About 30 developing countries sent civil servants to a five-star hotel in Ghana for official UN discussions on “response measures” that are meant to tackle how to maximise the benefits and minimise the negative impacts of a green transition.

All nations agreed at last year’s COP28 climate conference to hold the latest round of talks in a hybrid format. There were no officials present from wealthy governments – and while the US, the European Union and the UK did log on virtually, they kept their cameras largely off during the two-day meeting. Their rare contributions were received badly by developing countries.

The UN negotiations on response measures to climate change have been going on for more than 20 years. The 2015 Paris Agreement reinforced a commitment by governments to consider the concerns of countries “with economies most affected by the impacts of response measures”, particularly developing ones.

In a video message introducing this month’s talks, UN climate chief Simon Stiell said national climate action plans “will have profound societal implications – both good and bad”, adding “it’s crucial that we ensure more people benefit and that harms are mitigated”.

Participants then swapped their experiences on issues such as electric motorcycles with dead batteries being dumped on the roadside in the Maldives and the effects of EU deforestation regulations on Ghana’s cocoa industry.

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Towards the end of the first day, Egyptian negotiator Khaled Aly Hashem Hussein observed that “it’s very unfortunate that in this room we don’t have a single representative from the developed countries”. This, he said, made it a monologue rather than a dialogue.

Brazil’s negotiator Vitor Mattos Vaz echoed those concerns, saying that no interventions had been heard from developed countries, including contributions via video.

He said governments “can not cherry-pick only the commitments and the tracks [of the Paris Agreement] that they are interested in”. When they do so, “they are eroding the spirit of mutual trust and reciprocal commitment,” he added, calling for the “absence of their comments”  to be formally noted.

Don’t mention CBAM

The next day, representatives from the US, EU and UK did speak up. Sewek Gasiorek from the British government said he regretted not being there in person as “it is a very busy time”, with G20 meetings and the United Nations General Assembly running concurrently.

He then clashed with negotiators from South Africa and Saudi Arabia over the extent to which the talks should focus on how measures taken by developed countries affect poorer nations. Gasiorek said “there is no agreement, as has been suggested earlier” that the discussions should be limited to that – which led South Africa’s Mahendra Shunmoogam to accuse him of “revisionist agenda-setting”.

Shunmoogam then asked the EU’s representative, Belgian government official Catherine Windey, how the EU’s carbon border adjustment mechanism (CBAM) – a tax system that is due to be fully in place by 2026 and is regarded by some emerging economies like South Africa as a protectionist measure that will damage their economies – was compatible with the “do no significant harm principle.”

Windey responded that the dialogue “isn’t supposed to address any individual policies of parties, so I’m not going to enter that discussion here”.

One developing-country official at the meeting told Climate Home they had left Ghana feeling they had wasted their time. “It was getting us into the discussion about nothing really of value,” the bureaucrat said.

Talks will continue at COP29 in Baku in November on whether and how to hold a further year’s worth of workshops and dialogue on response measures.

At COP28, governments agreed that “measures taken to combat climate change, including unilateral ones, should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade”. Developing countries are likely to push at COP29 for agreement on more explicit criticism of policies like the EU’s carbon border tax.

(Reporting by Joe Loe; editing by Megan Rowling)

This article was updated on Sept. 18 to add that the talks were planned in a hybrid format and to clarify a comment from the UK’s negotiator.

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Tuesday’s deal is part of a wider €300 billion ($300bn) plan tabled by the European Commission in May to speed up the energy transition in the wake of Russia’s military aggression in Ukraine.

“Today we achieved a major step forward in strengthening Europe’s autonomy from Russia’s fossil fuels,” said Zbyněk Stanjura, the finance minister of the Czech Republic, which holds the rotating EU presidency.

“Given the geopolitical context since Russia started its military aggression against Ukraine, and given the latest attacks on energy infrastructure in Europe, I am sure it is necessary to push for a fast agreement on this proposal,” he added.

The proposal will add a new energy chapter to the national recovery plans approved by the European Union to restart the economy in the wake of the Covid-19 crisis two years ago.

But how to fund this spending without compromising other green objectives is hotly debated between the EU’s institutions and has yet to be decided.

Carbon price kept high

The European Commission originally suggested releasing carbon credits from the market stability reserve. This reserve was established in 2015 to keep the carbon price high to incentivise emissions reductions.

But EU countries like Germany, France, the Netherlands and Denmark, were opposed to the idea, said Agnese Ruggiero from Carbon Market Watch, a green NGO. And in the European Parliament, all the main political groups are also fiercely against.

With its proposal, the European Commission probably tried killing two birds with one stone by raising funds and addressing calls from eastern EU countries to tackle high prices on the carbon market, Ruggiero said.

But the proposal risked causing a negative spiral as releasing more allowances would depress prices on the Emissions Trading Scheme (ETS), requiring more allowances to be released to hit the €20 billion ($20bn), she explained.

Experts also criticised the Commission’s plan, saying it would undermine trust in the ETS at a time when the EU needs a high carbon price to sustain the bloc’s more ambitious decarbonisation targets for 2030.

EU countries set for clash with Parliament

Instead, EU ministers backed a combination of funds, including drawing 75% of the €20 billion ($20bn) from the Innovation Fund and 25% from the early sale of carbon allowances (frontloading).

Although more allowances would be sold in the short term, there would be no new CO2 allowances added to the ETS, raising pressure on EU countries to accelerate emissions reductions in the second half of the decade to hit the bloc’s 2030 goal.

But the European Parliament rejected the idea of using the Innovation Fund and would rather draw the €20 billion from the regular pool of emission allowances.

“We strongly disagree to have the main bulk of the money from the innovation fund because we need the fund to support the transition of the industry,” said Peter Liese, a German MEP who is the lead negotiator on the ETS reform in the European Parliament.

“This is completely unacceptable for us. And we will fight hard against this proposal” during final talks with EU member states, he added, saying member states like France and Netherlands were on the Parliament’s side.

Using the Innovation Fund

Last week, Liese presented a common position on the issue with the Parliament’s four biggest political groups – the centre-right European People’s Party (EPP), the left-wing Socialists and Democrats (S&D), the centrist Renew Europe (RE) and the Greens.

Despite the Parliament’s concerns, Federico Sibaja from think-tank Sandbag said drawing money from the Innovation Fund also brings benefits.

“Those resources would be better spent than the way they’re being spent right now as the projects from the Innovation Fund are really focused on innovative technologies that may actually not be deployed in the next years to come. While actually the money from the recovery funds will be spent for mitigation strategies right away,” he explained.

The scope of the Innovation Fund should also be addressed in wider discussions about reforming the carbon market, he added.

However, it is not yet clear whether the negotiations will take place as part of the wider carbon market reform, which would allow trade-offs in negotiations within the topic, or if it will be tackled in separate negotiations.

The European Parliament is expected to vote on its position in November. It will then negotiate the plan with EU countries.

If adopted, the Parliament’s “frontloading” proposal would leave EU countries with fewer allowances until the end of the decade, which means pressure to decarbonise “will be even higher” as the EU gets closer to 2030, Liese said.

“That’s why member states are not so happy,” he added.

The European Commission hopes to have the proposal adopted by early next year.

This article was originally published on Euractiv and has been lightly edited for clarity.

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At the International Maritime Organization (IMO) last week, countries broke a deadlock on mid-term measures to decarbonise the industry.

The meeting concluded that there was consensus to price shipping emissions “as part of a basket of mid-term measures,” according to a summary by the University Maritime Advisory Services (UMAS), which is partnered with University College London’s (UCL) Energy Institute. There was general support for adopting a “well-to-wake” approach and pricing emissions from fuel production to consumption onboard a ship, UMAS said.

“[Pricing shipping emissions] is not a new concept to the IMO, but previous attempts to progress it have failed. It is therefore a huge step forward that there is now consensus on this,” said Tristan Smith, director of UMAS. 

Market-based, decarbonisation measures on the table include technical ones, like introducing a fuel standard, as well as economical ones, like setting a global carbon tax for the industry. They will be discussed at a meeting of the IMO’s environment committee (MEPC) next month.

“Pricing needs to be complemented with a mandatory measure like a fuel standard, but there is now a much improved potential for strong IMO incentivisation of shipping’s decarbonisation,” Smith said.

Responsible for nearly 3% of global emissions, ships emit around one billion tonnes of CO2 every year. Without further action, shipping emissions are projected to reach 90-130% of their 2008 levels by 2050.

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Major emerging economies have heavily resisted carbon tax proposals in the past. A proposal put forward by Pacific Island nations for a carbon price of $100 per tonne on bunker fuels previously got tepid support from EU nations and the US.

But at the working group meeting last week, all EU countries and the US spoke in favour of carbon pricing, with the UK, New Zealand and the Bahamas backing the measure for the first time. 

“There can finally be no doubt we will put a carbon price on shipping,” Aoife O’Leary, a long-time IMO observer and head of Opportunity Green, a non-profit focusing on international climate issues, told Climate Home News.

The price must be high enough to transition to zero-emission fuels quickly, as well as offering a mechanism to support developing countries, O’Leary said. Countries must move to next month’s MEPC with “ambition, equity and urgency,” she said.

“The IMO meeting last week is a major breakthrough,” said Diane Gilpin, CEO of the Smart Green Shipping Alliance, which develops tech solutions to help the industry decarbonise. “Obviously there’s a lot more detail to agree but in our experience ship owners are moving to the shadow of the whip.”

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The Marshall Islands and Solomon Islands have proposed a carbon price of $100 a tonne on bunker fuels, while the world’s biggest container shipping company Maersk has called for a $150/t levy to encourage the industry to switch to greener fuels.

But the shipping industry’s trade association has previously supported a levy of just $2 a tonne of fuel to fund research and development of clean shipping technology. That translates to a carbon price of $0.64/t.

Progress at the IMO came as the European Parliament approved its Fit For 55 package, which includes incorporating shipping in the bloc’s emissions trading scheme (ETS).

This means that all ships transporting goods to and from EU, regardless of the flag they fly, will be taxed on their emissions. As of 2024, ships will have to buy carbon allowances to cover all emissions during voyages in the EU and half of those generated by international voyages that start or finish at an EU port. Three quarters of the revenues generated from the auctioning of allowances will be put into an Ocean Fund to support the industry’s decarbonisation efforts.

“We need ambitious action at every level if we are to meet the goals of the Paris Agreement,” said O’Leary. 

“The IMO has only given provisional agreement to a carbon price, which hopefully will move ambitiously forward but it is definitely not at the stage where it could be said that it will achieve a reduction in shipping emissions in line with 1.5C on its own,” she said.

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In a draft report submitted to the European Parliament and seen by Climate Home News, Mohammed Chahim, a Dutch centre-left MEP, called for additional climate finance to go to low-income nations hit by a proposed levy on carbon-intensive goods imported to the union.

The report, due to be debated by lawmakers in early February, is a response to the European Commission’s proposal for trade partners to pay a carbon price equivalent to that paid by EU business.

Chahim’s proposed amendments would broaden the scope of the tax and roll it out faster, with some support to soften the blow for the least developed countries (LDCs).

“It’s important that we cooperate rather than be confrontational with our trade partners,” he told Climate Home News. The tax “should not disproportionally affect least developed countries”.

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The levy is intended to prevent “carbon leakage”: heavy industry fleeing Europe for countries with lower environmental standards as the bloc decarbonises.

Experts have raised concerns it could hurt certain poor countries that rely heavily on trade with the EU and bear little responsibility for causing the climate crisis.

Chahim’s report calls for the levy, due to come into force in 2026, to be introduced sooner and on a wider range of imports, adding organic chemicals, hydrogen and polymers as sectors initially covered by the tax.

A transition period would be shorted from three to two years and free allowances would be phased out by the end of 2028 – eight years earlier than the Commission proposed.

There would be no general exemption for LDCs under Chahim’s plan from these rapidly rising costs.

Instead, additional climate finance “at least equivalent in financial value” to the revenues generated from carbon adjustments at the border would be earmarked to support the decarbonisation of LDCs’ heavy industries. This would in turn reduce the cost of tariffs in future.

The Commission would be tasked to annually report on how these additional funds had been used to address climate change in low-income nations.

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Chahim told Climate Home that support for LDCs was necessary for the carbon levy to be compatible with the World Trade Organisation (WTO) rules, which regulate trade between nations by reducing barriers and preventing discrimination.

The rules allow countries to adopt trade-related measures to protect the environment. If the revenues generated support the decarbonisation of LDCs’ industries, then the policy is justified as an environmental measure, Chahim said.

“We believe this is a necessary condition to be WTO-compatible,” he explained.

While there is broad support among lawmakers for using the levy’s revenues as additional climate finance, some EU member states are expected to argue servicing EU debt must come first.

For Tim Gore, who heads the climate and circular economy programme at the Institute for European Environmental Policy, how the revenues are used will be critical to the EU’s ability to convince its trading partners of the value of its policy.

“It is important for the EU to show that it has found new, additional and more practicable climate finance,” said Gore. “This is going to be a key part of the diplomatic puzzle. If the EU wants to get this through with international trading partners, it is going to have resources on the table for support.”

Financing the decarbonisation of industries in LDCs would set a precedent that other countries considering a similar carbon border tax, such as Canada, could emulate, he added.

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While major emerging economies have slammed the levy as unfair, low-income nations are still getting to grips with how the proposal will impact them.

Aluminium dominates Mozambique’s exports, more than 80% of which go to the EU, for example. Other African nations such as Cameroon, Guinea, Zimbabwe, Zambia, Algeria and Morocco are highly exposed to the proposed tariffs. Not all of them are LDCs.

Saliem Fakir, executive director of the African Climate Foundation, welcomed Chahim’s report as “opening the debate” on applying equity principles to the EU’s plans.

But he told Climate Home more could be done to turn the levy into an effective transition mechanism for the bloc’s trading partners.

Fakir argued that LDCs with very low carbon intensity such as Mozambique should be exempt from the scheme.

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The power of green tax reform is well understood in Europe. Part of the European Union’s “Fit for 55” package, a plan released last month to reduce the bloc’s carbon emissions by 55% by 2030, will increase minimum tax rates on the most polluting fuels and phase out exemptions on fossil fuels. The aim is to raise revenues by broadening the tax base while encouraging a move to clean energy.

For three decades, the Nordics (Denmark, Finland, Iceland, Norway and Sweden) have already been using a “green tax shift” in response to economic crises. Taxes on pollution and polluting sectors generated revenues that allowed governments to reduce taxes that are a drag on productivity, like on labour and capital. This drove down pollution, while investment in clean energy boomed.

