CEOs Join Finance Ministers to Work on Climate Solutions

Climate change is no longer a question of science for most global leaders – it is an economic and financial risk, and they are taking it seriously. They also see opportunities in action: elusive jobs in a clean economy, greater stability, and growth as a result of resilience and an economy based on resource efficiency.

This week, finance ministers countries around the world arrive in Washington, D.C., for the World Bank Group/IMF Annual Meetings. Climate change is on their agenda.

For the first time, the high-level climate ministerial meeting held each year at the meetings will bring private sector leaders into the discussion of the climate challenges that countries are facing and policies that can help solve them. The meeting is part of a year and half of discussions that began last month at the UN Climate Leadership Summit, where heads of state and CEOs discussed carbon pricing as a driver of greenhouse gas emissions reductions. Those discussions will continue through the 2015 climate talks in Paris that are expected to deliver an international agreement.

“Bringing the private sector into these conversations reflects the growing recognition that the public sector cannot solve the climate challenge alone,” said World Bank Group President Jim Yong Kim, who will lead the climate ministerial meeting on Friday. “Climate action is everybody’s business.”

Private sector leadership is critical

The private sector has both the financial power to scale up renewable energy use and develop world-changing innovations and the influence to clean up the sources of emissions. In fact, it contributes more than half of all climate finance today.

Private sector leaders also understand the risks that climate change poses to business supply chains and assets and the opportunities that climate action creates for competitive growth and innovation. Executives from Alstom, Swedish pension fund AP4, Deutsche Bank, and French pension fund ERAFP will bring those perspectives to the conversation with finance ministers. 

Business leaders and investors are already working to improve climate policy. At the Climate Summit, hundreds of businesses and investors spoke out in support of a price on carbon to help reduce emissions. More than 150 global companies already use an internal price on emissions to help drive innovation, prioritize efficiency, and prepare for future carbon pricing policies that reward low-carbon growth and deter emissions.

How to price carbon

Carbon pricing is one of the most efficient methods to help lower emissions. It is one of several steps governments can take, from gradually phasing out fossil fuel subsidies to implementing technology-neutral innovation policies and emissions performance standards.

How a carbon price is implemented is as important as what price is used. Carbon pricing can displace jobs in high-emitting sectors while creating new jobs through low-carbon growth, and carbon intensive sectors can face trade and competitiveness disadvantages, especially if major trading partners do not have comparable policies. How and when the price is designed and implemented by each government can mitigate those effects.

There are several ways to price carbon. The Canadian province of British Columbia, for example, uses a revenue-neutral carbon tax in which the proceeds are used to lower business and personal income taxes and support low-income families.  Its emissions and taxes are down, and its economy is doing well. China and several others countries are experimenting with carbon markets that give businesses more flexibility in how they lower their emissions.

The World Bank Group supports governments finding the best carbon pricing instrument and price point to fit their unique economies. Through the Partnership for Market Readiness, more than 30 countries are working together to share lessons learned and research into carbon markets. Other research into networking carbon markets is developing ways to strengthen market for resilience against price changes.

Momentum is building to put in place carbon pricing. Currently, nearly 40 countries and more than 20 cities, states and provinces use or plan to implement carbon pricing mechanisms, such as domestic emissions trading systems, carbon taxes, or payments for emissions reductions, or indirect instruments, such as taxes on fuels.

Private sector leaders were clear at the summit that they need a predictably, rising price on carbon to ensure long-term investment is cleaner. It will take degrees of cooperation between the private and public sectors, beyond what we are used to, for this to happen.

Working together

The World Bank Group and partners are working to bring these private sector leaders and governments together to create policy solutions that can help guide and support the shift to low-carbon development.

Part of that work will be led by a carbon pricing leadership coalition that will help set the stage for a climate change agreement in Paris.

The coalition will be a platform to exchange information, exchange experiences in carbon pricing, work to link different carbon pricing systems to increase efficiency and reduction costs, and develop a shared public-private vision of how a gradually managed increase in carbon pricing can help shift investment decisions to address the climate challenge.

With business input, governments can advance carbon pricing policies that create jobs, spur clean-tech innovation, and make economies resilient.