Following a scheduled meeting between G20’s finance ministers and central bank governors held in Venice, Italy in July, member-states have issued a communique detailing plans to promote economic growth and recovery, and coordinating policies tackling climate change and biodiversity loss. The G20, an international forum made up of 20 of the world’s largest economies, has been working towards establishing closer international coordination on climate action, and for the first time, presented carbon pricing as an option to curb global carbon emissions.
What is Happening?
- The G20 Finance Ministers and Central Bank Governors (FMCBGs) have met up to continue discussions on issues related to the global economy and health, as well as efforts on how to promote economic recovery in the wake of COVID-19.
- The meeting is pushing for a more centralised and focussed plan of action towards greener and more sustainable economies and societies.
- In the wake of the US rejoining the Paris Agreement in January and rolling out ambitious clean energy and transportation investment plans to reduce carbon emissions by the Biden Administration, mentions of carbon pricing are a marked shift in the global discourse.
What’s the Plan of Action for Climate Change?
- To consolidate international coordination on reducing global carbon emissions as well as achieving common climate change goals, the G20 aims to make use of a wide variety of tools including “investing in sustainable infrastructure and innovative technologies that promote decarbonisation and circular economy, and designing mechanisms to support clean energy sources, including the rationalisation and phasing-out of inefficient fossil fuel subsidies that encourage wasteful consumption”
- One of the new potential tools presented in the new G20 communique is the use of coordinated carbon pricing and incentives, a first for the member-states and paving the way for a possible international carbon price floor
- Provide targeted support for lower economies and most vulnerable countries.
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What is Carbon Pricing?
- Carbon pricing, which includes emissions trading systems and carbon tax, is an instrument to reduce and bring down greenhouse gas emissions by putting a price tag on total carbon pollution and as an incentive to drive investment into renewable and cleaner energy.
- The concept of a carbon tax has been gaining momentum in recent years as a way to discourage CO2-emitting fossil fuels
- The EU is similarly in the process of establishing a carbon border adjustment mechanism (CBAM) by placing a carbon price on imports of certain goods from outside the EU to reduce the risk of “carbon leakage”, which refers to the transfer of production to other countries with laxer emission constraint.
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