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 is most effective 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 it cannot be free to pollute. Raising climate ambition together, recognizing common but differentiated responsibilities, helps to ensure that producing emissions elsewhere does not equate with avoiding 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.
In November 2022, Prime Minister Rishi Sunak of the United Kingdom confirmed that the UK would be a partner to the Global Carbon Pricing Challenge.
Events at CoP27
- Canada joins with partners to roll out the Global Carbon Pricing Challenge. Steven Guilbeault, Canada’s Minister of Environment and Climate Change, and Maisa Rojas Corradi, Chile’s Minister of the Environment, officially rolled out the Global Carbon Pricing Challenge at an event held at the Canada Pavilion on November 15th, 2022. They were joined by representatives from New Zealand, Sweden, and the United Kingdom, committing to work together to advance the use of carbon pricing around the world. Minister Guilbeault also announced that Canada is boosting its support for the World Bank’s Partnership for Market Implementation to $16 million. The Partnership helps more countries realize the benefits of carbon pricing policies.
- The UK and Canada co-hosted a panel discussion on the importance of Carbon Price Certainty and International Alignment. This event brought together experts from the UK, Vietnam, the International Monetary Fund, DIW Berlin, and the International Emissions Trading Association to explore how we can more effectively drive low-carbon investment as a critical tool to build a net-zero future. Central to the discussion were the views that carbon pricing must be adopted widely, across borders and that international cooperation, through dialogues and the sharing of best practice, will be vital to the global success of carbon pricing.
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.
The design of carbon pricing systems varies, with the choice of instrument based on the local context:
- 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 carbon tax, levy, 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, for example, an emissions trading system for industry and a levy on fuels used by the broader economy.
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. Proceeds are also used to support small businesses, Indigenous organizations, and communities through climate action programs. Returning proceeds helps make carbon pricing affordable, and enables households and businesses to make investments to further reduce emissions. 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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