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EXPERT COMMENT

Following its landmark corporate tax agreement, can the G20 do the same for carbon pricing?

When G20 leaders meet in Rome later this week, they will review progress made in the four months since they last gathered and agree on priorities and actions for the coming year. An unexpected success in 2021 was the agreement by more than 130 countries on a global minimum corporate tax rate. The G20 can build on this success and agree to develop a global carbon price, which could provide a powerful impetus to achieve net-zero carbon emissions by 2050.

The net-zero goal is ambitious and time is running out. Global investment firm RockCreek estimates that reaching net-zero by 2050 will require more than US$3 trillion of investments per year, while according to the UN emissions must drop 7.6 per cent every year from 2020 to 2030 to meet the 1.5°C Paris Agreement target. Two of the most effective mechanisms are setting a limited, multi-year carbon budget or setting a carbon price that represents its social cost and escalates over time. No G20 member country is presently in line to meet their Paris commitments and none has yet succeeded in setting a hard carbon limit. A global carbon price, however, could work.

But can it be agreed quickly enough? The global tax agreement was preceded by a long period of research and consensus-building by the OECD. The OECD can build on this success to help achieve a global carbon price, but the process must be shorter. A shorter timeframe would be feasible as much academic work has already been done on carbon pricing and there is real-world evidence on price levels from emissions trading systems (ETS) in the EU and elsewhere.

Click here to continue reading the full version of this Expert Comment on the Chatham House website.