Climate change is accelerating, but mitigation efforts are lagging behind and only a fraction of greenhouse gas emissions have an effective carbon price.
Despite the fact that countries representing about 65% of global CO2 emissions, and about 70% of the world’s economy, have set climate neutrality targets, the level of investment in clean solutions is still too low. It is estimated that investment needs to be roughly tripled to limit the global temperature increase to 2°C and increased about fivefold to meet the target of 1.5°C.
Today, less than a quarter of global greenhouse gas emissions are covered by carbon pricing initiatives, and only a fraction of those are within the recommended range in the Paris Agreement. Direct fossil fuel subsidies are worth ten times the revenues raised by carbon pricing, and the indirect costs of burning fossil fuels and the impacts of climate change are a hundred times greater.
To reach scale within sustainable markets, we must re-orientate economic subsidies, financial incentives and supporting regulation and implement a decade-long transition towards long-term incentive structures. This would have a major transformative effect on our market systems. Were private investors to trust that during the coming decades there will be long-term climate policies in place and CO2 prices will remain at a certain level, it would have major effects even today and lead to large numbers of new projects being initiated during the coming years.
To kick-start this step change, we, the undersigned, call on governments to:
- back their net zero targets with effective, robust, reliable and fit-for-purpose carbon pricing instruments, consistent with the Paris Agreement, to facilitate a cost-efficient investment path to reach net zero emissions;
- align their carbon pricing instruments where appropriate to create a stable and predictable investment environment; and
- finalise the rules for international market mechanisms under Article 6 of the Paris Agreement to support cost-effective mitigation efforts, create a level playing field and minimise carbon leakage while enabling greater ambition.
The revenues generated from any carbon pricing applied will ideally be invested in sustainable transition efforts, the green economy, green technology development and natural capital, as well as support a just transition for affected workers and farmers, families and communities.
We are only one investment cycle away from 2050, and this is likely to be the last chance to get policies right. We urge governments to act on this during 2021, and in doing so support COP26 in Glasgow and make it a true game changer.