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Key Tool to Shift Investment from Fossil Fuels to Clean Energy: Carbon Pricing

Posted by Laura Devenney at Apr 12, 2016 08:23 AM |
As the world begins implementing the Paris climate agreement, government, business, investor and civil society leaders alike are asking a crucial question: What are the most important tools that can be deployed to accelerate the shift in investment from high-carbon fossil fuels to clean energy?

By Christopher N. Fox

As the world begins implementing the Paris climate agreement, government, business, investor and civil society leaders alike are asking a crucial question: What are the most important tools that can be deployed to accelerate the shift in investment from high-carbon fossil fuels to clean energy?

One clear answer that I have heard again and again: governments can put a price on carbon pollution.  A central problem is that the costs of climate change – such as health impacts, property losses from sea level rise, drought damage to crops and forests, and so on – are not meaningfully factored into the market price of fossil fuels.  These costs instead are spread across society, and generally are not taken into account when decisions on energy supply and infrastructure are made.  Ignoring the costs of carbon pollution makes fossil fuels appear less expensive than they actually are, and tilts the scales against clean energy.

This pervasive failure to account for the true costs of fossil fuels has been favoring the dirty energy resources of the past such as coal, oil and gas, to the disadvantage of the clean energy sources of the future such as solar and wind.  Putting a price on carbon is one of the most effective ways to correct this market distortion and ensure that those who are responsible for the pollution pay for it.  Robust, well-designed carbon pricing systems send a strong market signal that boosts clean energy, especially when coupled with other climate change and clean energy policies and targets.

For these reasons and more, putting a strong price on carbon pollution from fossil fuels is one of the central recommendations in Ceres’ 2014 report that launched the Clean Trillion campaign to expand clean energy investment by an additional $1 trillion per year.

What progress has been made on carbon pricing since 2014?

There is more support from governments, business, and investors worldwide for carbon pricing than ever before.  Currently about 40 countries and more than 20 cities, states, and regions are putting a price on carbon, according to a recent World Bank study.  Over 1,000 businesses use a price on carbon or plan to do so in the next two years – up from only 150 in 2014 – according to CDP.  And more than 400 investors with $24 trillion in assets released a statement last year calling for stable, economically-meaningful carbon pricing.  In addition, at the UN climate talks in Paris in December, governments, businesses and NGOs announced the new Carbon Pricing Leadership Coalition to accelerate and expand the adoption of carbon pricing worldwide.

Several countries that have recently adopted carbon pricing are seeing the most explosive growth in clean energy investment – such as Mexico with 114% growth last year and Chile with 157%.  And sub-national governments such as California, northeast U.S. states, and Canadian provinces have moved forward successfully with carbon pricing measures.  However, many large countries, including the U.S., lack a strong national price on carbon.  Enacting national carbon pricing programs in developed countries such as the U.S., and implementing carbon pricing initiatives in major emerging economies such as China, would accelerate the shift in investment from fossil fuels to clean energy, and help to cost-effectively achieve the Paris climate agreement’s objectives.

Robust, well-designed carbon pricing programs are an unparalleled strategy for scaling clean energy investment, and reducing investment in high-carbon energy, at the speed and scale that is needed to limit the risks of climate change and achieve the Clean Trillion goal.

 

My Ceres colleagues and I welcome your thoughts and questions on Ceres’ Clean Trillion campaign. Please feel free to connect with me at fox@ceres.org or on twitter @ChristopherNFox and follow Clean Trillion on twitter @CleanTrillion.

 

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