The Global Carbon Pricing Challenge
Countries around the world are taking action to reduce greenhouse gas emissions and fight climate change. More and more countries are pricing carbon pollution to cut emissions at low cost while also spurring clean innovation. According to the World Bank, there are currently 68 carbon-pricing initiatives in place around the world in 2022.
Carbon pricing works best when more countries adopt it – broader coverage means more opportunities to find clean solutions. Through international cooperation, countries can send consistent signals to investors that pollution cannot be free. Raising climate ambition together, recognizing common but differentiated responsibilities, helps to ensure that emissions cannot simply move elsewhere to avoid carbon costs.
Canada is calling on all countries to adopt carbon pricing as a central part of their climate strategies, toward a collective goal of covering 60 percent of global emissions by 2030.
To achieve this goal, Canada has launched the Global Carbon Pricing Challenge. This partnership of carbon pricing Champions from around the world aims to expand the use of carbon pricing by strengthening existing systems and supporting emerging ones. The Challenge also creates a forum for dialogue and coordination to make pricing systems more effective and compatible and to support other countries in adopting carbon pricing.
At the 2021 United Nations Climate Change Conference (COP26) in Glasgow, Canada co-hosted an event with the Carbon Pricing Leadership Coalition. At the event, the Prime Minister issued a challenge to all countries to triple the global coverage of carbon pricing from around 20 percent of global emissions today to 60 percent by 2030 as an important step toward advancing global carbon pricing and achieving net-zero by 2050.
The Prime Minister reiterated the Global Carbon Pricing Challenge in a commentary (English only) in the Carbon Pricing Leadership Coalition's 2022 Annual Leadership Report, calling on countries around the world to come forward with new carbon pricing commitments at COP27 in Egypt.
In June 2022, Canada and Chile made a joint statement in support of the global carbon pricing challenge and committed to convening a high-level event at COP27 to showcase the role of carbon pricing in the global response to climate change.
- Challenge Accepted! Building global momentum on carbon pricing. High-level flagship event of the Global Carbon Pricing Challenge, November 15, 2022, COP27, co-hosted with Chile.
- Carbon Price Certainty and International Alignment. An expert discussion on expanding carbon pricing and creating long-term price certainty to fuel low-carbon investment, November 17, 2022, COP27, co-hosted with the UK.
How carbon pricing works
The many costs of climate change—whether financial, environmental, or social—can only be mitigated by tackling the root cause and reducing greenhouse gas emissions on a global scale. Carbon pricing is widely recognized as one of the most efficient tools to reduce greenhouse gas emissions while also driving innovation. It is a broad and flexible policy to drive climate action, complementing other regulations and public investments that target specific sectors or actions.
In simple terms, carbon pricing works because there is a financial incentive for people and businesses to pollute less. Carbon pricing is transparent, and sends a clear signal that carbon-intensive products are costly. Industry and households can decide how best to cut their emissions at the lowest cost, and are encouraged to adopt these changes or solutions into their business operations and lifestyles.
Carbon pricing holds large-emitters accountable, since the more they pollute, the more it will cost. Capturing the cost of carbon pollution on each unit of emissions spurs the development of clean technologies and services, and fosters innovation in industry.
Carbon pricing can vary based on the local context. Different regions, businesses and individuals face different challenges on the path to a low carbon economy. For example:
- A cap-and-trade system for industry sets a cap on emissions and allows lower-emitting industries to sell any extra emissions allowances. This establishes a market price on carbon pollution.
- A baseline and credit system is a type of trading system that issues credits to regulated facilities that have reduced their emissions below a set performance standard. The credits can then be sold to other entities who have exceeded the performance standard.
- A carbon tax or charge sets a direct price per unit of greenhouse gas emissions.
- Some carbon pricing systems combine elements of both trading systems and carbon taxes.
While everyone has a vital role to play in reducing emissions, countries around the world are working hard to expand their economies and improve the lives of their citizens. Revenues from carbon pricing can finance sustainable development and support vulnerable sectors and communities that feel the impact of climate change the most.
Canada's leadership on carbon pricing
Carbon pricing in Canada has been in place in every jurisdiction since 2019. Canada's approach is flexible: any province or territory can design its own pricing system tailored to local needs, or it can choose the federal pricing system. The federal government sets minimum national stringency standards (the federal "benchmark") that all systems must meet to ensure they are comparable and effective in reducing greenhouse gas emissions, including a common scope and a minimum carbon price trajectory that will reach $170/tCO2e by 2030.
Canada uses proceeds from carbon pricing to directly support households in a way that benefits low-income and vulnerable communities the most. Carbon pricing systems across the country are designed to decarbonize industries while also supporting their competitiveness and limiting the risk of carbon leakage.
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