Finding policy solutions that address the twin challenges of economic growth and climate change is critical for a fossil-free recovery. Raising certain taxes is part of the solution, not the problem.

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Denmark, Finland, Sweden and Norway introduced carbon taxes in the early 1990s in response to a regional economic crisis. Iceland followed suit in 2010 in response to the 2008 global financial crisis. While it’s hard to attribute economy-wide outcomes to a single policy, the Nordics saw their economies grow while their greenhouse gas emissions fell.

Current GDP and greenhouse gas emissions for Denmark, Finland, Iceland, Sweden and Norway. (Photo: OECD)

Energy, transport, and pollution taxes boosted budgets significantly. Most Nordics collected between $ 7 billion and $13 billion from environmental taxes in 2018. All Nordics have at least double the environmental tax per capita as the OECD average, with Denmark’s being over four times higher.

Current Revenue per capita from environmental taxes in Nordic countries compared with OECD average (Photo: OECD)

These revenues resulted in a shift in the tax burden from workers and businesses to polluting activities. For example, Sweden’s carbon tax was accompanied by cuts to personal income, property, and wealth taxes, as well as businesses’ social security contributions. Sweden’s overall tax level fell from over 50% of GDP in 1990 to 44% in 2018. So while citizens pay more for some carbon-intensive products like fuel, they pay less in other taxes, meaning family budgets do not suffer.

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While evidence shows that a green tax shift could be the most sustainable and strategic way to recover from the pandemic, raising pollution taxes has been the exception, not the rule. Only Costa Rica, India and the Philippines raised fuel taxes to fund the pandemic response. So why aren’t more countries following the Nordic example? There is a misconception that higher taxes will take money from people’s pockets and cut jobs. But the opposite is true: done right, increasing environmental taxes can create opportunities in economies of all sizes

In 31 European countries participating in the EU emissions trading system, research found no evidence of adverse effects on GDP growth from environmental taxes. Following Sweden’s green tax shift, average disposable income grew four times faster in 1995 than during the previous twenty years. In Iceland, GDP per capita rebounded with a staggering 77% growth from 2009 to 2018.

Green taxes, if accompanied by job creation programs and tax cuts on labour, can actually result in net job creation, including sustainable jobs in clean energy. Denmark’s world-class wind industry was supported by fiscal reforms and now employs more than 33,000 people.

Due to three decades of price signals that promote low pollution and low carbon, Nordic countries have already completed energy and economic transitions that other countries are struggling to start. For Sweden, one unit of GDP emits just 32% of the OECD average. Meanwhile, Norway reduced GHG emissions per dollar GDP despite being home to a significant oil and gas industry.

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Lessons can be drawn from the Nordic experience that are relevant to all countries seeking to boost government budgets while addressing pollution. Green tax reform can be adapted to suit local tax infrastructure, pollution priorities, and desired outcomes. The key principles are “the polluter pays” and that tax revenue must be spent productively. Green taxation policies, especially during an economic crisis, must be built in a way that improves quality of life for all. Clearly communicating the benefits can raise the political support needed for reform.

Governments can’t afford to miss this opportunity to transition their economies. Countries that align their recovery plans with green taxation today will be ahead of the curve tomorrow. The evidence shows that raising revenue from energy taxes, and spending it wisely, would fast-track climate compatible development while creating economic opportunities.

Tara Laan is a senior associate with the International Institute for Sustainable Development’s energy program and leads their energy taxation work.

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The tax will apply to energy-intensive products imported into the EU from countries with weaker environmental regulations. It will initially apply to electricity, iron and steel, aluminum, fertilisers, and cement.

The EU says the policy is designed to stop carbon leakage and the risk companies will relocate to countries with weaker regulations. But many of the union’s trade partners fear it is protectionism in a green disguise.

Details of the tax were revealed in a 291-page document on Wednesday. The proposals includes a transition period between 2023 and the end of 2025, during which time emissions data on imports will be collected but won’t be taxed.

From 2026 to 2035, imports will be taxed but at a reduced rate, so that foreign producers are not at a competitive disadvantage with EU producers, who will benefit from free emissions trading allowances until 2035.

Susanne Droege, from the German Institute for International and Security Affairs, told Climate Home News that five years was unlikely to be enough time for countries to develop a carbon pricing mechanism from scratch to dodge the tax.

However, countries like Ukraine and Turkey, which are already developing pricing mechanisms, could finalise them by 2026.

G20 backs carbon pricing, ‘raising stakes’ among emerging economies

Products covered by the tax mainly originate from countries close to the EU’s borders like Russia, Turkey, Ukraine and North Africa. European Economic Area nations like Switzerland and Norway will be exempt from the levy. The UK is unlikely to be asked to pay due to its planned high carbon price.

Members of the Energy Community, including Ukraine, Georgia and Balkan nations, have successfully lobbied for special treatment and the document indicates they have been at least partially successful.

While most of the world’s poorest countries are not expected to be hit hard by the levy, Brussels ignored calls to exempt them and to spend the revenue raised on climate finance for developing countries.

Developing countries like Trinidad and Tobago (fertiliser), Mozambique, Cameroon, Ghana (all aluminium) and Zimbabwe (steel) do rely on exports to the EU. Droege said the EU should negotiate exemptions for developing countries, perhaps through a “de minimis” clause where minor exporters are exempt.

Large emerging economies like China, Brazil, South Africa and India have said they have “grave concerns” about the tax. In an open letter in April, they argued it was “discriminatory” and will unfairly penalise developing economies, which have done least to cause climate change.

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E3G analyst Byford Tsang told Climate Home that China has always regarded the tax as a “unilateral tool” which does not respect the principle that developed and developing countries should move at different paces on climate change. “Based on the current proposal,” Tsang said, “that stance is unlikely to change as the most contentious part – keeping the revenue for the EU budget – remains.”

But given the scope of the plans, which for the moment exclude the chemical industry, the impact on China “is unlikely to be significant in the near future, at least until the end of 2025, when the transition period ends,” Tsang added.

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Russia, which exports electricity to Eastern Europe and fertilisers across the EU, has been fiercely opposed to the plans and has threatened to challenge the proposal at the World Trade Organisation, accusing the union of protectionism.

In May, President Vladimir Putin’s climate adviser Ruslan Edelgeriev warned “one-sided” measures like the border tax will discourage Russia and other countries from increasing their climate ambition.

Meanwhile, Russia has been trialling its own emissions trading scheme in the eastern region of Sakhalin, with plans to expand it to the rest of the country.

And Droege said Russian aluminium producers are planning to export clean aluminium to the EU and dirty aluminium to the rest of the world.

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The US has blown hot and cold on whether it should have a border tax. While Joe Biden made it a campaign commitment, climate envoy John Kerry said he was “concerned” about the EU’s plan before partially backtracking on his comments.

The Democratic leadership in the Senate is proposing a border tax but it is unclear whether they will gain the support of a majority in Congress. The Democrats have an effective majority of just one in the Senate.

According to E3G analyst Johanne Lehne, the US government wants the EU to take into account climate measures, such as carbon intensity targets, as having a similar impact on reducing emissions than carbon pricing.

The EU’s proposal states that “agreements with third countries could be considered as an alternative to the application of [carbon border tax] in case they ensure a higher degree of effectiveness and ambition to achieve the decarbonisation of a sector.”

The sentence appears designed to appease the US government, Lehne said.

In December 2020, the Japanese government said it was considering a response to the EU and US’s potential carbon border taxes “to secure a level playing field with countries that are not willing to take sufficient measures against global warming”.

Taiwan’s Environmental Protection Agency announced today that it will speed up its implementation of carbon pricing in response to the EU’s tax and the possibility of the US and Japan following suit.

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In a statement following a meeting in Venice, Italy, this weekend, ministers agreed that the “wide set of tools” to cut emissions and create a more sustainable economy should include, “if appropriate, the use of carbon pricing mechanisms and incentives, while providing targeted support for the poorest and the most vulnerable”.

French finance minister Bruno Le Maire told reporters after the meeting: “We have been pushing very hard to have these two words… introduced into a G20 communique.”

Ronan Palmer, of think tank E3G, told Climate Home News the statement “raised the stakes” among G20 countries to either adopt a carbon pricing mechanism or enforce policy measures that would achieve a similar outcome of reducing sectoral emissions.

Some form of carbon pricing is being considered in Brazil, Indonesia and Turkey.

But Australia, India, Russia, Saudi Arabia and the US do not have a nationwide price on carbon, nor are they formally considering it.

Comment: EU must use its carbon border tax to support a just transition around the world

It comes as the EU plans to impose carbon tariffs on imports from countries with lower climate standards. The European Commission is due to unveil its proposal on Wednesday.

Developing countries have previously complained the levy would unfairly penalise their economies by making their exports uncompetitive. And the US has described the measure as a “last resort”.

The threat of the proposal is spurring discussions in developing countries on how to make polluters pay at home and avoid the EU levy.

“There is a global willingness to talk about taxation issues that we have not seen before,” Palmer said.

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This is the case in Indonesia, where plans for a carbon tax are currently being discussed, said Putra Adhiguna, Jakarta-based energy economics and policy specialist at the Institute for Energy Economics and Financial Analysis.

A draft bill for the revision of the country’s tax law, published last month, includes a carbon tax rate of roughly $5.25/t CO2e.

Adhiguna said the proposal was still being evaluated by the government and was unlikely to come into force before late 2022, when Indonesia chairs the next G20 cycle.

But, he added, as industries struggle to recover from the coronavirus pandemic, the implementation of the tax will be difficult without support from richer nations to accelerate the energy transition in Indonesia.

“Carbon pricing is an idea that originated in the developed world” and implementing it will require support for the most vulnerable, he said.

“Otherwise, this is going to be a unilateral imposition of developed world policy. I am worried about a public backlash against the climate movement in developing countries.”

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Luca Bergamaschi, co-founder of Italian think tank Ecco, agrees this is a critical question.

Carbon pricing has to be implemented “without creating negative social effects”, he said.

Europe’s own journey with carbon pricing, since it adopted the world’s first international emissions trading system in 2005, hasn’t been plain sailing. The policy is just starting to work in Europe after a decade of stalling, Bergamaschi said.

In 2018, the French government’s carbon tax led to a hike in the price of petrol and diesel and sparked the “yellow vest” protests.

“Carbon price so far hasn’t been a transformational policy for political and social reasons,” Bergamaschi said. It has failed to take into account what matters most climate politics: who stands to win and lose, vested interests opposing more robust action and the change in political leadership and priorities.

“Countries like Indonesia and South Africa are very wary of putting an additional burden on workers, industries and communities in an already vulnerable situation.”

Comment: G20 ministers must scale up climate finance in solidarity with vulnerable countries

The International Monetary Fund (IMF) is proposing a carbon price floor agreement between major emitters as an alternative way to spur decarbonisation.

Managing director Kristalina Georgieva said this would be “more effective” than the EU’s carbon border tax.

A “pragmatic design” for a carbon price floor could allow countries to set different minimum prices based on development levels and national policy approaches, leaving countries flexibility to adopt a carbon tax, sectoral regulations or create an emission trading scheme “that achieve the same outcome,” she said.

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In a referendum held on Sunday, 52% of voters opposed a revision to the country’s climate law, which would have increased taxes on polluting activities like flying and driving.

Proposals included a levy of 30-120 francs ($32-$129) on airline tickets for flights taking off from Switzerland and raising a tax on petrol and diesel from 0.05 to 0.12 francs a litre.

The measures were designed to help Switzerland meet its target to reduce domestic emissions by 37.5% between 1990 and 2030.

A further 12.5% of emissions cuts, from the 1990 level, are to come from Swiss-funded emissions reductions abroad. The reforms would have increased the funding available for these programmes by increasing taxes on motorists.

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Climate Analytics analyst Ryan Wilson told Climate Home News the result was “upsetting” as it would delay climate action, making it harder to meet the 2030 target.

“I hope the message [the Swiss government] take is to aim higher and not to roll back to something less ambitious,” he said.

The dominant criticism of the reforms came from the far-right Swiss People’s Party. They argued carbon taxes would mean ordinary Swiss people had to pay more to drive, fly and heat their homes.

Switzerland’s per capita emissions from flying are the ninth highest in the world, nearly ten times the global average, according to the International Council of Clean Transportation.

To reduce the cost to the public, two-thirds of the money raised by carbon taxes would have been spent subsidising health insurance premiums. The remainder would have been spent on green measures.

Swiss economics professor Julia Steinberger blamed “a very slick disinformation machine pitting any climate action against the purported ‘best interests’ of Swiss consumer/citizens”.

Wilson said the vote showed that environmentalists need to show that green measures won’t cost poorer people. Opposition to reforms was strongest in rural areas.

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Zurich-based climate scientist Robert Rohde said that the campaign in favour of the reforms was complacent, “luke-warm and reluctant” and “offered vague and lofty rhetoric about social goals”.

He tweeted: “This gets to a fundamental political concern with taxes on fossil fuels. The pain (higher taxes) is concrete, while the benefit (climate protection) is nebulous. As much as carbon taxes might make sense economically, they can be a hard sell politically.”

According to the World Bank, Switzerland’s per capita emissions are lower than the world average.

These figures do not take into account the emissions from products consumed in Swizterland. Like most rich countries, Switzerland’s emissions are far higher if these are included.

In 2018, the French “yellow vests” protested against a fuel tax. President Emmanuel Macron reacted by asking a citizens’ climate assembly to draft new greener laws “in a spirit of social justice”.

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Governments and businesses alike are adopting net zero targets at a rapid pace: countries with net zero targets now represent over 60% of global emissions, while companies with such commitments together represent sales of nearly $14 trillion.

These commitments may not yet be ambitious enough to meet the Paris Agreement’s goal of limiting temperature rises to 1.5C, but they come tantalizingly close. And by setting their sights on almost complete decarbonisation by mid-century, they should ideally provide the signal needed to shift investments from polluting industries to clean technologies.

Yet this is not how it is playing out in practice.

Last week, the International Energy Agency outlined what it believes must happen if we are to reach net zero by 2050. First on the list is not approving any new coal plants, coal mines, or oil and gas fields from 2021 onwards.

Fossil fuel companies, however, are planning to invest heavily in new fields and mines over the coming years, many of them in highly sensitive ecosystems such as the Arctic.

Meanwhile, hundreds of coal plants are in the planning stage around the world. These investments typically have life spans of several decades, meaning many could still be in operation well beyond the mid-century decarbonisation goal.

Why would investors continue to inject money into ventures that are simply not compatible with the commitments adopted by the world’s governments?

