Carbon Pricing Assessment and Decision-making: A Guide to Adopting a Carbon Price

23rd April 2021 by Emma Goring

Many countries and subnational jurisdictions are considering putting a price on carbon to help reduce greenhouse gas (GHG) emissions and achieve their climate commitments.

Introduction to the guide

Many countries and subnational jurisdictions are considering putting a price on carbon to help reduce greenhouse gas (GHG) emissions and achieve their climate commitments. A carbon price applies a direct and explicit cost to GHG emissions, thereby incentivizing behavior change and investment in abatement solutions to reduce emissions.

There are currently 64 carbon pricing instruments (CPIs) in place or in the process of implementation, with 10 launched in 2019 alone. These initiatives are spread globally: South Africa became the first African country to price carbon, Singapore was the latest jurisdiction to introduce a carbon tax in Asia, and Mexico’s cap and trade pilot system paves the way for emissions trading in Latin America. Carbon pricing is also not limited to national systems. The European Union (EU) has established an emissions trading system (ETS), which is a multinational CPI. Canada’s provinces and territories are establishing systems to price carbon pollution, California has been operating an economy-wide cap and trade program since 2012, and New York City is considering emissions trading for the building sector.

Before a jurisdiction implements a CPI, it will often examine the role a CPI would play and the rationale for adopting it. Only then can policymakers convince decision-makers and, to the extent possible, obtain the buy-in of stakeholders. Putting forward a convincing case for carbon pricing involves analyzing the existing policy landscape to determine what role a carbon price can play, identifying the most appropriate carbon pricing options, and understanding their environmental, social, and economic impacts. Typically, this case is then presented to legislators or senior policymakers in a recommendation paper.

The objective of this guide is to help policymakers build the case for carbon pricing and choose an appropriate CPI. It begins with a brief introduction to carbon pricing and discusses how a CPI could fit into the broader climate policy mix. It then provides guidance on assessing jurisdictional circumstances and selecting a CPI most suited to meeting jurisdiction-specific objectives. Potential impacts and ways of measuring these impacts are also discussed. Finally, the guide describes how to reach a recommendation on carbon pricing in light of the evidence collected and translate this into a compelling recommendation paper. Developing a communication plan is another key element in the initial preparation stage. However, this component is discussed in more detail in the Partnership for Market Readiness’ (PMR) Guide to Communicating Carbon Pricing.

Access the full guide here: http://bit.ly/CPI_guide