Carbon Pricing – the opportunity that knocks on the door

By Marina Grossi

President of the Brazilian Business Council for Sustainable Development (CEBDS) and member of the Carbon Steering Committee Price Leadership Coalition (CPLC)

Considered too ethereal a topic by those who are not involved in the debates surrounding it, carbon pricing is at the center of a series of changes underway in the business world that are expected to intensify in the coming years. Although there is still no global carbon pricing mechanism, forms of valuation have been tested around the world, given the certainty that we are moving inexorably towards a low-carbon economy. The movement that began in 2005 with a few countries involved in the issue, gained consistency after the Paris Agreement in 2015, and is already a reality in 45 national and 25 subnational jurisdictions, covering 25% of global emissions and today is spreading across social media with the hashtag #putapriceoncarbon.

Around the world, around 1,500 companies have already adopted an internal pricing mechanism, which is a preparation for how to operate in the global market when it arrives and how much it will cost for each of them. Voluntary pricing also allows resources to be allocated to low-carbon technology, encouraging investment in research and development. Furthermore, pricing allows companies to improve financial risk management processes related to climate change, helping to identify risks and revenue generation opportunities. The annual value of these emissions taxed or traded on regulated carbon markets increased by 6% in 2017, reaching US$52 billion, compared to US$49 billion in the previous year. The expectation of the World Bank's trend report is that this volume will reach more than US$ 700 billion.

Of these companies that are preparing and already pricing carbon internally, around 50 are in Brazil. Even in small numbers, the country has had the best performance in the industry in preparing for this market among the members of the BRICs, and is currently leading global expectations for this market, either because it holds pre-salt oil on one side , or because it has extensive credit-generating forests, on the other hand.

The Brazilian Business Council for Sustainable Development (CEBDS) is strongly committed to this topic. On June 19th, together with the Climate and Society Institute (iCS) and the Carbon Pricing Leadership Coalition (CPLC), from the World Bank, we held an intense debate on the subject between international leaders, executives from large Brazilian companies and sector experts. In 2017, the Climate Business Initiative, which has the participation of CEBDS, launched the open letter “Private Sector Supports Carbon Pricing in Brazil”, which advocates the establishment of a pricing mechanism suited to the characteristics of the economy and the country's GHG emissions profile. Twenty-six companies have signed, committed and are moving forward with their preparations to enter this market. But there is a path to be followed until this reality becomes viable and it depends on the Federal Government: it is necessary to implement and regulate this market in Brazil.

In the headline in this newspaper in May, we saw that new investments in the so-called green economy, with emphasis on renewable energy, have the potential to boost 24 million new jobs by 2030, according to a report from the International Labor Organization (ILO), “Perspectives Social and Employment in the World 2018”. The study mapped the potential for job creation under the Paris Agreement and is categorical: “action to limit global warming to two degrees Celsius will result in much greater job creation than is necessary to offset the losses of six million jobs in other sectors”.

We are already seeing this practical revolution happening among oil companies. Seeing the consensus that carbon emissions will be increasingly costly in the coming decades, these companies are transforming themselves, diversifying their portfolio and even changing their name to cover a broader spectrum of the energy chain, including renewables in their business. Solar and wind energy plants are already among the acquisitions of oil companies in Europe. Among our associates, we have the example of Shell, which holds 50% of Raízen, the company's largest investment in renewable energy in the world.

It is not because it is friendly to the public, or just because they are concerned about the environment that these companies are moving, but because pricing is a powerful instrument to provide agility and flexibility so that the goals of the Paris Agreement are met. Having investment in renewable energy in your portfolio works as a hedge, brings balance to the accounts of the company that has its core business activities that will be priced. And oil companies are strongly focused on this.

There are ways to value carbon: taxes or the creation of the market, or a combination of the two. The first may be simpler, but the second guarantees the necessary transparency to make the resources collected from carbon pricing migrate directly to renewable energy, so that the old economy finances the new one, in a kind of transition between yesterday and tomorrow. And knowing how quickly we want to get to tomorrow depends on decisions to be made now.

Article published in the newspaper Economic value.


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