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The truth is that investors take their decisions based on concrete strategies, roadmaps, and incentives, while targets may be seen as merely aspirational. Yet in most countries, long-term strategies are sorely lacking. To-date, only 29 countries have submitted the long-term decarbonisation strategies called for by the Paris Agreement.

Equally lacking are the clear and robust price signals needed to drive low-carbon investments at scale. Most experts agree that placing a price on emissions is essential for achieving decarbonisation. Yet in the World Bank’s State and Trends of Carbon Pricing 2021, my colleagues and I found that only 3.76% of global emissions are covered by a carbon price above $40/tCO₂e — the lower end of the range leading economists say is needed to meet the 2C target that represents the absolute minimum commitment under Paris.

Source: World Bank, State and Trends of Carbon Pricing, 2021

Perhaps more sorely missing still is the long-term clarity on how carbon prices will develop. Only a handful of countries have set out clear pricing pathways, and even these do not extend further than 2030 – far shorter than the lifespan of most energy investments.

In addition to locking-in high-carbon investments for decades to come, the absence of robust and stable price signals risks delaying R&D and pilot projects needed to achieve deep decarbonisation.

A recent analysis of the effectiveness of carbon prices found that while they have had some impact on reducing emissions, low prices and broad exemptions have led to little impact on innovation and zero‐carbon investment.

Goldman Sachs estimates that carbon prices upwards of $100/tC2e will be needed to drive the technological breakthroughs necessary to unlock hard-to-reach emissions reductions, while Woodmac predicts prices of $160/tCO₂e are needed to meet the 1.5C target.

Comment: Governments are overlooking a key piece in the climate puzzle: community energy

The State and Trends report also reveals that more and more companies are starting to adopt their own internal carbon prices, mostly with a view to triggering low-carbon investments.

Yet these prices are often modeled on (expected) regulatory prices in the jurisdictions they operate in and are therefore also too low to drive the investments needed. Oil and gas companies, for instance, on average assume a carbon price of a mere $31/tCO2e.

Evidently, this is hardly enough to discourage Arctic drilling.

There are some encouraging signs. The European Union – which in the process of aligning its emissions trading system with its 2050 net zero goal and the European Green Deal – has seen prices soar to record highs in recent months.

The New Zealand government, meanwhile, is setting its emissions cap for the coming years to align with its own 2050 net zero goal. And an increasing number of countries are showing interest in developing long-term strategies that set out clear decarbonisation pathways toward mid-century.

As more countries move to agree on net zero targets, they would do well to move quickly to connect them to concrete plans and robust economic incentives. Ambitious targets are a crucial start, but they must not prove mere castles in the sky.

Darragh Conway is the lead legal counsel at Climate Focus and a lead contributor to the State and Trends of Carbon Pricing report 2021. 

The post To meet net zero by 2050 we need a long-term vision for carbon pricing appeared first on Climate Home News.

In a joint statement, the four nations, known as the Basic countries, “expressed grave concern regarding the proposal for introducing trade barriers such as unilateral carbon border adjustment”.

The EU has proposed to impose a levy on carbon-intensive products imported into the union from countries which do not have a price on carbon. Its supporters argue it is necessary to avoid carbon leakage, where producers of energy-intensive products like steel, cement and aluminum move out of the EU to countries with weaker environmental regulations.

But ministers from large emerging economies described the proposal as “discriminatory and against the principles of equity and [common but differentiated responsibilities and respective capabilities]” – a UN term meaning that developed countries, which are historically responsible for causing the climate crisis, should do more to address it than developing ones. 

Byford Tsang, policy adviser at think tank E3G, told Climate Home News he believed this was the first time the group of Basic countries had issued such a rebuke against the EU’s plan.

“It’s a reflection of the concerns that developing countries have,” he said. “All will rest on how the EU designs this proposal and whether it will consult with its partners ahead of the official launch, which is not expected until 2023”.

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European Commission vice-president Frans Timmermans recently told an event that if other countries moved to tax carbon on exports, then “the reason for a [carbon levy on imports] disappears”. If they don’t, he said, he would have “no hesitation what so ever” in moving forward with the plan. The EU is expected to unveil its proposal amid a climate policy package in June. 

Critics of the proposal argue it is protectionism disguised as climate action which will damage the economies of countries poorer than the EU, at a time when they are struggling with the economic fallout from Covid-19 and can least afford it.

A report by the European roundtable on climate change and sustainable transition found that industries most affected by the EU proposal included Colombia’s cement industry, China’s plastics sector, North African fertiliser and South American pulp exports.

Speaking on condition of anonymity in February, a South African trade official told Climate Home News they were concerned developing nations would shoulder most of the burden. South Africa, which still relies heavily on coal for electricity, would likely lose investment and jobs.

“It would be problematic if the final mechanism shows intolerance for the fact that we are developing at different paces, particularly in the developing world,” they said. Comparing it to Donald Trump’s border wall with Mexico, they added: “Both of them have the harshest, most severe impact for people from developing countries.”

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In a recent interview with Lights On newsletter, Charmi Mehta, a consultant with the Indian think tank Finance Research Group, raised concerns the proposed border levy would disadvantage Indian steel and iron-makers, damaging the economy and making it harder for the sector to transition away from fossil fuels.

“Who is the EU to hold countries like India up to their word?” Mehta said. “Somebody who has been at the forefront of what caused climate change is not exactly the legitimate authority to hold others accountable today.”

Tsang, of E3G, said China was concerned the EU’s proposed carbon border tax would not just apply to carbon-intensive products like iron and steel but expand to other manufacturing products. “There’s a very real worry about extra tariffs put onto China’s products. The other concern is that it is a unilateral measure and that is not in line with the Paris Agreement because it’s against the principle of common but differentiated responsibilities.”

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Responding to the Basic countries’ statement, Susanne Dröge from the German Institute for International and Security Affairs, told Climate Home News: “I do not think that a [carbon border levy] is discriminatory per se or per definition. There are many design options that could take care of the [common but differentiated responsibilities] principle and the diplomacy surrounding it could add to this too.”

With the proposal yet to be finalised, “the warnings are based on speculation,” she said in an email. “I would always recommend general exemptions from a [carbon border levy] for poor countries and/or for minimal amounts.”

She added that revenues from the scheme would need to be earmarked to support developing nations most affected.

Controversies surrounding the idea point to a paradox, Dröge wrote: as richer nations do more to cut emissions and protect themselves from carbon leakage, they are blamed for the tools they choose. A carbon border tax is “the flip side of [the climate action] coin”.

US president Joe Biden promised in his election manifesto to explore a similar mechanism but climate envoy John Kerry recently told the Financial Times that the EU should only implement its carbon border tax as a “last resort” and not before the Cop26 climate talks, scheduled in November.

The post Emerging economies share ‘grave concern’ over EU plans for a carbon border tax appeared first on Climate Home News.

The carbon price fell by more than 80% between mid-2008 and mid-2013, as the recession and other factors reduced demand for emissions allowances from power generators and heavy industries. Other systems also went through a period of low carbon prices.

With the coronavirus pandemic portending another long and deep economic downturn, some may fear another hit to carbon markets.

Fortunately, it looks like this time will be different.

It’s impossible to know the full impacts of Covid-19 on carbon markets at this stage: the inventories that governments maintain to track their emissions typically lag, and the world has not yet fully recovered from the public health and economic crises posed by the pandemic.

However, we’re seeing clear signs that the economic impacts of the pandemic will not prove a long-term drag on the effectiveness of carbon markets. The Emissions Trading Worldwide Status Report 2021, published annually by the International Carbon Action Partnership (ICAP), outlines some of the reasons why.

Allowance prices in the major, mature carbon markets have quickly regained their footing. Prices predictably fell across most systems, especially around March 2020 as governments enacted lockdowns to contain the virus, but by June most markets had begun to recover (see the figure above).

In the EU, allowance prices at the close of 2020 were 45% higher than where they started the year. In New Zealand, they were up 41%. In North America’s Regional Greenhouse Gas Initiative prices closed 43% higher, while in the linked market of California and Québec prices recovered to pre-pandemic levels.

This carbon market resilience is likely thanks in part to two factors.

Firstly, carbon markets have established mechanisms to create more stable and predictable conditions as well as respond to market shocks, and these tools are more widespread than they were in 2008. For instance, the EU’s Market Stability Reserve came online in 2019 to address allowance surpluses by adjusting the supply based on certain criteria and made an impact even before the pandemic.

Secondly, market participants have clear signals from governments that the supply of allowances overall will decline more rapidly in the years ahead under more ambitious 2030 targets and mid-century net-zero commitments that are set in law in some jurisdictions, both of which boost long-term prospects for higher prices.

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The past year for carbon markets isn’t just a story of overcoming a pandemic – it’s also one of growth. Largely driven by the launch of China’s national ETS, global emissions covered by a mandatory carbon market nearly doubled to 16%, the 2021 ICAP Status Report finds. Starting with power generation and expanding to other sectors in the coming years, the Chinese national ETS is already the largest system in the world, covering 4 billion tonnes of CO₂, about 40% of the country’s total emissions.

In addition to the 24 systems worldwide that are currently in operation, another 22 governments are considering or actively developing an ETS. Much of the activity is happening elsewhere in Asia, where South Korea has the region’s longest-standing and most expansive ETS. Indonesia and Vietnam are taking legal and regulatory steps to test and launch future systems, while Japan is taking renewed interest in carbon markets after announcing a net-zero commitment and the Philippines is considering ETS legislation. In the Americas, Colombia is preparing the launch of a pilot system, while carbon markets in various individual US states and through regional initiatives continue to attract interest and near completion.

Christopher Kardish is an advisor at Adelphi, which runs the International Carbon Action Partnership.

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To reach their full potential as climate leaders, the three global players will need to take part in three-way cooperation. They influence economic pathways – and therefore emissions trajectories – far beyond their national borders.

And some of the key decarbonisation policies need smart and proactive international cooperation to withstand the rough winds of geopolitical competition.

We suggest three areas for intensified trilateral dialogue between the US, China and the EU in 2021 to kick off a global transformation towards net zero and to make economic recovery post-pandemic work for the climate.

Green finance

The transition towards climate neutrality and climate resilience as well as safeguarding our natural system requires shifting trillions of dollars in financial flows and mobilising the private sector. The EU, China and, to a lesser extent, the US have taken initial steps to transform the financial sector.

The EU is developing its taxonomy regulation for sustainable activities. China has been working on a national green finance policy framework, has issued guidance on climate finance overseas and is promoting nature-based solutions. The Biden administration has promised to push environmental, social, and corporate governance (ESG) reporting and climate risk disclosure.

The three countries should accelerate their domestic efforts and work together on internationally accepted rules to make the global financial landscape and architecture compatible with a net-zero future.

First, they should all join existing initiatives such as the Coalition of Finance Ministers for Climate Action, the International Platform for Sustainable Finance and the Network for Greening the Financial System.

Comment: Surprisingly, climate is presenting an early test of Biden’s China doctrine

In addition, they should establish a common working framework on green and sustainable finance and build a coalition to move the issue forward in international fora. The G20 is a unique platform for this, as its members account for 80% of energy-related CO₂ emissions.

Building on previous work, such as the Green Finance Study Group set up by the Chinese 2016 presidency, the big three emitters should work with the UK and other upcoming presidencies to build a strong ‘finance for climate and energy transformation pillar’ under the G20.

There, they have the ability to bring environment, finance and energy ministers together and bridge different work streams and political tracks to drive progress.

Climate-compatible diplomacy 

Decarbonisation prospects around the world hinge on the trade diplomacy, international connectivity and business agendas of private and public actors from China, the EU and US.

While the three powers try to secure their perceived core interests and spheres of influence, trilateral dialogue could tremendously improve the chances of climate goals gaining an equal weight to other imperatives of economic diplomacy.

The lack of coordination in a competitive geopolitical setting is much more likely to cause a high-carbon lock-in as it is the current default option for most sectors, with the possible exception of electricity.

China’s Belt and Road Initiative (BRI) is a prominent case in point. An overseas investment strategy that mixes foreign policy and economic aspirations, it will affect the decarbonisation prospects of countries around the world through infrastructure finance.

In the energy sector, BRI investments have been fossil-heavy (though renewables have been spreading in the portfolio as well). Importantly, it also impacts sectors such as international transportation and energy-intensive industries that are yet to find scalable decarbonisation solutions.

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Europe and the US are pursuing their own connectivity agendas in Asia and Africa by investing in transport links, digital and energy networks, which raises questions of climate compatibility.

The three powers need to start a dialogue on how to make sure their respective overseas economic agendas do not threaten the goals of the Paris Agreement. Increasing the transparency of the climate impacts of these plans and exploring comparable standards for sustainable investment and trade could be part of this dialogue.

While systemic rivalry thinking hardly subsided overnight, the new US administration could provide more openings for such conversations.

A carbon club

Growing trade competitiveness between China, the EU and the US and carbon leakage concerns are some of the main barriers to more ambitious domestic policies such as carbon pricing.

In other words, businesses should not transfer production to countries with laxer policies due to increasing costs on pollution at home, as this could drive emissions globally.

As a possible solution, a carbon border adjustment mechanism is being discussed intensively in Europe. It is a form of carbon pricing on imports that aims to compensate for potential disadvantages from international competitors which do not have to pay for emitting carbon.

As China and the US are crafting a new policy trajectory to deliver their net-zero ambition, all of the three powers are – at least in theory – concerned about carbon leakage. This carbon border tax discussion can be used strategically to forge a three-party dialogue on a ‘climate ambition club’. This could see the big three, as well as other major players, join forces for increasing climate ambition domestically.

In addition, they can use the revenues raised by a joint carbon border adjustment mechanism to further invest in decarbonisation and build resilience in disadvantaged communities domestically and in developing and emerging economies.

This club might start with focusing on sectors such as the steel or cement industry. End product taxes of goods and services could be an alternative option.

Domestically, a ‘carbon club’ may have a positive effect to justify ambitious climate policy measures. Globally, it could become a powerful new instrument for mobilising major emitters to fill the financial gap for the net-zero transformation.

As US renews climate relations with EU and China, carbon pricing raises tensions

In 2021, China, the EU and the US can use collaboration on these agendas as a springboard to increase climate ambition. They should set a clear path towards domestic neutrality goals while kicking off an irreversible net zero transformation globally.

The leader’s summit announced by US president Joe Biden on 22 April offers a chance for joint initiatives. In addition, fora such as the G20 or the Major Economies Forum on Energy and Climate Change, initially established under the Barack Obama administration, are complementing platforms to the global climate negotiations where the groundwork can be carried out.

