I4CE– InstituteforClimateEconomics

FORMSOFCARBONPRICINGANDAVENUESFORINTERNATIONALCOOPERATIVEAPPROACHES

FromoperationalcarbonpricingtomainstreamingclimateBENOITLEGUET03/07/2017

TRIGGERINGTHELOWCARBONTRANSITION:ARTICULATINGCARBONPRICINGAND

CLIMATEFINANCE

I4CE

What is intheParisAgreement?

1. Limit global warming well below 2°C while aiming at bringing it to 1.5° with an aim to reach global peaking of GHG emissions as soon as possible” and zero-net emissions by the second half of this century.

2. Increasing the ability to adapt tothe adverse impacts of climate change by promoting resilienceand low-carbon development, in a manner that does not threaten food production;

3. Making financial flows “consistent” with low-carbon climate-resilient development.

I4CE

REDIRECTING(andreaching)5,000G$peryear ofpublic&private investment

Source: New Climate Economy, 2016

Keymessages1. Carbon pricing policies can help mainstream

climate into macroeconomic policies

2. Explicit carbon pricing is only one of the options, and carbon pricing is a piece of a broader policy package

3. Carbon revenues can help bridge the gap to mainstreaming climate in public policies

4. The PA provides a platform for international cooperative approaches for carbon pricing

5. Need for ambition on the demand and the supply side of finance

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- Leadtofuel-switchingfromcoaltogas.- Incentivetoproductionandconsumptionefficiency i.e EE- Makenear-to-marketlow-carbontechnologiescost-effective

- Backstopotherlow-carbonsupportpolicies

- Driveallnecessarylow-carboninvestmentsinenergyandindustrysectors- Forceearlyretirementofhigh-carbonassets

-Stimulateshiftsinconsumptionpatterns- Spurinnovationinlow-carbontechnologies

- Mainstreamclimateinfiscalpolicies,andpublicpolicies;- Scale-up low-emissioninfrastructures;- Multiple co-benefits- AchievedevelopmentpathwayswithlowGHGandhighresiliencetotheeffectsofclimatechange-

1 | The role of carbon pricingIncreasing contribution to mainstreaming climate in macroeconomics policies

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CAN

CANNOT

COULD

Withoutcomplementary policies

Withanefficientcarbonrevenuesmanagement

+Awell-alignedpolicyframework

Operationalstep Transformativestep Targetedgrowthstep

MIC

ROM

ITIG

ATIO

NIM

PACTS

MACROM

ITIG

ATIO

NIM

PACTS

2 |DifferentoptionsforcarbonpricingTheglobalmapofexplicitcarbonpricing:alimitedviewoftheimplicitreality

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2 |DifferentoptionsforcarbonpricingWhywouldthefinancialsectorcare?

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EmissionsTradingSystemLimitsthequantityofGHGsthatcanbeemittedoveraperiodoftime

CarbonTaxAppliesacosttothedistribution,saleoruseoffossilfuelsandcanbebasedonthecarbonintensityofanactivityorproduct.

OffsetMechanismTocompensateforonetonneofemissionsreductionsbyinvestinginonetonneofemissionsreductionselsewhere

FinancialinstrumentsToreducetheupfrontcostsofmitigationactionsusingtoolssuchaspublicguarantees,interestratesubsidiesandtaxbreaks

ShadowpricinginpublicsectorTohelpreorientinvestmentdecisions,oraccountforindirectimpactsonemissions(e.g.,whenpublicinfrastructureinvestmentsaffectemissions)

InternalcarbonpriceTohelpcompaniestoguideinvestmentdecisionsforacleanerfuture,anticipatefuturepricingpoliciesorfuturechangesinthecarbonprice,orhelpmitigaterisks.

2 | Carbon pricing: a piece of a broader package of energy and climate policiesAligningallpoliciesamongthemselvestoclimateobjectivesisachallengeforpolicymakers.

Renewableenergypolicies

Energyefficiencypolicies

Energytaxes

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Carbonpricing

InnovationandR&Dpolicies

Sectoralpolicies

Socialpolicies

Employmentpolicies

• Avoidingoverlappingpolicies,

• Removingcountervailingpolicies

• Pushingupcomplementarypolicies.

3 |Howtousecarbonrevenues:bridgingthegaptomainstreamclimate?

« Environmental »carbontax• ImplementingParisAgreement• Env.Min.Authority• Greenspending,earmarking

Changeindestinationofrevenues:fromearmarkingtowardsFinanceMin.takeover

Mainstreamingclimateactioninafiscalreform

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“Designthinking”forcarbonrevenuesshouldhelpphaseininclusivefiscalreforms

Source:« StateandTrendsofcarbon pricing »,WorldBankOctober 2016

• International cooperative approaches can play a significant role in:– Reducing costs of GHG emission reduction– Achieving a more ambitious GHG reduction target– Facilitating financial flows between cooperative states

4 |InternationalcooperativeapproachesA potential tool for achieving the Paris agreement’s objectives

4|Internationalcooperativeapproaches

AVENUESINTHEPARISAGREEMENTUNDERCONSTRUCTION

§ Article2– Redirectionoffinancialflows

§ Article6– 6.2&6.3:Cooperative

approaches– 6.4:Marketcooperative

approaches– 6.7:Non-Marketcooperative

approaches§ Article10

– Atechnologyframework– ATechnologymechanism

AFEWCONCRETEAVENUESFORINTERNATIONALCOOPERATION

§ Creditingmechanism(offsets)§ Sectoralagreements(“carbon

clubs”)§ R&Dandtechnologytransfers§ Capacitybuilding§ InfrastructuresPrivatePublic

Partnerships§ Alignmentofpracticesfor

publicdevelopmentbanks

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Which framework to stimulate bottom-up action?

5 |Nextchallenge:Scalingupcarbonpricingpoliciestoclimateambition

Whatarethemajorconditionstoenhanceawell-alignedpolicyframeworktooptimizecarbonpricingpotential?

§ 4potentialconditions:1. Politicalsignals2. Economicsignals3. Governance4. Socialacceptability

§ Learningmattersandthepaceofchangematterstoo.– Consideringadynamicapproach:needtothinkandpresent

transitionintermsofpoliticallearningcurvesandprocesses,notsnapshots.

§ Pathways,motivationsandnarrativesfordevelopingcountriesarenotsimilartothosefordevelopedcountries:– Consideringnationalcontexts:weneedtoadaptmaterialsfor

encouragingthisalignmentindevelopingcountries.

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5 |Onthesupply side:also needs tobe takeninto account

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NationalLow-CarbonPathway NationalPolicyFramework

EconomicEnvironment

Demandandeconomic

environmentforprojectsandsectors

FinancialValueChain

Projectdevelopers/SMEs

LCCRProjects

LCCRProjects

LCCRProjects

€€€Sources of capitalIntermediariesInstruments

Risk-Return ProfileEconomic Conditions

UncertaintyIntegration of externalitiesInvestment Opportunities

€€€

€€€

Source: I4CE 2016

5 |Onthesupply side:climate finance,accelerating thepace

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Disclosure

PortfolioDecarbonization

Engagement

Divestment

Policy

GreeningPortfolios

Art. 173, French Law on Energy

Transition

I4CE– InstituteforClimateEconomics24AvenueMarceau75008PARISwww.i4ce.org|contact@i4ce.org|

Thank you for your attention

Contact: benoit.leguet@i4ce.org@I4CE_ @BenoitLeguet