Over the weekend, G20 finance ministers and central bank governors meeting in Venice issued a communique that officially recognizes carbon pricing as a tool for addressing climate change for the first time. Carbon pricing aims to reduce carbon emissions by using market mechanisms to pass on the cost of emitting greenhouse gases (GHG) to emitters.
It is a major move by the G20 member-countries towards achieving coordinated action on global carbon reduction as well as their climate change policies.
The communique, issued on Saturday (July 10), specifically mentions carbon pricing among a "wide set of tools" on which countries should coordinate to lower GHG emissions.
Such tools include investing in sustainable infrastructure and new technologies to promote decarbonization and clean energy, "including the rationalization and phasing-out of inefficient fossil fuel subsidies that encourage wasteful consumption and, if appropriate, the use of carbon pricing mechanisms and incentives, while providing targeted support for the poorest and the most vulnerable", according to the communique.
In a statement issued at the Venice meeting, International Monetary Fund Managing Director Kristalina Georgieva commended the G20 for its focus on climate risks and the role of carbon pricing mechanisms.
She said that at the G20 Conference on Climate on Sunday, she intended to follow up on a proposed international carbon price floor, which “could significantly accelerate the global economy’s transition to low-carbon growth”.
Speaking to reporters, French Finance Minister Bruno Le Maire said: "It is the first time in a G20 communique you could have these two words 'carbon pricing' being introduced as a solution for the fight against climate change. We have been pushing very hard to have these two words introduced into a G20 communique."
The European Union is set to unveil a carbon border adjustment mechanism (CBAM) that would impose levies on the carbon content of imported goods. The taxation scheme aims to discourage "carbon leakage", or the transfer of production to countries with less onerous emission restrictions. Critics, however, say that the measure could become another trade barrier without reducing emissions.
Carbon pricing is an approach to reducing carbon emissions (also referred to as GHG emissions) that uses market mechanisms to pass on the cost of emitting on to emitters. Its broad goal is to discourage the use of carbon dioxide–emitting fossil fuels in order to protect the environment, address the causes of climate change, and meet national and international climate agreements.
“By putting a price on carbon, society can hold emitters responsible for the serious costs of adding GHG emissions to the atmosphere; these costs include polluted air, warming temperatures, and various attendant ills (threats to public health and to food and water supplies, increased risk of certain dangerous weather events). Putting a price on carbon can likewise create financial incentives for polluters to reduce emissions,” according to the Carbon Pricing Leadership Coalition, an NGO affiliated with the World Bank.