Finally, the three players need to embrace network diplomacy beyond the official channels and (online) summits, in particular business stakeholders and civil society need to be involved in all of these agendas.

Dennis Tänzler is director and head of programme Climate Policy, Lina Li is a manager of the Carbon Markets and Pricing programme and Daria Ivleva is a senior advisor of the Climate Policy programme at adelphi. The views expressed are those of the authors and do not represent the institutions they work with.

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As president Joe Biden reengages the US in international climate cooperation, the dynamic between the world’s three largest emitters will largely set the pace for decarbonising the global economy.

The EU and China have both committed to cut their emissions to net zero and Biden aspires to do the same, but they all start from different places. That raises tensions when it comes to trade in carbon-intensive products like steel, cement and chemicals.

The issue will be an “unavoidable topic” in Brussels’ relations with the US and China, Jennifer Tollmann, policy advisor at think-tank E3G told Climate Home News. “It can either be the biggest point of cooperation or risk becoming one of the biggest points of contention,” she said.

The misalignment of the EU, US and Chinese positions on the issue of carbon pricing “has the potential of flaring up relatively early this year,” warned Connie Hedegaard, of the KR Foundation and former EU commissioner for climate action. That “could end up being a bit dangerous and sour the atmosphere,” she said.

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The EU has made its Green Deal – a sweeping plan to bolster green growth and job creation while cutting emissions across the whole of the economy – its top political priority.

To achieve this, Brussels is planning to establish a carbon price on imports that would prevent European companies being undercut by competition from countries with lower environmental standards and no price on carbon. The European Commission is expected to publish its proposal in June.

While Biden supports a similar “carbon adjustment fee against countries that are failing to meet their climate and environmental obligations” at the US border, he has much work to do on domestic policy first.

Beijing has pushed back against climate “protectionism”, yet in practical terms is better prepared than Washington for the trade implications, having established an institutional framework for pricing carbon.

China recently launched a nationwide carbon market, requiring power generators to buy pollution permits if their plants overshoot carbon intensity targets. There is no such scheme at the federal level in the US.

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Reconciling these differences will put EU officials’ mediation skills to the test.

In the six years since a bilateral US-China deal laid the groundwork for the Paris Agreement, relations between the two superpowers deteriorated, while Brussels stayed engaged with Beijing on climate issues. Now, the EU “can play a role as a vital diplomatic bridge”, said Hedegaard.

In this three-way dynamic, “Europe is central” but does not solely serve as an intermediary between Washington and Beijing, said Emmanuel Guérin, executive director for the international group at the European Climate Foundation.

The EU is making a case for clean technology and high environmental standards to give a competitive advantage. This “dynamic of competition” could spur race to the top between the three largest polluters, Guérin said.

The proposed carbon border adjustment mechanism is “not just a commercial instrument but a tool to drive greater climate action beyond its borders,” he said.

The EU has been eager to engage with the new US administration on a transatlantic green trade agenda and wasted no time in raising the issue with the Americans.

Commission vice president Frans Timmermans spoke with US special envoy for climate John Kerry on the latter’s first full day in office Thursday. The EU’s plan for a carbon border adjustment mechanism came up.

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In its vision for a “new EU-US agenda for global change” published last month, the Commission urged Washington to “work closely together on emissions trading, carbon pricing and taxation”.

It cited the EU carbon border adjustment mechanism as “an opportunity to work together to set a global template for such measures,” with a proposed EU-US summit in the first half of the year to deepen the discussion.

But Timmermans also insisted the EU would go ahead with a unilateral carbon border tax, describing it as “a matter of survival for our industry”. “So if others will not move in the same direction we will have to protect the European Union against distortion of competition and against the risk of carbon leakage.”

For Sébastien Treyer, executive director of Paris-based think tank Iddri, this early dialogue on trade and climate is a strong basis for Washington and Brussels to build “a common discourse” on carbon pricing before engaging with China.

A border mechanism “could become politically toxic” and “threaten the overall deal of the Paris Agreement” if it is understood as building a protectionist agenda, Treyer told Climate Home. A joint US-EU position would help avert conflict.

And yet, while Washington and Brussels “will need to agree on the top lines of what is credible [climate] action and ambition for China,” on the practicalities of a carbon border tax the EU may find it easier to align with Beijing, Tollmann said.

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At the federal level, the US is not ready for a carbon pricing system, said John Podesta, chair of the Center for American Progress and former adviser on climate to Barack Obama’s administration.

“It’s coming but I think it might not be coming in the next two years,” he said, citing “a lot of ferment” in favour of the idea amid Republican economists and business leaders.

The US Chamber of Commerce recently changed its climate position to back “a market-based approach” to cutting emissions in the US. Biden allies in the business community are reportedly working on a set of proposals, including a carbon tax, to fund $2 trillion infrastructure plan. And carbon pricing is supported by Biden’s treasury secretary nominee Janet Yellen.

“But I remain sceptical that there is a point of bipartisan agreement around an economy-wide pricing strategy. There is still considerable opposition among the Republican electorate,” Podesta said.

And as the EU presses ahead with its plans, aligning the European system which has pricing as its backbone with the US which has standards as its backbone will be “challenging,” he added, calling for “very early” US-EU consultations on the issue.

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In the short-term, there is a “big risk” the carbon border tax will become confrontational between the EU and China, Li Shuo, senior climate and energy officer at Greenpeace East Asia, told Climate Home. But Beijing is likely to establish an economy-wide carbon pricing scheme that could align with the EU’s mechanism before the US, he said.

While China has introduced a carbon market for the power sector, the European proposal would put pressure to expand its emissions trading scheme to other sectors and raise the price of pollution.

That will take some time, Li said, leaving a “very big gap” for Chinese exports to Europe such as steel or cement to be taxed in line with the union’s carbon price. “The politics will be very tough for the next few months.”

As the US and Europe renew cooperation on climate, the framing of this transatlantic relationship will be key, Li added, warning against ganging up on Beijing. This “risks alienating China, which we cannot afford”.

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IMF chief Kristalina Georgieva has repeatedly called on countries to ensure spending is directed to green investments to weather the economic impact of the pandemic. Doing so, she said, could boost global GDP by 0.7% on average in the first 15 years of the recovery.

The IMF has made a quarter of its total lending or $280 billion available to countries, with more than a third of the funds accessed by nations since March to respond to the economic impact of Covid-19. So far, it has helped 81 countries, including 79 with emergency funding, with most of the payments made through short-term programmes with no conditions attached.

But in advice the IMF is offering alongside its financial support, it implicitly backs fossil fuel subsidies that risk putting countries on a polluting pathway.

Analysis by the Netherlands-based group Recourse, which campaigns for green finance, found the IMF failed to systematically recognise the macroeconomic risks the energy transition posed to countries: that is, fossil fuel infrastructure could lose value because of carbon-cutting policies and competition from clean technology.

At a meeting of 52 finance ministers on Monday, Georgieva said climate change was a “macro critical” issue — a term use by the fund to describe issues that are critical to ensure countries’ macroeconomic stability, which is at the core of the IMF’s mandate.

“Even while we are in the midst of the Covid crisis, we should mobilise to prevent the climate crisis,” she said. “Climate change is a profound threat to growth and prosperity… And macroeconomic policies are central to the fight against climate change.”

She urged governments to tax carbon to support those most affected by the shift away from fossil fuels and called on major emitters to adopt a carbon price floor to build global consensus on climate action.

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However, in review of the IMF’s most recent economic policy advice to India, Indonesia, the Philippines, Mozambique and South Africa – five countries with ongoing coal expansion – Recourse found the fund was endorsing financial assistance that could be used for fossil fuels.

It found the IMF encouraged governments to increase public spending for priority infrastructure projects, which in India, Indonesia and Mozambique include coal power plants and export infrastructure.

And it backed tax incentives for new infrastructure investments without differentiating between low and high-carbon projects, the analysis showed.

In India, for example, the IMF suggested the government increased the rate of its existing carbon tax as a way to generate revenues but made no mention of the tax breaks India recently introduced for coal production.

Meanwhile in Mozambique, a World Bank and IMF debt sustainability assessment for accessing Covid-19 emergency funds found the country’s debt was “sustainable” based on anticipated revenues from a controversial mega project to produce and export LNG.

“If the IMF is serious about the green recovery and a clean and climate-resilient transition they need to start walking the talk themselves,” said Nezir Sinani, co-director of Recourse. “An easy start would be by ending tax breaks for fossil fuel producers, including for coal,” he said.

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In a Q&A session with NGOs, James Roaf, coordinator of climate change policies in the IMF’s fiscal affairs department, said the fund was “not in any way supportive of producer subsidies for fossil fuels” which he described as “bad policy”.

He added the IMF was “not going to be able to tell countries what to do on climate” but worked through dialogue with governments, capacity building and peer pressure.

In a separate IMF briefing with civil society representatives last week, Jon Sward, environment project manager at the UK-based NGO Bretton Woods Project, put Recourse’s findings to Georgieva.

“It is of particular concern to civil society that the IMF has constantly been overestimating future growth from oil and gas discoveries in Africa,” he said, citing a recent World Bank working paper that compared revenues from petroleum projects in 12 countries with initial IMF projections.

Georgieva admitted the IMF had overestimated the benefits of past investments in fossil fuels. She said the fund wanted to be at the forefront of linking risks caused by the energy transition and by climate shocks, such as extreme weather events, with financial stability.

“We are asking ourselves… what we can do in this crisis to make sure we come out on the other side as a greener, fairer and more sustainable, more inclusive, more resilient world,” said Georgieva. The IMF had established a “very strong research” stream on the issue and was working to integrate climate risks into its stress tests.

A Biden victory could spur global climate action, but the US has much to prove

“And I can tell you that it has not been an easy discussion,” she said, hinting at divisions within the IMF about the role the fund should play in addressing climate change.

“There are still some pushing that this is not for the fund, that the fund needs to focus on financial stability and that’s it. And so I spent a lot of time explaining that you cannot have financial stability without environmental and social sustainability.”

Dileimy Orozco, a senior policy advisor on sustainable finance at think-tank E3G, told Climate Home News the IMF needed to review the way it assesses countries’ economic and financial policies and the sustainability of countries’ debt to integrate climate risks. “These are the most important instruments the IMF has” to shift investments, she said.

She added the IMF should “give countries the confidence” to pursue longer term low-carbon investments opportunities without the threat of being penalised for not being able to repay growing debt immediately.

Sward, of the Bretton Woods Project, agreed the IMF’s work on climate change could “not be easily distangled” from its efforts to provide emergency relief.

“Many countries receiving IMF Covid-19 emergency assistance are being asked to carry out austerity as soon as next year. You cannot ask countries to implement their [climate plans] and transition to a low-carbon future if they have no fiscal space to do so.”

The post Campaigners confront IMF chief over green recovery contradictions appeared first on Climate Home News.

EU Commission president Ursula von der Leyen has presented a carbon border tax as an important tool “to ensure that EU companies can compete on a level playing field” with big emitters such as China and the USA. This week von der Leyen announced that the EU would raise its emissions reduction target to at least 55% compared to 1990 levels – up from 40% currently – by 2030. 

The main reason for introducing a carbon border tax is to prevent carbon-intensive production from relocating to countries with lower emissions standards, a problem known as “carbon leakage.”

IMF president Kristalina Georgieva on Wednesday called on major emitters to cooperate and draw up a carbon pricing agreement. “The EU cannot stop global warming on its own. But it can bring the world together. A top priority should be an agreement on a carbon pricing floor among major emitting countries,” Georgieva said in a statement. 

Georgieva said that in the absence of such an agreement, applying the same carbon price on the same products, irrespective of where they are produced, could help avoid carbon leakage and ensure fairness towards European businesses.

An EU climate mitigation policy published by the fund elaborated on the position: “A carbon border adjustment mechanism could complement the package to avoid an increase in emissions outside the EU due to higher carbon prices in the EU.”

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Susanne Droege, senior fellow at the German Institute for International and Security Affairs, told Climate Home it was significant the IMF had publicly endorsed the EU’s plan to introduce a mechanism to avoid carbon leakage at the bloc’s border. “Carbon border tax is a potential option on how to implement that mechanism,” she said.

Harro van Asselt, professor of climate law and policy at the University of Eastern Finland, said several options remain open for how that carbon price could be applied.

“What seems most likely is that it will be in the form of a charge similar to the EU emissions trading system (ETS) allowance price for a limited set of sectors, for example cement and electricity, with importers being required to draw from a separate pool of allowances,” he said. 

Comment: How von der Leyen could make a carbon border tax work

Russia’s economic development minister said in July that an EU carbon border tax would contravene World Trade Organisation (WTO) rules. China and the US have also clearly stated their opposition and asked the WTO to make the EU clarify its plans, according to Droege.

It is critical that the bloc’s efforts to design the policy go hand-in-hand with diplomatic efforts to reassure major trade partners. “Otherwise there is the real risk of retaliation,” said van Asselt. The EU learned the hard way when it tried to impose the ETS on international aviation in 2012 and was forced to limit the scope to intra-EU flights only following strong international and industry backlash. 

Joe Biden has said that if he is elected US president in November, he may introduce a US carbon border tax “on carbon-intensive goods from countries that are failing to meet their climate and environmental obligations.”

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The Conservative Party affirmed its opposition to a federal carbon tax on Monday, as members elected veteran Erin O’Toole to lead the party.

In his election platform, O’Toole promised to “fight the carbon tax with every last breath”, saying the Conservatives would defend the environment “without adding new taxes on working families and seniors on fixed incomes”.

The carbon tax has been on the frontline of Canada’s climate debate since it was introduced by prime minister Justin Trudeau’s Liberal government in 2019. It puts a price on carbon emissions from burning fossil fuels and distributes the revenues in the form of rebates for taxpayers.

Now the Conservatives are eyeing a fresh opportunity to topple the minority Liberal government and scrap the tax after Trudeau – mired in a conflict-of-interest controversy – ended the parliamentary session last week, prompting a confidence vote that could trigger another election this year.

“If we have another election in the fall, the Conservatives will make [the carbon tax] a huge election issue,” Cat Abreu, executive director at Climate Action Network Canada, told Climate Home News.

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Trudeau – once the rising star of Canadian politics – is gambling on a political reset, based on the presentation next month of a spending plan to drive a green recovery to Covid-19. Conservatives could bring down the government on 23 September, when Parliament is due to reconvene to vote on the bill.

“This is our moment to change the future for the better,” Trudeau told reporters. “We can’t afford to miss it because this window of opportunity won’t be open for long.”

