En Route to Paris: Local to Global Carbon Pricing

Guest blog post by Dale Beugin, Research Director, Canada’s Ecofiscal Commission

Disclaimer: the views expressed in the following blog are those of the author and not necessarily those of the Foundation. 
Launched last November, Canada’s Ecofiscal Commission is a group of prominent economists, supported by a trans-partisan advisory Board. Its mission is to identify practical fiscal policies to spark the innovation required for increased economic and environmental prosperity.
In July, climate policy folks from across North and South America converged on Toronto, with the role of subnational carbon pricing policy as a major focal point. Since Ecofiscal has put quite a lot of thought into the idea that provincial carbon pricing might be a practical way forward here in Canada, we thought the Climate Summit of the Americas provided an opportunity to take a quick look at subnational policies elsewhere in the world as well. I want to make three main points on that note.

Climate momentum in provincial, state-level, and regional carbon pricing

First, Canada is not alone in seeing subnational carbon pricing policy play an important role. The World Bank Group and Ecofys find that carbon pricing policy now applies to almost a quarter of global emissions, including more than 20 subnational policies, as illustrated in the figure below. British Columbia, Alberta, Quebec, and California all have carbon pricing policies, and Ontario is soon to follow. Oregon is considering its options. The Regional Greenhouse Gas Initiative prices GHG emissions from electricity generation in nine U.S. states. Three subnational carbon pricing systems operate in Japanese cities. And seven city-level pilot projects are underway in China.

carbon map

Subnationals are taking the lead on carbon pricing policies globally.

The road to Paris… and beyond

Second, subnational carbon pricing is a step toward a much more ambitious end goal: global policy to drive global emissions reductions. A pathway toward global emissions reductions is the objective of the UNFCC meetings that will be held at the end of this year in Paris. As you probably already know, the path toward a global agreement on GHG emission has been anything but linear. It’s become increasingly clear that an uneven patchwork of carbon pricing policy is an unavoidable stepping-stone toward a broader solution.
And that’s exactly why policy coordination is an important issue. As the World Bank figure below highlights, the carbon prices across existing policies is anything but uniform. Differential carbon prices lead to less cost-effective emissions reductions over all and can create risks for competitiveness and leakage.

Carbon prices across the globe are anything but uniform.

Mechanisms for coordination are already emerging, particularly at a sub-national level. Quebec, California, and Ontario are linking their emissions trading systems together to create a common carbon market (and carbon price). The Chinese pilot systems are similarly exploring opportunities for coordination and linkage, and plans are in place to transition to a broader, national system.

Opportunities for learning

In the meantime, the range of different carbon pricing policies in place provides an opportunity to learn about policy design. What works? What doesn’t? Sharing these lessons can be incredibly useful as we evolve toward broader, more unified policy both within Canada and abroad. Pooling information and intelligence is a critical step from fragmented policy to broader action.
This blog is part of the En Route to Paris series. In preparation for the Conference of the Parties (COP-21) taking place in Paris this December, we created a series that showcases Canada-wide initiatives promoting a low-carbon economy. The En Route to Paris series posts will expose the views of experts who collaborate with us in our initiatives focused on ‘Energy and the Economy.’ Our goal is to support initiatives geared towards transforming the discourse on climate to illustrate all the benefits of sustainable development. 
Click here to view other posts in the series