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Carbon Pricing


Overview

Question: What are strategies, policies, campaigns, or other actions that could advance carbon pricing at the national or subnational level?
Submit Proposals: https://www.climatecolab.org/contests/2017/carbon-pricing
Rules: All entrants must agree to the Contest rules and Terms of Use
Deadline: Sunday, Sep 10, 2017 at 18:00:00 PM Eastern Daylight Time
Judging Criteria & Prizes: See below.

Background

Many experts agree that placing a price on carbon pollution is a highly economically-efficient way to tackle climate change. A carbon price creates incentives for the development and adoption of innovative low carbon technologies and practices across the economy. This could involve a carbon tax, a cap-and-trade system, hybrid systems, rebates, or other solutions, and could be revenue-natural, meaning it could reduce other kinds of taxes simultaneously, or the revenue from allowances auctions could be reinvested.

This contest asks entrants for novel policies, new mobilization strategies, measurement technologies or combinations of approaches applied across scale (e.g., city, state, province, sector, regional, national or international levels) to legally enact a price on carbon and/or other greenhouse gases, or to collaborate regionally or internationally on carbon pricing. Entrants may consider strategies to harmonize national and regional carbon pricing and trading mechanisms. The primary end result should be a carbon pricing strategy, and, secondarily, links to verification of reduction in greenhouse gas emissions to the atmosphere.

Carbon Pricing Background and Challenge

The term carbon pricing refers to a price or charge for emissions paid by an emitter per tonne of CO2 to comply with voluntary or compliance policies.[i]  Typically, the price of carbon is central to carbon market transactions and trends across taxation (fees and charges) and emissions trading platforms.  The intended result is a reduction in emissions to the atmosphere and management of global warming to less than 2 ?C.[ii] Despite the simplicity of the model and the efforts of policy and finance paradigms (e.g., cap and trade, allowances, offset credits, taxes, hybrids) across the planet over the past two decades, there is currently no universal mechanism for pricing carbon or a unified carbon trading system.[iii]  Growth in policy and transactional infrastructure to support carbon trading are proliferating even in the absence of a pricing mechanism. For example, about 40 emerging and existing national jurisdictions including 20 cities, states and regions are implementing carbon trading and pricing platforms with carbon prices ranging from US$1/tCO2 e to US$131/tCO2 e (tons CO2 equivalent).[iv] The crucial role of establishing a pricing mechanism and markets for carbon emission reduction is reflected in the 2015 Paris Agreement[v] according to Article 6 that facilitates cooperative carbon pricing approaches and new concepts to achieve cooperation.[vi] However, linking carbon pricing initiatives and carbon markets is fraught with financial and technical issues often resulting in unintended price volatility and loss of carbon pricing control.[vii] Carbon markets, overall, have experienced reductions in carbon pricing and volume over the last five years emphasizing the complex interactions of policy, finance, emission reduction verification and commerce in achieving carbon market growth.[viii] While policy and finance converge on emission reduction programs and carbon pricing mechanisms, the atmospheric burden of greenhouse gases (e.g., annual mean growth rate) continues to increase past 400 ppm in 2015 to 405 ppm in 2016, highlighting the missing link between carbon pricing initiatives and decreasing greenhouse gas atmospheric composition. 

The same questions may be applied to all of the Kyoto gases (methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulfur hexafluoride (SF6)).
 

Key Issues

Policy Instruments

Carbon pricing shifts the incentive of greenhouse gas emissions by increasing the cost of carbon pollution. Policymakers have debated the most effective instrument to implement a carbon price. Two of the most prominent suggestions have been carbon taxes and emissions trading.  Carbon taxes directly increase the cost of carbon pollution by adding a fee to emissions. Emissions trading schemes set a cap on total allowed carbon emissions and create a pool of pollution permits equal to this cap.  Companies must acquire sufficient pollution permits each year to cover their emissions levels. They may also invest in emissions reduction projects to be used as credit on the carbon market. Over time, the cap level is reduced. Examples include the Regional Greenhouse Gas Initiative (RGGI), which is an initiative of nine Northeast and Mid-Atlantic states in the U.S., and the Cap-and-Trade Program of the California Air Resources Board (CARB).

Other policy instruments can also shape the price of producing carbon pollution. For example, direct regulation can change the incentive of greenhouse gases emissions through environmental performance standards. Alternatively, the relative cost of investing in emissions-intensive technologies can be increased through support for investment in renewable energy and other low-emissions technologies. Carbon pricing policies can be legislated as stand-alone policies or can be embedded within broader economic or social policy reform packages. Policies can also differ in the price they impose on carbon pollution, in the economic actors who are exposed to this price, and in the institutions necessary to coordinate the price. These policies could happen at the federal scale, through Congress, regionally or on a state-by-state basis.

Carbon pricing policies can be legislated as stand-alone policies or can be embedded within broader economic or social policy reform packages. Policies can also differ in the price they impose on carbon pollution, in the economic actors who are exposed to this price, and in the institutions necessary to coordinate the price. These policies could happen at the federal scale, through Congress, regionally or on a state-by-state basis. Furthermore, carbon pricing policies can also generate other social and health co-benefits, in addition to benefits to climate in terms of emissions reductions, that can be directly and immediately reaped by communities affected by such policies. These co-benefits provide an additional case for adoption and implementation.