Newly appointed finance minister Chrystia Freeland said she would work with Trudeau to “build back better” – a global slogan for promoting inclusive climate-friendly policies to reboot the economy. “I think all Canadians understand that the restart of our economy needs to be green,” she said.

But support for Trudeau is fragile after he lost the popular vote and his majority in last year’s election. His recovery plan will have to gather the support of progressive left-wing opposition parties if he is to stay in power.

“It is more likely than not that there will be an election in the fall,” said Ross McKitrick, professor specialised in environmental economics at the University of Guelph, Ontario, adding voters were focused on the “big hole” in the economy caused by Covid-19.

German minister: EU can help Africa become the ‘greenest continent’

On 1 April – at the height of the Covid-19 pandemic and amid rising unemployment – the government went ahead with a scheduled increase of the federal carbon tax from $20 per tonne to $30/t, in line with its plan to raise it by $10/t each year until 2022.

McKitrick said the hike had hardly been noticed but future planned increases would likely become the target of any upcoming Conservative election campaign. “The battle lines are pretty much exactly the same as they were last year,” he added.

Since its implementation, the carbon tax has been met with strong headwinds at the provincial level, widening the gap between the provincial and federal governments on climate action. Ontario – where O’Toole has been an MP since 2012 –  and Saskatchewan have lodged legal challenges against Ottawa’s right to impose a carbon price on provinces. Canada’s Supreme Court is expected to hear the case in September.

In his election platform, O’Toole says he wants to build climate policy on “proven market-based principles for incenting positive economic change”. His manifesto promises to transition from coal to natural gas, boost nuclear technologies exports, support oil and gas companies in developing carbon capture technologies and expanding their infrastructure in Alberta and western Canada.

“I know that as long as the world needs oil, as much of that oil as humanly possible should be Canadian oil,” he wrote.

Big oil need not apply: UK raises the bar for UN climate summit sponsorship

While he would immediately scrap the federal carbon tax, O’Toole’s programme leaves the door open for provinces that want to continue to implement regulatory measures such as carbon pricing to do so. His manifesto also suggests regulatory measures could focus on “making industry pay rather than taxing ordinary Canadians”.

Isabelle Turcotte, director of policy at the clean energy think thank Pembina Institute, told CHN more than two thirds of voters backed parties with a strong climate platform in last year’s elections, showing public appetite for action. “That is encouraging,” she said.

Abreu, of CAN, said Canada was “learning a hard lesson” about how to address climate change at the federal level, when provinces have significant control over tax policy.

The outcome of the appeal at the Supreme Court will determine the extent of the federal government’s ability to impose climate policy on the provinces.

The post Prospect of snap election reanimates Canada’s carbon tax battle appeared first on Climate Home News.

Maxim Reshetnikov said that Moscow “is extremely concerned by attempts to use the climate agenda to create new barriers”, following a meeting of the BRICS emerging economy nations last Thursday (23 July).

“We see a danger in this, including in the initiative to create a carbon adjustment mechanism that could essentially turn into new duties,” the minister said, referring to the European Commission’s plans to deploy a carbon border tax.

The anti-climate-dumping tool – still under design – would slap additional levies on imported goods that are manufactured in an unsustainable way, in order to boost domestic production and give offshore industries an incentive to go green.

But the border tax will have to walk a thin line between contributing to the EU’s green policies and sticking to WTO rules, which Russia – the world’s fourth-biggest emitter of greenhouse gases – already claims is unlikely to happen.

“It’s very important to us that all measures that are adopted in furthering the environmental agenda strictly comply with WTO rules, because the mechanisms that are now being proposed by some of our colleagues, in our view, contravene WTO rules,” Reshetnikov said.

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In February, a top Kremlin advisor warned Russia’s business leaders to start adapting their production lines under the assumption that a border tariff will be in place in the near future.

Brussels and Moscow are already butting heads at WTO level. Last week, the Geneva-based body upheld Russia’s complaint against the EU’s anti-dumping measures, the third time the bloc has lost a case against its large eastern neighbour.

A Commission spokesperson said that the decision “confirms the legality of specific EU anti-dumping rules under the WTO law while raising certain issues as regards their practical application.” The EU executive plans to study the ruling in more detail before acting.

The EU is not the only world power mulling the idea of loading borders with green tariffs, according to a draft of the American Democratic Party’s election platform, the US would do the same if Joe Biden defeats incumbent Donald Trump in this year’s presidential election.

“We will apply a carbon adjustment fee at the border to products from countries that fail to live up to their commitments under the Paris Climate Agreement because we won’t let polluters undermine American competitiveness,” the document states.

Biden has pledged to steer the US back into the Paris climate accord if elected president, after Trump decided in mid-2017 to trigger the lengthy withdrawal process, which is still not complete.

Green attitude adjustment

The carbon border tax is not just aimed at helping Brussels ratchet up its green credentials, it is also seen as a way for the EU to pay off the €750 billion debt the bloc’s member states agreed to take on at a Council summit last week.

Senior EU officials told Euractiv that the Commission considers the Council’s explicit approval of the border tax idea – as part of a basket of so-called revenue-generating ‘own resources’ – one of the main victories of last week’s crucial budget meeting.

According to its calculations for the next long-term budget and recovery instrument, the Commission predicts that a border tax could bring in between €5 billion and €14 billion every year “depending on the scope and design”.

Poland bails out coal, yet wins access to EU climate funds

In the final Council deal, leaders agreed that “the Commission will put forward in the first semester of 2021 proposals on a carbon border adjustment mechanism”, with a view to deploying it by the beginning of 2023.

The EU executive was already working on the idea, given that President Ursula von der Leyen included it on a list of her administration’s priorities, but this is the first time that it has received such clear support in the Council.

Von der Leyen has tasked a number of her Commissioners, including economic chief Paolo Gentiloni, energy boss Kadri Simson and trade Commissioner Phil Hogan, with putting together a legally sound proposal. WTO-compliance is the top-line objective.

Last week, the Commission launched a consultation and put forward four main ways the mechanism could work, ranging from a list of taxable goods and obligations on importers to buy permits, to an EU-wide tax on certain goods, whether they are imported or not.

A list of suitable imports, which EU officials have suggested could include Southeast Asian electric car batteries or even steel, is the most likely to fall foul of WTO scrutiny, while the idea of allowing the EU to tax products bloc-wide is a political no-go for most countries.

Forcing importers to buy permits, either from the EU carbon market (ETS) or a special pool, would require serious ETS reform. The Commission says in its consultation that the border tax would replace existing systems like free allocation of permits to certain industries.

Those gratuities are supposed to act as an incentive for manufacturers and other polluters to stay in the EU, in an effort to prevent the phenomenon known as carbon leakage. As a result, many companies benefit from millions of euros in avoided costs every year.

This article was produced by our media partners Euractiv.

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A simple tax of just 12.5 cents per litre of gasoline and diesel would generate $1 billion worldwide, daily. And, because of recent oil price drops, consumers would still benefit from markedly lower prices at the pump than before the Covid-19 crisis.

As recognised by governments around the world, stimulus packages are essential to keep people in work and to prime the economy to recover. But they must also be paid for.

While we would all prefer not to see a tax increase on transport fuels, the alternatives are far less palatable: they include raising general taxes such as VAT, cutting spending on essential services, or moving to austerity.

The math is simple: in a cash-constrained world, about $1 trillion could be financed by the proposed tax within three years. This would make a major contribution to the $5 trillion that G-20 countries, which account for more than 85% of global transport fuel consumption, have decided to inject into the economy over the next few years.

Analysis: This oil crash is not like the others

Falling international oil prices have created this unique opportunity. They were already relatively low in 2019, but have fallen even further because of competition between producers and the major reductions in consumption caused by Covid-19.

For example in the United States – where pump prices were already low internationally – fuel prices have decreased by 27 cents per litre since the start of the crisis. The suggested tax would be less than half of that fall.

In countries that saw fuel price reductions of more than 30 cents per litre such as Germany and South Korea, the charge would represent an even lower share. The tax would only stay in place while oil prices are likely to remain depressed: when the oil price recovers, it can be phased out.

The revenue raised should be spent on the key priorities facing governments around the world: unemployment relief and job creation, health and social protection measures and a just transition for workers into the new economic opportunities we will see after the pandemic eases.

IMF chief: $1 trillion post-coronavirus stimulus must tackle climate crisis

Looking again at the United States, projected transport fuel consumption in 2020 is around 12 million barrels per day. The simple tax would raise over $7 billion monthly. This can represent an additional monthly payment of about $200 for each of the currently 33 million unemployed Americans – a contribution that is desperately needed given the rapid depletion of states’ jobless benefits funds.

Governments should always be concerned about the impact of their policies on the most vulnerable, including those living in remote communities.

Compensation mechanisms such as public transport vouchers and cash transfers are among the tried-and-tested measures available to them.

And for sectors such as car manufacturing, which has been bleeding jobs due to productivity improvements for years, the revenue raised could help governments invest in value-added markets such as those for electric vehicles, which could deliver more than 100,000 new jobs in the EU alone.

Pre-Covid-19, worldwide premature deaths because of transport-related air pollution were 385,000 people annually, with the thick pollution in Delhi and other cities the most visible sign.

Both on a human and economic scale, we cannot afford to return to such numbers during the post-Covid 19 economic recovery.

A fuel tax would discourage the excess consumption – and return to previous levels of air pollution – as lockdown restrictions are eased.

China prioritises employment over GDP growth in coronavirus recovery

So why aren’t governments around the world taking up this measure already? They are.

In Nordic countries, energy taxation has contributed to the highest quality of life and social protection in the world for over two decades. More recently, both India and Costa Rica have increased the taxes they already had on transport fuels and have specifically linked these increases to raising money to respond to Covid-19. Other countries where governments control gasoline prices through regulation – such as Indonesia – have decided not to reduce those prices even as oil prices have collapsed.

It is possible for governments to guide us through the crisis in a sustainable way, without compromising social protection or development. Moreover, it doesn’t have to mean raising general taxes such as VAT or cutting spending on essential services.

Our governments have to react quickly to fast-changing realities and seize any opportunity they get. Today, that opportunity lies in record low oil prices.

A small tax on transport fuel can raise a huge amount of money around the world, without harming consumers or the economic recovery – so what are we waiting for?

Peter Wooders is energy director at the International Institute for Sustainable Development. Tom Moerenhout is senior associate at the International Institute for Sustainable Development and Professor of International and Public Affairs at Columbia University

The post How to raise an easy $1 billion per day for the Covid-19 recovery appeared first on Climate Home News.

Economic activity has slumped worldwide amid travel restrictions to prevent the spread of Covid-19. More than 100 countries have applied to the IMF for emergency finance.

Money to rebuild after the public health crisis should be directed into green investments and not subsidise fossil fuels, according to IMF chief Kristalina Georgieva.

It would be a mistake to “pause” action on climate change while responding to coronavirus, she said. “We are about to deploy enormous, gigantic fiscal stimulus and we can do it in a way that we tackle both crises at the same time… If our world is to come out of this [coronavirus] crisis more resilient, we must do everything in our power to make it a green recovery.”

Georgieva urged governments to consider taxing carbon to raise revenue for the recovery and incentivise the private sector to cut emissions.

She was speaking at a virtual summit on climate finance, supported by the German and UK governments and Climate Policy Initiative, on the sidelines of the Petersberg Climate Dialogue.

Merkel: don’t neglect climate finance to the world’s poor

Mark Carney, a UN special envoy on climate finance and advisor to the UK hosts of the next UN climate negotiations, elaborated on the theme.

“To build back better, we need to learn from our current predicament,” he said. “We cannot wish away systemic risk.”

In his previous role as governor of the Bank of England, Carney warned climate change impacts and the shift to a clean economy could destabilise financial markets. He promoted initiatives to make corporations come clean about climate-related threats to their business models, so money could be more wisely invested.

As economies adapt to post-coronavirus conditions there will be a “massive reallocation of capital,” he said. For example, health and education services may move online, shifting investments from bricks and mortar into telecomms.

Endorsing Georgieva’s advice, Carney added that governments should “use this opportunity to implement a new financial framework that is centred around the transition” to a clean economy.

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Among the latest recipients of IMF emergency relief is Nigeria, which as an oil exporter is suffering from plummeting oil demand.

The country got a $3.4 billion loan to mitigate the impact of the oil crash on the wider economy. At the same time, the government ditched an expensive petrol subsidy.

Climate Home News has asked the IMF whether financial support will come with binding green conditions.

The post IMF chief: $1 trillion post-coronavirus stimulus must tackle climate crisis appeared first on Climate Home News.

With oil prices hovering around $20 per barrel, world markets are awash with excess oil that risks putting the clean energy transition in jeopardy, France has warned.

“Extremely low fossil fuel prices” seen recently on world markets “do not reflect their true cost for climate,” the French say in a position paper sent to other EU member states.

“The cost of fossil energies should be proportionate to their true environmental impact,” argues the document, obtained by Euractiv.

The French paper was circulated to national delegations ahead of an informal video meeting of EU energy ministers on Tuesday (28 April).

UN development chief calls for green shift away from ‘irrational’ oil dependence

“French authorities consider that these market conditions make a clear case for mechanisms ensuring that these energies remain consistently above a certain floor price” from the perspective of both consumers and investors, it states.

Such a mechanism could take the form of “a carbon price floor” that could be implemented either through the EU’s emissions trading scheme or the energy taxation directive, which is up for review as part of the European Green Deal, the paper argues.

The UK has led by example in the European Union, by introducing a carbon price floor in 2013. But the idea is controversial in coal-dependent Poland and other countries in Central and Eastern Europe, which are likely to be hit hardest by the measure.

If adopted, the EU carbon price floor should be accompanied by social policies for regions in transition where jobs will be destroyed, French President Emmanuel Macron said during a visit to Brussels in 2018.

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The French are also worried about the impact of falling electricity prices on the EU carbon market, saying urgent measures should be taken in order to avoid a glut of emission allowances that would send carbon prices crashing.

“In that regard, French authorities consider that a reinforcement of the EU ETS Market Stability Reserve must be implemented without delay to address the risk of resurgence of structural surplus,” the paper says.

According to the French, “the current situation also calls for a rapid establishment of the carbon border adjustment mechanism” in order to prevent factories from moving out of Europe in the face of higher carbon costs at home.

But these measures on their own will not be sufficient to boost investments in clean energy and secure a green recovery from the coronavirus crisis, the paper argues.

More fundamentally, France expresses worries about structurally low electricity prices, saying they hinder investments in new low-carbon power generation capacity, which is badly needed to meet the EU’s decarbonisation goals.

