President Biden has invited 40 world leaders to the virtual Leaders Summit on Climate that he will host tomorrow and April 23. The Leaders Summit on Climate will stress the urgency – and the economic benefits – of climate mitigation. A large number of businesses and business representatives call for concrete actions, especially regarding carbon pricing, which is the key policy tool to ramp up the investments needed.
The summit will focus on how to mobilise public and private sector finance to drive the net-zero transition and to spur transformational technologies, and how to build the industries of the future with a strong emphasis on job creation and fair transition, and how to help vulnerable countries cope with climate impacts. Effective carbon pricing is the key policy tool to deliver these objectives, but it is not specifically mentioned on the agenda. Declarations of good intentions alone are not going to lead to the required timely actions. Whether we will invest in carbon-free or low-carbon energy, energy, materials, transport or food, we need to get the prices right to attract the large-scale, long-term clean investments needed. The majority of these investments will come from the private sector.
The investment needs for the European Union 2030 climate targets illustrate the situation well. An estimation done by the European Commission states that the EU will need to invest annually €350 billion more during the next decade than it did during the previous decade. The cumulative additional investment need for 2021 – 2030 would thus be €3,500 billion. Spending 37% of the €750 billion NextGenerationEU funds (€277 billion) on European Green Deal objectives would contribute about 8% of the additional investment needs for the next decade. In addition, there are other public ways to make and encourage the investments, but the large volume, and renewing our industries as whole, mean that most of the investments will need to come from the private sector.
All the major economic powers; the EU, the US and China have committed to goals of carbon neutrality by the middle of the century and countries representing about 65% of global CO2 emissions, and about 70% of the world’s economy, have set climate neutrality targets, but the level of investment in clean solutions is still too low. It is estimated that the level of ambition needs to be roughly five-fold to align with the 1.5°C limit.
The most vital root cause of the low investment level is the lack of effective pricing for greenhouse gases. Today, only about 22% of global greenhouse gas emissions are covered by carbon pricing initiatives and the price levels are not effective in the majority of initiatives. Direct fossil subsidies are gloablly around ten-fold bigger and the indirect costs of climate change and fossil pollution ten-fold bigger than the subsidies. During the past five years, the coverage of carbon pricing has increased by less than two percentage points per annum.
Several business organisations, for example the European Round Table for Industry, The Business Roundtable of U.S. and Institute of International Finance (IIF) with top finance trade groups, have recently called for market-based carbon pricing. This year, a new initiative, Call on Carbon, founded by Nordic business-climate networks, gathers the support for carbon pricing from around the world. During the first two months, the campaign has already attracted over hundred signatories including leaders of the International Chamber of Commerce representing 45 million companies, We Mean Business coalition gathering companies and investors with close to $25 trillion market cap, Copa-Cogeca, representing 22 million farmers and their family members and 22 000 agri-cooperatives and Orgalim, Europe’s Technology Industries comprised of 770,000 companies.
The signatories 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 year 2020 was one of the three warmest on record, rivalling 2016 for the top spot. The WMO has warned that the world might exceed 1.5°C already by 2024 and yet the Nationally Determined Contributions (NDCs) ahead of the COP26 in Glasgow in November are insufficient.
We are only one investment cycle away from 2050 and if we do not have a step change for carbon pricing, we will not get the investments required to mitigate climate change on time. When the carbon price is sufficiently robust, it becomes a strong driver for both immediate and long-term change, and a strong signal for low carbon investments.
We believe the timing is absolutely right. The Leaders Summit on Climate needs to take carbon pricing into account and the EU, China, the US and like-minded countries should collaborate and take the lead. This would support COP26 in Glasgow and make it a true game changer.
Jouni Keronen, Chief Executive Officer Climate Leadership Coalition
Nina Ekelund, Executive Director Haga Initiative
Bjorn K Haugland, Chief Executive Officer Skift Business Climate Leaders