UN Climate Change Summit: Private sector demonstrate leadership on carbon pricing

The UN Secretary Ban Ki-Moon’s Climate Change Summit, held last month in New York, aimed to catalyse climate action in preparation for next year’s Conference of the Parties, which has the objective of setting a new global agreement in 2015. The New York Summit acted as a platform where world leaders in government, private sector and civil society came together to announce and share their own climate related targets in order to inspire progress. Achieving resilient economies that provide clean yet affordable solutions to climate change was at the heart of the conference. It is thus not surprising that the private sector should be involved, yet it is worth noting that its presence is a very recent development in the history of UN environmental talks.

This year however, the UN Private Sector Forum formed an integral part of the UN Secretary-General’s Climate Summit. Organised by the UN Global Compact in close cooperation with the World Bank Group and with the support of UN partners, the Private Sector Forum provided a unique platform for governments and businesses to demonstrate their leadership on climate change. The theme of the 2014 Private Forum was carbon pricing, with a focus on what private and public sectors must achieve in order to ascertain fair and equitable valuation of carbon through strategies, policies and investment. Carbon pricing mechanisms such as emissions trading systems and carbon taxes are becoming more prevalent and now cover 12% of annual global greenhouse gas emissions. The World Bank estimates they are used in almost 40 countries and more than 20 cities, states and provinces, and this number continues to grow: eight new markets opened in 2013 and one in early 2014, which brings the total value of the world’s emissions trading schemes to US$30 billion approximately (approximately £19 billion).

Where does the private sector fit in all that?

Businesses are developing their use of carbon pricing and leading the way ahead of governments despite the absence of a regulatory framework. The Carbon Disclosure Project (CDP) found that already 150 companies who report to the CDP are also using carbon pricing. It is used internally as a means of strategic planning to identify revenue opportunities and possible risks and as a way of creating an incentive for increased energy efficiency. The assumption is that climate change will be both a cost and an opportunity for businesses and a lot of them expect the creation of a regulatory framework eventually.

How do organisations set a carbon price?

The United Nations Private Sector Forum outlines three simple steps to setting an internal carbon price:

  1. “Measure CO2 emissions of existing operations and project CO2 emissions in investment decisions;
  2. Put a price on these emissions, so they have a financial value; and
  3. They ensure that the internal carbon price is set high enough to motivate the company to reduce emissions and increase share of low-carbon investments.”

At what price have organisations been valuing carbon?

Presently, prices vary dramatically from US$6 to US$60 (approximately £4 to £37) per tonne of CO2e. The fact that these prices are far above market trends in the EU and UK shows that organisations are truly taking the matter seriously and have greenhouse gas emissions reductions as a real and acknowledged objective. However, we still have a long way to go. According to the International Energy Agency’s numbers, this range is too low if we are to halve global emissions by 2050. Indeed, their recommended price to achieve those results is US$175 per tonne of CO2 (approximately £109); triple the amount that is currently set by the most ambitious businesses.

Faced with those discrepancies, we can only hope improved results will stem from the commitments endorsed at the Climate Summit in September. By the end of the summit, 1000 companies and more than 70 countries made the pledge that they would endorse the creation of mechanisms that truly reflect the costs of emissions. These encouraging statements demonstrate governments’ and the private sector’s will to keep moving in the right direction. About 30 companies, including Unilever, EDF and BT Group have also agreed to set internal carbon prices that would be high enough to have an effect on investment decisions under the Caring for Climate UN initiative. Are we witnessing the beginning of a growing trend?

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