It says EU policy reforms are needed to “secure the financing of decarbonised electricity production,” which “does not exclude low carbon technologies” – a veiled reference to nuclear power.

This story was originally published by CHN’s media partner Euractiv. 

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Yet amid this wave of deforestation, two countries are bucking the trend.

In fact, Colombia and Costa Rica saw not only a drop in deforestation rates, but renewed efforts to restore previously degraded forests that generated revenue for their economies.

What did these two verdant countries have in common? Both have imposed taxes on carbon emissions.

Economists and scientists agree that carbon taxes help to reduce greenhouse gas emissions by creating an incentive for people to use less fossil fuels. But that’s not all they can do, as we and our co-authors – ministers from both countries – note in an essay published in the journal Nature.

Carbon taxes are also effective at reducing the greenhouse gas emissions created by the destruction of tropical rainforests, making them even more critical to addressing the climate crisis.

If tropical deforestation were a country, it would be the world’s largest emitter after China and the United States. Moreover, tropical rainforests remove carbon from the atmosphere: The Amazon, for example absorbs five percent of global carbon emissions every year.

This means that when we cut down our rainforests, we also eliminate one of our best tools for addressing the climate crisis.

But in both Colombia and Costa Rica, deforestation rates are down, while revenues to fund forest restoration efforts are up.

Don’t shop till you drop: advice to UK citizens on net zero climate goals

The programmes have different structures but similar impacts. Since 1997, Costa Rica’s carbon tax has helped to protect and restore lands across a quarter of the country. It generates $26.5 million in revenue every year, which the government then pays out to farmers and landowners that commit to rainforest protection or restoration on their property.

Meanwhile, Colombia’s programme has generated more than $250 million in revenue over the past three years. More than a quarter of that revenue goes toward environmental causes such as reducing deforestation and monitoring protected areas.

These programmes also offer a counterpoint to the argument that carbon taxes disproportionately impact people with lower incomes.

In Costa Rica, the government helps lower-income residents to complete their applications, and it prioritises lower-income regions when distributing payments. As a result, two out of every five people who receive a payment from the programme live below the poverty line.

We wanted to see what would happen if other countries adopted similar policies, so we analysed their potential impact on 12 countries with tropical rainforests across Africa, Asia and South America.

Our model found that if all 12 countries adopted a policy like Colombia’s, these countries would collectively generate $1.8 billion every year. If they decided to adopt an even more ambitious proposal in the face of increasing global emissions, their revenue would soar to nearly $13 billion — equivalent to the GDP of Nicaragua.

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Either scenario would have a profound impact on protection and restoration efforts. Countries facing the biggest threats from deforestation, like Indonesia, would have robust funding streams to help restore devastated landscapes.

Other countries, like Mexico and Malaysia, would be able to better monitor their protected areas. And every country would reduce the public’s reliance on fossil fuels.

Our research shows that a carbon tax is one of the most effective investments a country can make, and a particularly easy initiative for countries with existing carbon offset programs like Peru and Ecuador.

It offers a powerful tool for governments to fight deforestation, reduce emissions and support rural communities. Governments should consider it, and international institutions should encourage it.

Science tells us that humanity has about a decade to change course and avoid a worst-case climate scenario. A carbon tax in tropical countries would go a long way to that end — while helping those who are most vulnerable to climate impacts.

Edward Barbier is university distinguished professor at the Department of Economics, Colorado State University and Sebastian Troëng is executive vice president of Conservation International.

Their research was published this week in Nature.com together with Colombia’s Minister of Environment Ricardo Loranzo and Costa Rica’s Minister of Environment and Energy, Carlos Manuel Rodriquez. 

The post Carbon taxes are key to stop deforestation appeared first on Climate Home News.

Updated guidelines released on Monday show the UK government plans to introduce a domestic tax of £16 ($19) per tonne of CO2 emitted from power stations and industrial sites from 4 November. The aviation sector would not be subject to the tax.

In the UK, the tax would replace the EU emissions trading system, where permit prices have soared close to €30/t ($33) and are forecast to continue climbing. Together with a falling pound, it raises the prospect of a significantly lower carbon price in Britain than on the continent.

The tax would come into force if the UK fails to negotiate a withdrawal deal with the EU by 31 October, when it is due to leave the bloc.

European Investment Bank moots fossil fuel lending ban

The rate of £16/t price was first suggested by the UK government in its 2018 budget, when the EU carbon price fluctuated between €17 and €20/t and the pound sterling was stronger against the euro.

At the time, the Scottish and Welsh governments objected to the proposal on the basis it handed too much power to the centralised UK Treasury.

Power generators would continue to be subject to an £18/t surcharge on top of the tax – a total rate lower than they pay at present.

Meanwhile, “the rest of the heavy industry will be left off the hook,” Chaitanya Kumar, senior policy advisor at the Green Alliance think-tank, told Climate Home News.

A low UK carbon price risks slowing down decarbonisation of the country’s industrial sector, Kumar said.

Comment: A weak carbon price is worse than no carbon price

Since January this year, the EU has frozen the UK’s ability to obtain free allowances and auction carbon credits under the bloc’s emissions trading scheme. The UK government is forecast to lose at least £1.1 billion in revenue this year as a result, according to think-tank Sandbag.

The likelihood of the UK leaving the EU without a deal on 31 October has significantly increased, after Boris Johnson was elected prime minister by Conservative Party members last week.

Johnson has repeatedly said he would take the country out of the EU on Halloween regardless of whether the bloc can agree on new withdrawal terms with his government. The default situation is a no-deal Brexit.

The government said the tax rate for years beyond 2019 would be set during future budget announcements, which usually take place in the autumn, but the specifics are yet unknown.

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Phil MacDonald, who leads think-tank Sandbag’s work on carbon pricing, told CHN there was yet no clear trajectory over the price of the tax beyond 2019, leaving investors unable to plan.

“The carbon tax should be drawn away from the annual political cycle. It’s no good for business to be subject to the vagueness that the carbon tax could be changed,” he said.

MacDonald also warned the low tax rate could damage the UK’s reputation as a likely host of next year’s UN climate talks.

“It would not be a good look for the UK to reduce its carbon price lower than the rest of the EU. It would set a bad precedent for carbon pricing,” he said.

The move could also see a temporary increase in coal generation in the UK next year, with the possibility of coal-fired power plants coming back online, Yan Qin, lead analyst at data consultancy Refinitiv Carbon, told CHN.

But the “outlook for coal in the UK is gloomy”, she added, pointing to dwindling coal capacity and persisting low gas prices that would eventually offset the effects of a low carbon price on coal.

Claire Perry: Former UK energy minister appointed Cop26 president

Besides the looming prospect of a no-deal Brexit, the UK government is considering long-term options for carbon pricing following the country’s departure from the EU.

Its preferred option is the creation of a UK emissions trading scheme that could be linked with the EU market, according to official documents.

The government has sought the advice of its official advisers, the Committee on Climate Change, on the issue and a reply is expected shortly.

Even if this was the adopted option, “it couldn’t be assumed that it would happen very quickly,” said Kumar of the Green Alliance, adding that Switzerland has unsuccessfully tried to link its emissions trading market to the EU’s for the past seven years.

“This is less to do with the technical aspects and more with the political ones,” he said.

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Industry is said to be ‘indignant’ and insists the tax will hurt jobs and investment, while environmentalists decry a number of flexibilities that result in an effective tax rate of only $0.43-3.44 per tonne of emissions.

The lengthy adoption process and criticism from opposing ends of the spectrum illustrates the delicate balancing act governments adopting carbon prices must strike between putting in place an effective policy and managing potential opposition.

Many, if not most, governments have sought to achieve this through watering down policies to the point where they are less – or not at all – effective. A World Bank report released last month indicates that, while the number of carbon pricing schemes is increasing every year, the majority of these have prices far below the $40-80/t price the High-Level Commission on Carbon Prices tells us is needed in 2020 to achieve the goals of the Paris Agreement (half are below $10/t). Another review of 17 carbon taxes I led two years ago found that almost all included some form of exemptions, reduced rates and rebates.

France announces tax on air travel in climate push

Proponents of this ‘slowly-slowly’ approach argue that even a weak policy is better than nothing; that adopting the instrument helps build capacities and set the stage for later increases. But this is only credible where there are concrete plans to increase prices and phase out exemptions and rebates within a defined time period. All too often, weak policies are accompanied only by vague intentions to review it as some point in the future.

With only 11 years to completely overhaul our economies and turn this (fuel-guzzling) ship around, such approaches clearly do not pass muster. At best, they risk wasting precious political capital on ineffective policies. At worst, they offer a fig leaf that obscures the lock-in of high-carbon investments for decades to come.

Perhaps most egregiously, this lowest-common-denominator approach to climate policy is dismally uninspiring. It implicitly kow-tows to the narrative that addressing climate change is bad for business, instead of embracing a vision of a rejuvenated economy based on clean energy, green jobs and sustainable transport. Meanwhile, carbon prices that do not actually reduce emissions are easily labelled as “just another tax”. Of course, building support for ambitious carbon prices is more easily said than done. However, research my colleague George Marshall of Climate Outreach and I led last year shows that three factors can help it succeed.

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Firstly, carbon pricing must be part of a coherent policy package. Without access to reliable public transport, charging stations for electric vehicles, and finance for retrofitting buildings, the public will be unable to respond to cost increases, resulting in backlash. Complementary policies are needed to address these and other barriers to making the carbon price work.

Secondly, there must be a viable plan to protect vulnerable groups and ensure a ‘just transition’ to a low-carbon economy. This can come in the form of direct payments to low-income groups, job training for workers in high-emitting industries, and subsidies for companies and consumers to retrofit factories and homes.

Thirdly, and crucially, governments should have a comprehensive strategy for communicating the carbon price and engaging with stakeholders. Failure to win support for carbon pricing is, to a large degree, a failure of communications. Well-thought-out communications that is integrated into policy design can go a long way to winning and keeping support for the policy.

Politicians who follow these principles and dare to create a bold vision of a healthier, happier future, with carbon pricing helping us get there, may be surprised at the support they find.

The time for timidly testing the waters has been and gone. Now is the time to swim, or sink.

Darragh Conway is lead legal counsel at Climate Focus. Find him on Twitter: @Climate_Darragh

The post A weak carbon price is worse than no carbon price appeared first on Climate Home News.

In her efforts to win over green and progressive lawmakers, von der Leyen proposed several new, potentially far-reaching climate policies.

One of her most eye-catching suggestions was a “carbon border tax”. According to von der Leyen, such a measure would need to be aligned with World Trade Organization (WTO) rules, and should gradually expand its sectoral coverage.

Her call was presented as part of a “green deal” for Europe, which includes legislation to set a target of climate neutrality by 2050. She also suggests that the existing greenhouse gas emission reduction target of 40% from 1990 levels by 2030 could be strengthened to 50% or even 55%.

EU: Climate a ‘signature issue’ as Ursula von der Leyen anointed commission chief

The main purpose of adjusting for carbon costs at the border is to prevent the relocation of carbon-intensive production to non-EU countries, a problem known as “carbon leakage”. When firms outsource production to avoid carbon costs, their emissions occur abroad instead, reducing the effectiveness of EU climate policy.

To tackle such leakage, the EU currently hands out free allowances to trade-exposed industries under its emissions trading system (ETS).

Von der Leyen is not the first to call for border carbon adjustments. Within Europe, French president Emmanuel Macron has described the measure as “indispensable”, and the French government has put forward concrete proposals in the past to include importers in the EU ETS.

Across the Atlantic, 2020 presidential hopefuls like Joe Biden and Jay Inslee have also suggested imposing fees on carbon-intensive imports, a proposal that has even found support among some Republicans.

Border carbon adjustments, which can take the form of a tax or tariff on imports and/or rebates for exports, have an edge over the current system of free allocation. Free allocation has resulted in windfall profits for industries and a distorted carbon price signal and it does not address the fact that imports can undermine the overall EU climate protection effort.

EU-Mercosur trade deal will drive Amazon deforestation, warns ex-minister

Beyond tackling carbon leakage, border carbon adjustments could pave the road for increased climate ambition by levelling the competitive playing field. They can further exert political pressure on climate laggards, serving as a lever.

Yet for all the rhetoric about border carbon adjustments, the fact remains that no such measure has ever been adopted at a national level.

One of the primary concerns, which von der Leyen has acknowledged, is the risk of contravening international trade rules. Pressuring other countries to follow EU climate ambition can also lead to political backlash, something the EU experienced first-hand some years ago, when it sought to extend emissions trading to international flights.

Carbon leakage can only be countered effectively if border carbon adjustments are carefully crafted. Von der Leyen and the EU therefore need to design and implement the measure in a way that balances environmental, trade law and fairness concerns. Summarising our conclusions from a recent multi-year study, we see five key features.

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First, there should be no rebates of the carbon costs to exporters. This could create a perverse incentive to increase the carbon intensity of exports, and would undermine the environmental effects of the measure.

Second, the measure should be limited to primary goods, for example cement, steel and aluminium, which should then no longer receive free allowances. These are trade-exposed sectors facing high carbon costs, and they have only limited ability to pass these costs through to consumers. Targeting the sectors most at risk of carbon leakage strengthens the environmental effectiveness of the measure, which in turn improves its legal defensibility under WTO law. Country-level data for these commodities is increasingly available, and calculating their carbon footprint is much simpler than, for instance, that of products such as cars.

Third, WTO rules demand that border carbon adjustments do not discriminate among trade partners by singling out specific countries. Instead, the charge must be based on the carbon content of products. The adjustment should further reflect the difference in carbon constraints between the imposing and targeted economies. While there is therefore no distinction between developed and developing countries on the basis of their historical contribution to climate change, exempting least developed countries from a border measure is consistent with practices in both international trade and climate change agreements.

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Fourth, the design and implementation of a border adjustment should occur through a deliberate process that ensures fairness, transparency and predictability to improve political acceptance by trade partners and the odds of passing legal muster.

Lastly, if successful, border carbon adjustments should become obsolete once producers that face this charge have ramped up their climate performance. Any border adjustment measure should therefore provide for its own expiration.

Even if these recommendations are followed, the road ahead for von der Leyen will no doubt be a bumpy one, and will put the EU’s climate and trade diplomacy to the test.

However, properly designed and implemented through a fair and transparent process that engages trade partners, and offers revenue reimbursement to developing country exporters, border carbon adjustments can become a key enabler for an ambitious EU climate policy.

