Investors want a carbon price - and stay under 1.5°C
The Investors Group on Climate Change (IGCC) represents investors who control trillions of dollars in Australia and New Zealand. Their latest report argues for a carbon price to incentivise investment flows into lower and zero emissions solutions.
“The more carbon is explicitly priced, the more investment will flow to new zero emissions technologies and the more efficiently industry will be able to ensure economic and overall policy objectives are met.”
They want "investable climate policy" so they can deploy capital into solutions to climate change. The report calls for transformational adaptation, social equity and carbon price signals to incentivise emission reduction investment decisions. There is much to like in this commendable report.
They are right to call for a carbon price. The Economist, in a recent editorial recognised that profit-seeking companies cannot save the planet on their own no matter how well they apply “environmental, social and governance” (ESG) investment principles. They argue that “It falls to governments to reconcile the goals of profit maximisation and a safer climate. The best way of doing this is to set a high enough price on carbon, forcing companies to internalise the costs of their dirty activities, so that going green is also good for the bottom line”.
The IGCC report call for the baselines of the Safeguard Mechanism to align with emissions and technology pathways consistent with limiting warming to 1.5 °C. Whilst this is a form of carbon pricing CCL’s contribution to the current Safeguard reform consultation makes it very clear that the safeguard will not align with 1.5 °C without the support of a fee or tax levied on the carbon content of fossil fuels.
The report also calls for an end to fossil fuel subsidies by 2025. This aligns with CCL's assertion that Ending fossil fuel subsides is essential to end climate change. However, the majority of Australia's subsidies are ‘implicit’ subsidies that flow from the uncosted social and environmental damage caused by fossil fuels. Only a direct levy on fossil fuels at source can fully internalise these costs into the price of fuels. And only with a climate dividend can this levy rise high enough to be effective and be affordable for low- and middle-income households.
The report's recommendations accord with the government’s preference for a variety of sectoral policies. This creates extra complexity which we argue will create loopholes and gaps that emissions will easily leak through. This approach is essentially piecemeal when what is needed is a comprehensive policy capable of addressing the majority of our emissions.
The best thing about the report is its ambition for a 1.5 °C world. With the help of climate dividends and its ability to create a global carbon price through its Carbon Border Adjustment Mechanism (CBAM) this ambition could be achieved. It would greatly assist the flow of the trillions of dollars of investments that will be needed to fund the transition.
This blog aims to blow wisps of clarity through the clouds of confusion and misinformation that surround climate and energy policies. It will keep reaching beyond half-measures and fudges and keep striving for rational solutions.
