MARKETS AND FINANCE #!-* (I8EI<8JB98K<FG<A:8@8E:<A:4A7CBG8AG<4?E8:<BA4?A4G<BA4?4A7FH5A4G<BA4?64E5BACE<6<A:<AFGEH@8AGF-,4A7G4K '0 3%' .$+"' ,"-& .' (' -"0' Bioenergy International No 82, 6-2015 41 Bioenergy International No 82, 6-2015 41 has been a concern. The risk of carbon leakage is real as long as carbon price signals are strong and the stringency of climate policies differs significantly across jurisdictions. Carbon leakage However, the report finds, based on available research, that carbon leakage— the phenomenon of companies moving their production and/or redirecting their investments to other jurisdictions where emissions costs are lower, thereby increasing emissions there—has not materialized on a significant scale. This risk tends to only affect a limited number of exposed sectors, namely those that are both emissions- and trade intensive. This risk can be effectively managed through policy design components, such as free allocations, exemptions, rebates and border adjustment measures, as well as specific complementary measures, for example, financial assistance. The risk of carbon leakage declines as more countries take concrete actions to prevent climate change. International cooperation through carbon pricing instruments and climate finance can help redress the existing asymmetry in carbon pricing signals, reduce concerns about their impact on competitiveness, and eliminate the need for protection of firms. Under these circumstances, carbon prices can be used to enhance the performance of economies—specifically benefiting innovative, low-carbon firms, and promoting the technical upgrade or exit of the least efficient firms in emissions-intensive industries. This would improve the overall efficiency of the economy. Cooperation can cut costs and leakage In addition to reducing the risk of carbon leakage, cooperation between countries can significantly reduce the overall cost of achieving a 2°C climate stabilization goal compared to domestic actions alone, as countries have more flexibility in choosing who undertakes emission reductions, and who pays for them. Moreover, such cooperation could drive low-carbon growth in lower-income countries, some of which might lack the resources %+- &'"-( ('-+"( *.N "+%' ,%(/'" to modernize their economies, create jobs in low-carbon sectors, or reduce poverty in a sustainable manner. Through international cooperation, the global costs associated with a given emission reduction target can be lowered or a larger mitigation target can be achieved at a given cost, and development gaps can be narrowed. According to estimates from economic models, financial transfers through cooperation could reach up to US$100–400 billion "'%' annually by 2030, possibly increasing to over $2 trillion dollars by 2050. The size of the transfers will be beyond the level of public sector spending, and will need to be channeled through a blend of instruments. These include carbon pricing instruments such as ETSs, carbon taxes, offsets and a combination thereof and linkages between them, as well as innovative hybrid instruments, such as variations of results-based climate finance. Climate finance and carbon pricing instruments will be essential in leveraging these financial transfers and enabling cooperation to mitigate climate change. Editor’s note: This is the indtroduction to the full World Bank/Ecofys “State and Trends of Carbon Pricing 2015” (September) report, which is available on www.worldbank.org BI82/5077/AS +"-",! (%.&" 0,!"' -(' (+ (' %"(+'" &1"( !"% +3"% +"(#'"+( ,Q().%( + " "%' . -.+$2 $3$!,-' !"' -!"%' #)' ,(.-!+" +).%" ($(+ )(+-. % ,0' +' ,0"-3+%' ,-('" %-/" .$ )(%' '(+02 '&+$ "#"' $2(-( -"'#"' !." ,!' !" !(' *"' ,!'3!' -($2( +).%" ($(+ state and trends 2015 -4??LB964E5BACE<6<A:<AFGEH@8AGF ,<ODJI<GG@Q@G 1P=I<ODJI<GG@Q@G #21DHKG@H@IO@?JMN>C@?PG@? AJMDHKG@H@IO<ODJI !<M=JIO<SDHKG@H@IO@?JMN>C@?PG@? AJMDHKG@H@IO<ODJI #21JM><M=JIO<SPI?@M>JIND?@M<ODJI #21<I?><M=JIO<SDHKG@H@IO@?JMN>C@?PG@? #21DHKG@H@IO@?JMN>C@?PG@? O<SPI?@M>JIND?@M<ODJI !<M=JIO<SDHKG@H@IO@?JMN>C@?PG@? #21PI?@M>JIND?@M<ODJI The circles represent subnational jurisdictions. The circles are not representative of the size of the carbon pricing instrument, but show the subnational regions (large circles) and cities (small circles). Note: Carbon pricing instruments are considered “scheduled for implementation” once they have been formally adopted through legislation and have an official, planned start date.
Bioenergy no 6 October 2015
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