Energy companies, global businesses, and heads of state have welcomed the recognition of carbon pricing in the draft negotiating text for the UN Climate Change talks, due to commence in Paris at the end of November.
Oil and gas companies from Europe, Saudi Arabia, and Mexico united in October to call for an effective agreement at the Paris summit. The companies, which included BP, Shell, and Total, committed to limit gas flaring and reiterated calls for a global carbon price, which they believe will provide the economic certainty for investment in carbon capture and storage (CCS). Total’s CEO, Patrick Pouyanné also highlighted the role that gas will have to play in a low carbon economy, saying: “Whatever people think, we still need fossil fuels. We need to make advocacy for gas. We need to explain to our policy makers that gas has to be encouraged”.
Negotiators met in Bonn last week with the aim of reaching consensus on a draft text ahead of the Paris talks. A section was included on carbon “acknowledging that putting a price on carbon is an important approach for cost-effectiveness of the cuts in global greenhouse emissions”. In addition, the World Bank has announced a new Carbon Pricing Panel, made up of world leaders and business representatives to look at how carbon pricing could be implemented on a global scale.
Businesses believe a global carbon price would create a level playing field and encourage investment in low-carbon technologies. One approach to pricing carbon is through a cap and trade scheme, under which polluting installations have a cap on their emissions levels and installations with surplus emissions can sell permits to those that are exceeding their cap. To date, approximately 40 emissions trading schemes have been established around the world, including the EU Emissions Trading System (EU ETS). The linking of these schemes would provide greater certainty and prevent carbon leakage.
Ahead of the Paris summit, individual nations have been submitting their own contributions towards a global emissions reduction target, known as intended nationally determined contributions (INDCs). These individual pledges will collectively make up a global carbon reduction commitment. One hundred and fifty countries have now submitted INDCs, which represents 90% of the world’s emissions. Analysis from the International Energy Agency (IEA) shows that if the INDCs are adhered to, growth in emissions would slow to a crawl by 2030, and there would be a decoupling of the link between growth in energy demand and emissions levels as low carbon fuels increase their share of the energy mix to around 25%. It also predicts that gas increases its share of the mix, while coal and oil decline. Under the INDC scenarios, emission from the energy sector stays broadly flat while electricity demand increases by more than 40% to 2030.
For such a significant change to come about, utilities would be required to invest approximately $13.5 trillion in low-carbon technologies and energy efficiency over 15 years. A strong signal from the Paris summit would be required in order for utilities to make this level of investment, and carbon pricing would form part of this. The analysis goes on to show that even with full implementation of the climate pledges, the reduction in emissions would still not be sufficient to limit global warming to the required 2°C above pre-industrialised levels and recommends strategies to take emissions reductions further.
Other areas of the draft text remain uncertain and, during the recent negotiations, countries failed to reach a consensus around the provision of climate finance from richer nations to devolving nations. This has raised concerns that there are too many areas still to negotiate at the Paris talks, which could jeopardise an international agreement. The momentum is continuing, with two sets of talks due to be held prior to the Paris summit.
Written By- Nikki Wilson