NEW YORK: A new report today by the High-Level Commission on Carbon Pricing and Competitiveness, comprising 18 business and prominent world leaders, calls on industry peers and governments to adopt strong carbon pricing policies. As more businesses develop low-carbon strategies, supportive government policies can act in tandem to unlock economic opportunities and manage competitiveness concerns.
“Bold and immediate commitment is needed to respond to the challenge of climate change. Carbon pricing is an effective response especially when coupled with other policies. It can result in remarkable opportunities for corporations, countries, and communities,” said Anand Mahindra, Chairman, Mahindra Group.
Carbon pricing is a flexible and low-cost approach to reducing greenhouse gases. Carbon pricing, along with other policies, can drive innovation from industries, foster continuous improvement and minimize policy uncertainty to alleviate the transition even for highly emissions-intensive and trade-exposed sectors.
“Carbon pricing has proven to be one of the most effective tools unlocking the potential from the private sector to support innovate low-carbon growth. From a competitiveness perspective, carbon pricing is only one of many factors determining global competitiveness and plays a smaller role than differences for instance in labor and infrastructure,” said Feike Sijbesma, CEO, DSM.
The report finds a wealth of experience on how other policies can support carbon pricing and alleviate competitiveness concerns. It finds that other variables – such as corporate tax rates, energy prices, wage rates, labor availability, infrastructure, geographic location, cost of capital, exchange rates, prices for commodities and materials— exert as strong an influence as carbon pricing over most industry decisions to locate or invest.
Furthermore, early evidence from advanced economies shows that putting a price on carbon pollution neither curtails industrial growth, nor prompts polluters to move to countries that don’t charge such a price.
Additionally, carbon pricing can be advantageous for low-emissions firms and has the potential to boost new industries and advance innovation in existing ones. For example, when British Columbia introduced a carbon tax, an entirely new clean technology sector comprising over 200 companies emerged, collectively generating $1.7b annually.
Other examples of jurisdictions that have been successful at managing the impact on international competitiveness for highly emissions-intensive and trade-exposed sectors, include:
Sweden’s carbon tax – €114/tCO2e (~$129) – which is the highest in the world, was accompanied by policies that delivered a significant reduction in the marginal tax rates on energy, capital and labor. According the Ministry of Finance, during the 1990-2015 period, Sweden’s GDP increased by 75%, while at the same time GHG emissions were reduced by 26%.
California has a carbon price as well as an electricity grid connected to several states that do not. In a unique example in the use of border adjustment measures to address sector-specific competitiveness, the state requires imported electricity to obtain allowances, thus leveling the playing field.
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