Multilateral Carbon Pricing Agreement and Developing Countries

A Multilateral Agreement on Carbon Pricing and Implications for Developing Countries Presented by: Yan Xu (UNSW Sydney) Date: Nov 22, 2021 Roadmap - Why Carbon is Special and How to Deal with It - Carbon Pricing: the Status Quo and Developing Countries - Options for a Global Minimum Carbon Price Framework - The Role of Border Carbon Adjustments Urgency and Ways of Cutting Emissions - - The Urgency • Time to deal with global warming is significantly limited • Must achieve carbon neutrality by 2050 How to cut carbon emissions effectively? • Carbon pricing  Most cost-effective  Can take different forms  Most commonly a carbon tax or an ETS Economies without Carbon Pricing Sources: World Bank, "Carbon Pricing Dashboard", "CO2 Emissions (kt)", "The World by Income and Region", and "Member Countries" Income Group High income #Countries % %Countries Countries Per WB without CP Member 18 13.64% 9.52% CO2 (kt) 2018 1476800 % of CO2 in Global Total 4.34% Income Group Upper middle income Lower middle income Low income Venezuela, RB Grand Total #Countries % %Countries Countries Per WB without CP Member CO2 (kt) 2018 39 29.55% 20.63% 971450 % of CO2 in Global Total 2.85% 48 36,36% 25.40% 4343420 12.76% 26 19.70% 13.76% 127770 0.37% 1 0.76% 0.53% 138160 0.41% 132 100.00% 69.84% 7057600 20.73% A Multilateral Framework for Carbon Pricing - Options • A universally applied environmental tax on carbon • Adoption of ETSs by all jurisdictions with annual, progressively tightening of emissions targets • - A global minimum carbon price or price floor Major obstacles with the first two options A Global Minimum Carbon Price - Design features (the IMF proposal) • Not itself a carbon tax • Start with a small number of large carbon emitters • Apply different floors to different economies  e.g., $75 for advanced economy, $50 for upper-middle economy, $25 for low- income economy) • - Allow flexible accommodation of reduction instruments The Political economy feasibility • Would the small fraction of large emitters accept the option? • The challenges for economies at the lower income ends  Balancing economical growth needs and climate change risks  The "common but differentiated responsibility" principle The Role of Border Carbon Adjustments - - A complement to the global minimum carbon price approach? • The EU proposal • As a proxy sanction for complying with international obligations The rationale and the practice • Designed to equalize the costs borne by domestic industries with those by producers in jurisdictions with softer carbon policies - - • Meant to address two major concerns: carbon leakage and competitiveness • The EU as the first adopter, and others may follow WTO law constraints and the CBDR principle • What implications do WTO law and the principle of CBDR have for BCAs? • To what extent can BCAs be aligned with both systems? The WTO law • Article II:2(a) of the GATT: explicitly allows a border tax adjustment • Article III (national treatment) & Article 1 (most-favored nation treatment): the principles of non- discrimination • - GATT Article XX (general exceptions): Article XX(b) & (g), the Chapeau The CBDR principle • Explicit reference under UNFCCC, the Kyoto Protocol, and the Paris Agreement • Historical responsibility and current capacity BCAs under a Multilateral Agreement - If a multilateral agreement on minimum carbon prices is in place • Would the justification for unilateral BCAs remain? - The design of BCAs if applied - The value of the mechanism • Ideally just deterrence • In the long run, the most desirable solution is collective climate action Conclusion - Climate change is a common threat to all on the planet - Must act now and act effectively - A global carbon pricing framework appears promising, but challenges ahead and some unilateral actions may be needed to move forward the multilateral framework