Explained: Carbon pricing and COP26

Some 25,000 took to the streets in Brussels ahead of COP26, the United Nations Global Climate Conference beginning at the end of October in Glasgow, Scotland.

This year’s meeting aims to secure far bolder action from the nearly 200 countries that signed the 2015 Paris Agreement to limit global warming to 1.5 degrees Celsius and achieve a climate neutral world by mid-century.

Global carbon pricing is one of the mechanisms they hope will achieve that.

A word from protestor Martine Chaput…

(French) PROTESTER FROM WAVRE AND RETIRED MEDICAL DOCTOR, MARTINE CHAPUT, 69, SAYING: “Regarding the climate, we have been told for years that we must act. If we had had the same dynamism for the climate, we would not be where we are today. It is time for people to sort things out by order of priority and climate is the top priority."

ENEL CHIEF EXECTUTIVE FRANCESCO STARACE: “Please put a price on carbon…”

That’s Francesco Starace, the CEO of Europe’s biggest energy distributor, Enel.

“No we’re not fully on track with the net zero short-term goal and we need to get there in the short-term, that means by 2030, if we want to have hope to get to full net zero by 2050 or earlier.”

Many countries have committed to a goal of “net zero” emissions by 2050.

But without putting a price on CO2, it is hard for governments to force polluters to cut emissions without disadvantaging them unfairly, for investors to assess their risks, or for companies to know what costs lie ahead.

Bob Dudley, the former head of oil company BP and now chair of the Oil and Gas Climate Initiative trying to help the fossil fuel industry decarbonize, said a proper valuation of emissions was one of his group’s five main goals.

Theodor Swedjemark at European power engineering group ABB said “aligning carbon-based trade policies” was one of the business community’s main requirements from COP26.

The World Bank says only 22% of global emissions were covered by pricing mechanisms last year.

And the International Monetary Fund put the average global price at a mere $3 a tonne.

Yet the OECD estimates that a price of $147 is needed before 2030 to create enough economic incentives for producers and users of fossil fuels to slash emissions by 2050.

ACTIVIST GRETA THUNBERG, CHANTING: “Another world is possible, we are unstoppable!”

The challenge of finding a standardized solution at COP26 for industrialized and developing economies alike will be huge.

Tengku Muhammad Taufik, chief executive of Malaysian state energy firm Petronas noted at the Reuters Impact Conference in October that carbon is priced at about $5-10 a tonne in southeast Asian economies, compared with over $130 in Sweden.

Starace emphasizes that the important thing is to get started.

“No matter what is the mechanism – tax, ETS system, cap and trade, whatever – but put the price on carbon in your own territory, state, government, and then worry about how that carbon price relates to the other carbon prices, but price it. Because if you start with that, then this will finally adjust.”