Harro van Asselt is professor of climate law and policy at the University of Eastern Finland Law School; Susanne Droege is senior fellow, at the German Institute for International and Security Affairs (SWP); Michael Mehling is deputy director of the Center for Energy and Environmental Policy Research at the Massachusetts Institute of Technology (MIT CEEPR), and professor at the University of Strathclyde School of Law

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Under the plan, plane tickets will be taxed for all flights departing from France, except those to Corsica and France’s overseas territories. Transit flights are exempt.

It will add €1.50 ($1.68) to the cost of a plane ticket in economy class within the European Union and €3 to an economy ticket outside the EU. In business class, the levies will be €9 and €18 respectively.

Transport minister for the ecological transition Elisabeth Borne told reporters taxing flight tickets was nothing new, citing air passenger duties in the UK and Germany. She added that Sweden and the Netherlands were considering a similar eco tax on flight tickets.

The government expects the tax to raise €182 million ($204m) to fund investments in green transport infrastructure, including the rail network.

Gilets jaunes: ‘We were ecologists before the capitalists’

It decided to pursue an aviation tax at a meeting of the Ecological Defense Council, which was set up in response to yellow vest protests against rising living costs.

The yellow vests or “gilets jaunes” movement was triggered by opposition to a tax hike on diesel, which protesters said created an unfair burden on the car-dependent poor. Rich people taking the plane for a weekend break were not subject to the same tax, they complained.

Pascal Canfin, an MEP for French president Emmanuel Macron’s party and the former director of WWF France, welcomed the “good news“, describing “a strong decision which was not won in advance”.

Campaigner Andrew Murphy of Brussels-based NGO Transport & Environment tweeted that the levy was “a good first step” but should be hiked and backed up by policies to cut aviation emissions.

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The announcement comes as France, together with the Netherlands, is pushing for the EU to adopt a bloc-wide tax on air travel in the form of a levy on fuel or passenger tickets. At a meeting of EU finance ministers last month, they noted aviation was one of the fastest growing sources of greenhouse gas emissions.

France’s minister for the ecological transition, François De Rugy, said his government “continued to lead the fight within the EU for aviation to contribute further to efforts to reduce greenhouse gases”.

He added that the decision came “in support of and gives credibility to France’s approach at the European level, for which we must seek the broadest coalition”.

De Rugy added that exchanges which the aviation industry in France had shown that the sector was “ready to propose solutions to reduce greenhouse gas emissions”.

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Ramaphosa’s African National Congress party was returned to office with a reduced majority in an election earlier this month. While climate change was barely mentioned in the campaign, the result allows the government to finally implement a tax that has been under discussion since 2010.

“Climate change represents one of the biggest challenges facing human kind, and the primary objective of the carbon tax is to reduce greenhouse gas (GHG) emissions in a sustainable, cost effective and affordable manner,” the treasury said in a statement.

The tax is to start at 120 rand a tonne of CO2 ($8). In the first phase, polluters will get 60-95% of carbon allowances free, bringing the effective tax rate down to R6-48/t. These rates are to be reviewed before phase two, spanning 2023-30.

EU plans first satellite fleet to monitor CO2 in every country

South Africa relies on coal for most of its energy. Politically, the priority for the electricity sector has been to tackle rolling blackouts and state-owned utility Eskom’s mountain of debt.

The government’s blueprint for the sector to 2030 includes 1GW of coal capacity already in planning, before pivoting to gas, nuclear and renewables. It foresees adding 8.1GW of gas, 2.5GW of nuclear 2.5GW of hydropower, 5.7GW of solar and 8.1GW of wind, in the latest iteration reported by industry publication Go Legal.

Meanwhile the mining sector, a major employer, is struggling with unreliable power and high labour costs. Anglo American Platinum complained last month the carbon tax would cost them R50m ($3.4m) in the first two years. Such concerns are behind years of delay and concessions to big emitters.

Campaigners welcomed the price on pollution, but said it needed to get higher to clean up the country’s economy.

“We commend the president for putting wheels to this long overdue issue,” said Morné du Plessis, head of WWF South Africa. “During the second phase, we will have to ramp up our transition ambitions significantly.”

Climate Action Tracker rates South Africa’s climate targets “highly insufficient”.

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At the World Bank and International Monetary Fund (IMF) spring meetings in Washington DC, the coalition signed up to the “Helsinki Principles” for climate-friendly growth.

Representing a mix of developed and developing nations, they pledged to align their policies with the Paris Agreement and work towards effective carbon pricing. The principles warn that further warming posed “risks to economic growth and macroeconomic stability”.

“Climate change is a real threat nowadays but we can turn it into an opportunity,” said Felipe Larraín Bascuñán, finance minister for Chile, in a statement. “Economic growth is essential but reducing emissions is also essential. We need more ambition and concrete commitments that translate into action.”

Chile, the host of this year’s UN climate negotiations in December, and Finland are leading the initiative. The other countries taking part are Austria, Costa Rica, Cote d’Ivoire, Denmark, Ecuador, France, Germany, Iceland, Ireland, Kenya, Luxembourg, Marshall Islands, Mexico, Netherlands, Nigeria, Philippines, Spain, Sweden, Uganda, United Kingdom and Uruguay.

Chile reveals venue, climate champion for Cop25 summit

Many of the signatories are facing tensions between climate and social goals at home.

France recently backtracked on a diesel tax hike after it sparked protests from hard-pressed motorists, organising under the “gilets jaunes” or yellow vest movement.

At the spring meetings, Nigeria’s finance minister Zainab Ahmed told media there were no plans to axe subsidies on petrol, despite pressure from the IMF.

“IMF is saying fuel subsidies are better removed so that you can use the resources for other important sectors,” she said, as reported by the country’s Daily Post.

“In principle that is a fact. But in Nigeria, we don’t have plans to remove fuel subsidy at this time because we have not yet designed buffers that can enable us remove fuel subsidy and provide cushions for our people.”

The IMF has long urged governments, including Nigeria, to end fossil fuel subsidies and put a higher price on carbon, to reflect the environmental and health costs of emissions.

But its chief Christine Lagarde acknowledged this could be more complicated in practice. “There has to be a social protection safety net that is in place so that the most exposed in the population do not take the brunt of the removal of subsidies principle,” she said at a press conference in DC.

World Bank criticised for coal, oil and gas funding

The Helsinki Principles talk about a “just transition” to a low-carbon economy: the climate sector’s jargon for softening the blow to people whose livelihoods depend on the coal, oil and gas industries.

UN sustainable energy chief Rachel Kyte, said it was a step in the right direction, adding: “This coalition will need to work hard between meetings…

“On emissions reduction few countries have deployed the full range of policy tools available to them to drive clean energy, energy efficiency, shifts in land use and planning and promote job-rich clean growth. Even more worryingly, few countries have plans to cope with the public budgetary strain from the costs of adaptation and resilience to climate impacts.”

On Wednesday in Paris, a network of central bank officials is releasing its first big report on how to manage the financial risks associated with climate change.

Together with the coalition of finance ministers, it is part of “emerging soft architecture for green and sustainable finance,” said Nick Robins, sustainable finance professor at LSE and adviser to UN Environment. “These are places where, if they are done well, you can create a safe space where people can share experience [of what does and does not work]… You need to show that climate policy is an active driver of making people feel better off.”

Ben Caldecott, the director of the sustainable finance programme at the University of Oxford, said the Helsinki Principles were “part of a broader shift that is very significant”.

He said: “The fact that we now have finance ministries, central banks, supervisors, and finance ministries all elevating and accelerating efforts on climate is exciting. These are exactly the kind of ‘non-usual suspects’ that need to shift if we are to tackle climate change.”

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That makes it a political hot potato that Irish governments have tended to kick down the road – until it came to an assembly of 99 randomly selected citizens, tasked with weighing in on some of the country’s most contentious social issues.

The Citizens’ Assembly spearheaded Ireland’s vote to overturn an abortion ban in 2018, after a similar public consultation led to the vote to allow same-sex marriage in 2015. Now, the assembly could force Dublin’s hand on divisive and expensive new measures to tackle climate change, including raising the carbon tax on road fuels and extending it to agricultural emissions.

How closely the government sticks to the citizens’ 13 recommendations on climate change remains to be seen in the next few months. But Ireland’s bottom-up approach to policymaking is at the vanguard of a trend towards more participatory, consultative democracies aimed at building consensus – and political cover – on thorny issues such as Brexit and French tax reforms.

The key: strip out the party politics and arm the public with information.

Youth climate strike: ‘If not us, who?’

“Politicians are looking over their shoulders the whole time at the next elections,” said Mike Loughnane, one of the Irish assembly’s members, from Dublin. “If the model is constructive, in such a way that encourages honest and open debate, then honest and open debate will result. If you bring in less baggage, there’s less contention.”

British politicians, including former prime minister Gordon Brown, are pointing to the Irish example in calling for a series of citizen assemblies on Brexit. This would lead to “constructive reconsideration by parliament of our relations with Europe”, Brown wrote in a Guardian op-ed last month.

It could also help build support for climate change efforts, as the focus spreads from big industries such as fossil fuels to sectors that touch the wider public, such as transport, home heating, food and farming.

The UN’s intergovernmental panel of climate scientists said as much in its report on limiting global warming to 1.5C last October. Education, information and community approaches can accelerate changes in behaviour, as long as the changes are seen to be distributed fairly, it said.

Perhaps taking that cue, French president Emmanuel Macron launched a ‘great national debate’ in January on four issues, including climate change, in an effort to quell the gilets jaunes protests sparked by his attempt at raising the diesel tax.

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The Irish government, on the other hand, points to those French protests to explain why it is treading more carefully.

“As the taoiseach [Leo Varadkar] has indicated, we need to get this right – we need to bring people with us,” MP Hildegarde Naughton, from Varadkar’s centre-right Fine Gael party, told a Dublin City University conference this month. “Taxing or carbon pricing or whatever you want to call it – it’s not an easy issue in any country, and we saw what happened in France in relation to the protests.”

Naughton chairs the cross-party parliamentary committee that is debating the Citizens’ Assembly’s recommendations on climate change. It expects to publish a report at the end of February. Climate action and environment minister Richard Bruton said he will then set out climate targets across all government departments.

Irish climate advocates were initially sceptical about giving such a touchy, broad and complex issue to the Citizens’ Assembly. Then they were surprised by the strength of recommendations published last April.

The citizens backed a higher and wider carbon tax – something Varadkar chose not to announce in his October budget, saying he wanted to ensure there was cross-party support. They also favoured incentives for electric vehicles, especially in rural areas; an end to subsidies for peat extraction while protecting workers’ rights; and the expansion of public transport and bus and cycle lanes.

These would be significant changes for one of Europe’s worst performers on climate change.

Ireland has won praise for its renewable electricity growth and the parliament’s vote last summer to make it the first country to fully divest from fossil fuels. But its biggest problem is with farming, cars and industries like cement, food and aviation, not energy.

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The country is on track to miss an EU-mandated emissions reduction goal for 2020, according to the Irish Environmental Protection Agency. Agricultural emissions edged up in 2017 due to more dairy cows. Transport emissions slipped for the first time in four years, but that was attributed to a Brexit-related anomaly: fewer drivers crossed from Northern Ireland to buy fuel, because the British pound was cheaper. The number of Irish drivers still increased.

The question now is whether policymakers take up the citizens’ mantel. Naughton said the cross-party committee has not yet decided which sectors should pay a carbon tax, but stressed that farmers will need to reduce their emissions while increasing and diversifying their food production.

Members of the Citizens’ Assembly vote on the wording of ballot questions at a meeting in Dublin
(Pic: Citizens Assembly/Maxwells)

Touted as an “exercise in deliberative democracy”, the Citizens’ Assembly started in late 2016 with members chosen at random and varying in age, gender, social class and location.

They were tasked with weighing in on five policy issues including abortion, how to deal with an ageing population, and climate change, and met over 12 weekends until it wrapped up in mid-2018. They listened to experts, broke out into discussion groups, and voted on recommendations.

“The Citizens’ Assembly showed that if you structure the debate around information, discussion, questions and answers, and allow citizens to really thrash things out with expert advice – in a manner that is intelligible to them – very often people will shift their positions,” said Sadhbh O’Neill, an expert adviser to Naughton’s parliamentary committee and a PhD candidate on environmental policy at University College Dublin.

Given that success, Ireland should now make this people power an institutionalised fixture that works “hand-in-glove” with the government, said Loughnane.

“The capacity of your average citizen to tackle such things, including myself to a large degree – I was hugely impressed,” he said. “Politicians can fob things off, they can go back to their political agendas, they’re looking over their shoulders for elections. They’re kicking the can down the road.”

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While Brexit is presenting enormous challenges, depriving us of energy, time and money, we are approaching a point of no return on climate, while making progress at snail’s pace. Climate change needs to be treated as what it is; a crisis. We need headlines every day, constant media attention, contingency plans, the works. While March 29th is a ‘definite’ date (for now), the tipping point for climate change, though impossible to pin down, is sooner than we think.

As Britain Brexits, Ireland stalls on climate action. Meanwhile, the EU is Ireland’s only pressure point for moving on climate while under the expansive shadow of Brexit.

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The partition of Ireland already condemns both sides of the island to slow development in many policy areas, climate action no less so. A 500km border on a small island, with two political systems, undermines any green strategic long-term planning. The border straddles ecosystems that receive EU funding, including high-potential carbon sinks. In spite of the Good Friday Agreement expressly mentioning the environment as an area of co-operation, a Brexit-booted north, whatever shape that takes, will struggle to co-operate on the same terms as it being a partner in Europe.

The most glaring example of the climate impact of Brexit on Ireland is in relation to the all-island single electricity market (SEM), which has been in place on the island of Ireland since 2007. This unified, trans-border electricity market between the north and south is underpinned by the EU internal energy market legislation.

The smooth operation of the SEM is down to both sides of the border being subject to the same set of technical operation rules, including EU rules on data sharing, state aid and market surveillance. Brexit is clearly more than an inconvenience for Ireland’s energy system.

To complicate things further, the EU is already struggling to keep whatever residue of environmental integrity there is in relation to its beloved carbon market – the EU ETS, or Emissions Trading System. Britain’s ability to auction or issue allowances in the EU ETS has already been temporarily suspended by the European Commission since the start of the year, awaiting clarity in the form of a Withdrawal Agreement. We are now six weeks away from the cliff edge, and there is still a question mark over the future of Britain in the EU’s carbon market, never mind how to technically resolve its continuation in the system.