Carbon pricing perspectives have shifted from a Kyoto Protocol framework to a new coalition of countries embodied by the 2015 UNFCCC COP 21 Paris Agreement, now ratified by 146 countries. The Paris Agreement provides a policy framework including the creation of Nationally Determined Contributions (NDCs) that, while voluntary, require a pledge of emission targets and actions taking effect in 2020. Updates are required every five years. Article 6 provides for internationally transferred mitigation outcomes or some form of carbon trading to address carbon markets. However, NDCs will only be as effective as the methods employed to create and verify them. Challenges lie ahead for COP 21 including accounting rules, procedures and methods to verify emission claims. In other words, carbon pricing mechanisms are lacking. In addition, carbon markets for NDCs may require rules and supervision of international transfers of carbon offsets according to price, units and measures to accommodate the heterogeneity of diverse existing programs (e.g., REDD+, units, measures, and time periods).

The ultimate challenge for the Paris Agreement remains its effectiveness in locking in a < 2?C increase in surface temperature in the coming decades. The broad outline of the Paris Agreement goals for emission reduction for the 2020-2025 periods requires moving from a pledge to implementation. How can we ensure that the Paris Agreement evolves into a successful emission reductions with clear pricing strategies? The contest entrants have multiple pathways to address the carbon pricing question in the context of the now planetary scale Paris Agreement and through a variety of cap and trade and tax approaches combined with diverse technologies in communication, currency and measurement.

An example of revenue-neutral carbon taxation has been proposed recently offering a clear rational for this approach.[i] Entrants could address implementation strategies of the tax-neutral program. How would a taxation approach affect the Paris Agreement implementation?

Political Mobilization Strategies

Climate change has become an increasingly politicized issue in some contexts, including within the U.S. political system. Generating support for U.S. carbon pricing schemes, for example, would require political mobilization strategies. Political mobilization around carbon pricing could take a variety of forms. Support might be cultivated amongst political elites (e.g. through direct engagement with elected representatives), through strategic engagement during elections, or through shaping the policy preferences of a particular political party.  Alternately, political mobilization strategies might focus on large-scale public mobilization and/or the nurturing of a grassroots social and political movement to generate support for policy enactment at the federal, state, regional or local level.

Other Strategies

Prior year’s Climate CoLab’s U.S. carbon price contest surfaced a number of innovative proposals that were outside of the political realm.  For example, one of the two Judges’ Choice winners was Sno-Caps, which suggested a voluntary cap-and-trade program conducted using digital currency.  This contest welcomes other strategies on how to successfully implement a price on carbon given the current political, social, economic and technological landscape -- many creative possibilities exist.

 

Judging Criteria

Judges will be asked to evaluate proposals on the following criteria:
 

Winning proposals will be especially strong in at least one of the first three dimensions, and also well presented.

Judges will evaluate proposals, and deliberate as a group to select the Semi-Finalists, Finalists, Winners, and possibly other awardee(s) at their discretion.  Judgments of desirability are also made in the final stage of the contest, by the Climate CoLab community through popular vote, and by the Judges through their selection of the Judges' Choice winner(s).

Prizes


Top proposals in each contest will be awarded...


Judges’ Choice Award -- Two proposals* will be selected by the Judges to receive the Judges' Choice-- one project, and one practice.

Popular Choice Award – Received the most votes during the public voting period.

The Judges’ Choice Award and Popular Choice Award Winners will be invited to MIT (see prior Climate CoLab Conferences), join the Climate CoLab winners’ alumni, and be eligible for the $10,000 Grand Prize—to be selected from among the winners across contests.

All award Winners and Finalists will receive wide recognition and platform visibility from MIT Climate CoLab. Climate CoLab or its collaborators may offer additional awards or recognition at their discretion.

* Judges’ Choice Award(s) are allocated at the Judging panel’s discretion. In rare cases, the Judges may choose not to select awardees.

Resources for Proposal Authors

Citations:

[i] Baker, J.A., Paulson, H.M., Feldstein, M., Shultz, G.P., Halstead, T., Stephenson, T., Mankiw, N.G. & Walton, R. (2017). The Conservative Case For Carbon Dividens. Climate Leadership Council. Retrieved from https://www.clcouncil.org/wp-content/uploads/2017/02/TheConservativeCaseforCarbonDividends.pdf. 

[ii] UNFCCC. (n.d.). The Paris Agreement. UNFCCC. Retrieved from http://unfccc.int/paris_agreement/items/9485.php. 

[iii] Carbon Pricing Leadership Coalition. (2017). 2016-2017 Carbon Pricing Leadership Report. Carbon Pricing Leadership Coalition. http://pubdocs.worldbank.org/en/183521492529539277/WBG-CPLC-2017-Leadership-Report-DIGITAL-Single-Pages.pdf

[iv] World Bank. (2016). State and Trends of Carbon Pricing. World Bank Gorup. Retrieved from https://openknowledge.worldbank.org/bitstream/handle/10986/25160/9781464810015.pdf?sequence=7&isAllowed=y. 

[v] UNFCCC. (2015). Paris Climate Change Conference. UNFCCC. Retrieved from http://unfccc.int/meetings/paris_nov_2015/meeting/8926.php. 

[vi] Marcu, A. (2016). Carbon Market Provisions in the Paris Agreement (Article 6). CEPS. https://www.ceps.eu/system/files/SR%20No%20128%20ACM%20Post%20COP21%20Analysis%20of%20Article%206.pdf. 

[vii] Carbon Market Monitor. (2016). America to the Rescue: Review of Global Markets in 2015 and Outlook for 2016-2018. Thomson Reuters. Retrieved from https://climateobserver.org/wp-content/uploads/2016/01/Carbon-Market-Review-2016.pdf.