as driving a car, they impose a cost on others, often without even realising it: the emissions produced when petrol is burned contribute to global warming. Because that cost is not built into the price of petrol, people buy more of it than they otherwise would, atmospheric carbon goes up, and the world bakes. A carbon price that added the missing cost to the price of petrol (and coal and every other carbon-generating activity) would give people an incentive to emit less.

4. Corporate Managers Back Carbon-Pricing Mechanisms, Survey Says (Wall Street Journal): Putting a price on carbon emissions is the fastest way to push companies to become more environmentally friendly, corporate executives say. More than eight in ten chief executives want international leaders to provide a clear roadmap and timeline on future carbon pricing mechanisms at United Nations climate negotiations in Paris next month, according to a survey of 75 chief executives by the UN Global Compact and Accenture Strategy.

5. Obama Calls Carbon Price Better Than Regulations (Scientific American): “I have long believed that the most elegant way to drive innovation and to reduce carbon emissions is to put a price on it,” President Obama said yesterday in a press conference in Paris. He echoed economists who describe greenhouse gas emissions as “externalities”—things of value that aren’t correctly priced by the market. The economic impact of carbon emissions on sea-level rise, for example, isn’t counted in the price of gasoline.

6. What is carbon pricing and why is it so important in battling climate change? (Los Angeles Times): Advocates argue that the adoption of carbon pricing will provide an incentive for companies to reduce their greenhouse gas emissions and encourage the production of carbon-free technologies. Longer term, it would make a coal-fired power plant less competitive relative to wind turbines or carbon-free sources of electricity. Also, if the cost of petroleum rises, vehicles that rely on electrical power will become more competitive and desirable. The domino effect is potentially huge.

7. Signal and Noise at the Paris Climate Summit (New Yorker): … Perhaps the only marketplace signals that would be strong enough to catalyze that level of investment would be eliminating oil and gas subsidies and implementing penalties on CO2 pollution. “We won’t see a significant shift away from fossil fuels in the energy industry until an honest price is imposed on carbon-dioxide emissions,” Marie-José Nadeau, the chair of the World Energy Council, said.

8. Prime Minister Hailemariam Emphasizes the Importance of Carbon Pricing (Geeska Afrika Online):  At a high-level panel organized on the sidelines of the Climate Summit in Paris, Ethiopian Prime Minister Hailemariam emphasized that he was promoting carbon pricing because of its interest in seeing climate change properly addressed since it is suffering from climate change and its impacts.

9. How finance ministers could fall in love with carbon pricing (Potsdam Institute): “Finance ministers are facing strong demand for public investments in education, security or transport – pricing CO2 turns out to be a suitable means of raising the revenues that are needed,” says Max Franks from the Potsdam Institute for Climate Impact Research.

10. Elon Musk calls for carbon price to halve the transition time to clean energy (Guardian): Elon Musk, one of the world’s greatest innovators, says the key to tackling climate change and driving clean energy innovation is a carbon price very similar to the one Australia abolished