Regardless of the massive shortcomings of the EU ETS, we are facing a situation in which the island of Ireland would still be subject to one single electricity market, split with diverging operational rules, with energy production on one side of the island exempt from the extra costs of buying pollution permits in the carbon market. Moreover, there are obvious difficulties in setting a phase out date for fossil fuels on a small island when the one energy network is governed by two unharmonised political jurisdictions. No amount of replicating legislation in London can guarantee the same efficiency in a single harmonised system.

On top of that, we learnt earlier this month that the Irish minister for climate change was considering delaying major climate plans in order to hold out for Brexit to take shape. Under enormous pressure due to international condemnation, Ireland has to get its act together on climate fast; but the new minister has so far been only talking the talk on revamping Ireland’s climate performance. The minister’s tapping of the breaks shows how the chill factor of Brexit is as far-reaching as to affect our climate policy. The full argument for a solid backstop, which would provide the certainty needed to act, is not to be underestimated.

The minister’s hesitancy begs the question: to what extent is Brexit eclipsing climate action? The answer is – to a large extent, until we stop seeing climate action and Brexit preparations as mutually exclusive.

No deal Brexit to leave UK without green watchdog for two years – report

There needs to be a bold move away from thinking of climate action in terms of sacrifices, as if it were some type of austerity. Climate action needs to be centred on state investment. A bold plan on climate should be an integral part of Brexit-proofing Ireland, whatever Brexit outcome we are left with. Planning for Brexit should include plans for energy self-sufficiency, investing in green jobs in rural communities, and ensuring Ireland is a competitive place for green industries.

The EU could put pressure on the Irish government to advance climate action in spite of Brexit, but it also could be supportive financially. We need to negate the idea that climate action is an austerity policy, and start heavily investing in Ireland so that it can ‘green up’ while at the same time prepare for whatever Brexit swings at us. Only then can Ireland be resilient enough to cope with a single energy market under two jurisdictions and start leading on the energy transition.

The argument for the backstop clearly stretches beyond border infrastructure or customs. Despite its flaws, I support the backstop as the ‘least worst option’ for Ireland, knowing that it is not restricted to just stopping border infrastructure, but that it is also about insuring that Ireland can climate proof itself in a post-Brexit world.

Lynn Boylan is an Irish member of the European parliament.

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A crash-out departure on 29 March threatens to throw up trade tariffs, border delays and higher pollution charges for the British ceramics manufacturers clustered around Stoke-on-Trent, which sell more than half their exports to the European Union.

In the hopes of avoiding those pitfalls, the British Ceramic Confederation (Ceramfed) has been urging MPs to approve prime minister Theresa May’s contentious withdrawal agreement when they vote on Tuesday.

This, it says, ensures as soft and predictable a Brexit as possible.

On Monday May backed their call in person, giving a speech to factory workers in Stoke-on-Trent – with china bowls stacked behind her – to drum up support for a deal that appears headed for defeat. Not backing the deal, she warned, could lead to no Brexit at all.

“The deal that the UK government has proposed and has been accepted by Europe is the one we want to see going forward,” said Michael McGowan, quality, environmental and energy manager at Ibstock Brick. “We think it will bring economic stability to the UK this year, whereas at the moment it’s just creating instability and uncertainty for business.”

The government also tried to ply the West Midlands city last week. Stoke Central MP Gareth Snell was among the Labour members who met May to discuss how she could change the deal to win their votes, and trade minister George Hollingbery visited ceramics industry representatives to talk about future trade opportunities.

Seven EU nations miss climate and energy plan deadline

If the withdrawal agreement is approved, the ceramics industry even sees a potential upside for its energy-intensive businesses: the chance to replace the EU’s emissions trading system (ETS) with a carbon price that is more supportive and less punitive to emitters.

“We see Brexit as a good opportunity to simplify the current approach to decarbonisation,” said Andrew McDermott, technical director at Ceramfed, which is based in Stoke-on-Trent. “There are a lot of overlapping schemes and a lot of complexity, and there are opportunities to have more of an emphasis on support rather than the threat of penalty to drive change. We want more carrot, less stick.”

That, however, requires a gradual withdrawal, once the current ETS trading period ends after 2020. An abrupt no-deal departure, on the other hand, would jack up environmental costs, including through a new carbon tax, and disrupt exports of pottery and imports of raw materials.

Our member @HeraldicPottery show around Trade Minister @GHollingbery with local MP Jack Brereton. Here they look at some of the company’s cutting edge designs pic.twitter.com/0AuUIDAAlc

— British Ceramic Confederation (@ceramfed) January 7, 2019

The industry believes Stoke voters chose Brexit without full knowledge of how it would affect trade and environmental regulation of roughly 300 businesses that employ around 9,000 people out of a population of 250,000.

“I don’t think many people entered the polls thinking about the customs union or REACH [the EU’s chemicals regulations which could complicate future trade of ceramics],” said Tom Reynolds, commercial and public affairs director at Ceramfed.

“Two years down the line, we now have so much more information about the implications that we didn’t know then,” added Alan Ault, owner of Valentine Clays, who opposed Brexit.

But the industry’s support for a soft Brexit is still in sharp contrast to the prevailing views on its home turf.

Bolsonaro, Paris and 1.5C: a guide to our top stories of 2018

Stoke-on-Trent voted 69.4% in favour of leaving, whereas 75% of Ceramfed’s members wanted to remain. Sentiment seems to have shifted only slightly since 2016. A recent poll found that roughly 38% of Stokies wanted to remain, while just over half of the rest said they would choose a no-deal Brexit over May’s withdrawal agreement, StokeonTrentLive reported in December.

“I’d just say, ‘Get out, regardless of a deal’,” said Sam Mawby, who works in a vape shop in the city and opposed EU regulations of vaping. “I don’t think Europe should dictate how we leave and charge us billions of euros to do it.”

Ceramics makers say approval for May’s deal is urgently needed, as the uncertainty is already taking its toll. Ault said a European customer had decided after Christmas to stop buying from the UK, and worries more of these longstanding relationships could follow suit.

A no-deal departure would be even more crippling. Tableware exports to the EU, for instance, would be hit with a 12% tariff under World Trade Organization rules, according to Ceramfed.

Carbon dioxide emissions would be subject to a new UK tax of £16 per tonne, to replace the EU’s emissions trading price, chancellor Philip Hammond announced in October. That would come on top of climate charges such as the UK’s floor price on CO2 from power generation, which passes through to the cost of energy for intensive users such as brick and tile manufacturers, and with no time for companies to budget for it.

WATCH LIVE: PM @Theresa_May gives a speech in Stoke-on-Trent #BackTheBrexitDeal https://t.co/Dfqj3iGQ4c

— UK Prime Minister (@10DowningStreet) January 14, 2019

May’s withdrawal agreement, instead, opens the opportunity to build a more favourable carbon pricing system and prepare for it, the ceramics industry says. The agreement only says the UK will not backslide on environmental protections, while the political declaration on the future UK-EU relationship says they will consider linking the ETS to a new national carbon market (without confirming that the UK will set one up).

But the preferred choice for ceramics makers: forget carbon trading, the CO2 floor price for power generation and other schemes and set up a single, simple carbon tax. Then use that tax revenue to back new breakthrough technologies and help companies go more green, akin to the £170 million of funding for heavy industry innovation that the government announced in December.

“If businesses can plan for that in their budgets, it helps them make investment decisions,” McGowan, from Ibstock Brick, said of a carbon tax. “As a responsible business we accept that we have to reduce our carbon, but at the moment it’s all about generating revenue for the government in the UK with the many different schemes.”

The Stoke-on-Trent roofing materials maker Marley, for instance, would need to replace its older gas-fired kilns and dryers with more efficient models before it can make significant CO2 cuts. A new kiln would cost £10 million or more and reduce Marley’s production capacity while it is being installed, said Annabelle Brayford, the company’s environment manager.

However, government support could also come in the form of guidance on other ways to snip pollution.

“When I’m trying to look at renewable energy [supplies], for example, there are so many companies that I have no idea where to start,” said Brayford. “Normally they just whack up the rates and off you go trying to find your way around it. … To have a network of organisations that could be on board with the process would be quite helpful.”

But while Brexit presents an opportunity for a more appealing carbon pricing system, there is also the risk that – as one of the EU’s biggest proponents for tougher emissions market rules – the UK will actually go beyond the EU in pricing pollution.

“Given its attempts to be on the more ambitious side, we have a concern that that could mean UK companies are faced with higher targets and higher costs compared to the EU,” said McDermott, of Ceramfed. “We’d like to see more carrot, so that whatever targets we’ve got, we’ve got the support to meet them.”

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Fast rising prices in the EU’s emissions trading system (ETS) have pushed the government into talks with the owners of Hungary’s last big lignite power plant, Mátra, about phasing out coal use and installing clean and renewable energy.

“Electricity production based on lignite has no more long-term economic viability in Europe, due to the sky-rocketing ETS quota prices and also the lack of any available future support scheme for coal-based energy production,” Barbara Botos, deputy secretary of state for climate at the innovation and technology ministry, told Climate Home News.

Botos said the government’s “preferred coal exit date” was 2030, although this is not yet supported by an official decision or strategy.

“Hungary intends to provide smart, clean and affordable energy for all,” Botos said. The government is outlining a “positive and innovative” development plan based on low greenhouse gas emissions, she added.

EU carbon price finally puts pressure on coal

Hungary is not as coal-reliant as some of its central and eastern European neighbours. Poland, the Czech Republic and Bulgaria have the highest percentage of coal power in the EU. Yet on climate policy, the Visegrád Group – Hungary, Poland, the Czech Republic and Slovakia – tend to stick together in resisting measures that would price out the dirtiest fossil fuel. The Three Seas Inititaive, of which Hungary is a member, plans to host a climate policy cooperation summit this Thursday.

That cohesion may be breaking, and not just because of Hungary. Slovakia, which also uses less coal, said in December 2017 that it was considering ending coal-fired power and mining in 2023. Economy minister Peter Ziga told reporters on Monday that the government plans to pull subsidies for mines and power plants that year, Reuters reported.

Hungary, meanwhile, is about to begin a political discussion about a coal phase-out, Botos said earlier this month in a presentation to the European Commission’s Coal Regions in Transition Platform. The platform, launched last year, aims to help the EU’s poorest and most coal-reliant regions shift to clean energy by re-training workers, funding renewables and other projects.

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Her comments, along with a presentation from a Mátra power plant representative, marked a “milestone” for the country, said Csaba Vaszkó, an independent Hungarian energy consultant who also spoke at the meeting. Even though Hungary’s coal industry has declined significantly, it is still strong in the region around Mátra, in the northeast.

If it sets an end date for coal, Hungary would join a growing group of western Europeans aiming for exits by 2030 at the latest, including France, the Netherlands, the UK, Italy, Portugal, Finland, Austria, Denmark and Sweden. Even coal-powered Germany is expected to set an end date for coal by the end of this year.

In Hungary, the move is motivated by rising costs of EU carbon prices after years of lagging and the fact that Mátra already has concepts for low-carbon projects, rather than making a political break from the Visegrád position, said Vaszkó.

A graph produced by Hungary’s transmission operator and presented by Barbara Botos, deputy secretary of state for climate

Hungary’s second national climate strategy, approved by the parliament in October, aims to reduce carbon emissions by replacing fossil fuels, improving energy efficiency, developing a green economy and adding forests, Botos said in the presentation. Coal-fired power could drop sharply in 2025, according to a scenario she was given by Hungary’s transmission system operator.

Also at the commission’s meeting, Zoltán Orosz, head of strategy for the Mátra power station’s owner, talked about the potential for replacing coal with biomass, gas, solar energy and battery storage in order to keep the plant alive beyond 2030. Further down the line there was also the potential for building a solar panel factory, he said.

Coal mining and power production in Hungary are already declining, according to the presentations from Botos, Vaszkó and Orosz.

Poland’s coal miners: ‘EU climate proposals terrify us’

The fuel generated 18% of Hungary’s electricity in 2016 – almost all from the Mátra station. Nuclear provided around half and gas roughly 20%. Most of the country’s coal and lignite basins have been closed, and the number of miners is down to 2,000 this year, from 125,000 in 1965.

However, Mátra’s lignite produced nearly 14% of the Hungary’s carbon dioxide emissions in 2016 and half of the energy sector’s pollution.

The fall in costs for solar and wind energy and lithium-ion batteries over the past 10 years can help create new industries, jobs and economic growth, Hungarian president Áder János told the parliament before it voted on the climate strategy last month.

Specifically, Budapest now aims to boost solar power capacity from 500 to 3,000 MW as early as 2022, Botos told CHN. The Mátra owners have installed a 16 MW photovoltaic plant on an abandoned slurry deposit, and plan to add two 20 MW solar plants nearby.

Russia’s state-owned Rosatom is also building a new nuclear power plant, which would replace older units in the later 2020s.

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“There are no considerations to introduce a CO2 tax or a new CO2 price and to increase the burden on citizens,” said finance ministry spokesperson Dennis Kolberg at a government press conference.

Regine Zylka, spokesperson for the environment ministry, said that the development of such a concept was just starting and would take a lot of time.

“This is not a priority at the moment,” said Zylka, and added: “Of course, our in-house experts will also coordinate their work with the experts from the federal ministry of finance.”

Schulze had announced plans to team up with fellow social democrat Scholz regarding a CO2 price during a keynote speech about her priorities as minister. In the days that followed, German mass-daily Bild reported that such a price on CO₂ could make petrol and heating oil more expensive.

Bolsonaro in, Merkel out: the Paris climate gang is breaking up

The parliamentary group of chancellor Angela Merkel’s conservative CDU/CSU alliance has also rejected Schulze’s plan.

Germany’s federal state environment ministers, however, called on the federal government to draw up a proposal in line with constitutional and European law on how CO₂-intensive fossil fuels can be made more expensive and, in return, electricity produced from renewable sources can be made cheaper.

The SDP, meanwhile, organised a “debate camp” over the weekend – a conference to discuss “ideas for the renewal of the party”. A session on CO₂ pricing was met with “huge interest”, said the SPD in a press release.

It was “tactically unwise” for Schulze not to coordinate her initiative for a price on CO2 emissions better with finance minister and party colleague Olaf Scholz, wrote Jan Drebes in an opinion piece in Rheinische Post.

“Now the project is almost politically dead before it could even be put in writing,” said Drebes. He added that “an additional levy on petrol and heating oil” sends the wrong political signal and that the government had other instruments to reduce CO2 emissions.

“It is difficult to communicate that an SPD minister of all people is now striking out against consumers while her party is still reluctant to send a clear message to the coal industry,” said Drebes.

This article was originally published on Clean Energy Wire.

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