Finance Ministers have identified carbon pricing (measures which put a price on the emissions of carbon dioxide or other greenhouse gases) as a key economic policy tool to address climate change and achieve low carbon growth. Effective carbon pricing means that countries adopt measures to achieve carbon price levels that are sufficient to incentivize the emission reductions needed to meet their own targets, subject to their national circumstances and with a view to reaching carbon price levels consistent with the Paris Agreement’s long-term objectives. To date, 31 countries have implemented carbon pricing initiatives in some form, of which 19 countries are members of the Coalition.
However, both the coverage of existing carbon pricing policies – about 20 percent of global greenhouse gas emissions – and prices are currently too low to reduce emissions in line with the Paris Agreement.
By endorsing Principle 3, countries in the Coalition are working towards measures, including effective carbon price mechanisms, consistent with their countries’ emission reduction targets and in alignment with their NDCs, subject to their national circumstances. Carbon pricing mechanisms are typically best implemented as part of wider environmental tax reforms, while being mindful of the distributional impacts and using the revenues to support development objectives.
Key actions and deliverables under Helsinki Principle 3 include:
- Reviewing the current experience and state of play in carbon pricing, identifying key bottlenecks to achieving the necessary levels of carbon pricing, and developing policies that can be widely accepted and implemented.
- Increasing knowledge on the technical requirements for carbon pricing, including measurement, targeted compensation for vulnerable groups, carbon border adjustments, national and sub-national carbon taxation or charges, and mechanisms for coordinating carbon prices across countries.
- Developing toolkits that allow Finance Ministries to design and assess, adapted to their country context, the effects of carbon pricing reforms. Considering transition challenges and economic impacts so as to enable a better understanding of the benefits of carbon pricing, and ensuring that policies address political economy, distributional, and competitiveness concerns.
- EU Commission
- International Monetary Fund (IMF)
- Organisation for Economic Co-operation and Development (OECD)
- United Nations Environment Programme (UNEP)
- United Nations Framework Convention on Climate Change (UNFCCC)
- World Bank