23 September 2019

A new report, endorsed by the International Chamber of Commerce (ICC) finds that concerns about industrial competitiveness can be addressed through strong carbon pricing policies.

The new report published by the High-Level Commission on Carbon Pricing and Competitiveness calls on industry peers and governments to adopt strong carbon pricing policies. As more businesses develop low-carbon strategies, supportive government policies can act in tandem to unlock economic opportunities and manage competitiveness concerns.

ICC and several member companies are among the leading companies and organisations that have endorsed the report’s key findings and join joined the Commission—which comprises CEOs and senior executives from leading global companies, as well as former high-level government officials and representatives from academia— in calling for strong carbon prices.

John W.H. Denton AO said: “The International Chamber of Commerce – as the institutional representative of 45 million companies worldwide –recognises the urgent need to keep the global temperature increase below 1.5 degrees Celsius and work towards net-zero emissions by 2050. Climate action is everyone’s business and achieving our collective climate goals will require a mix of voluntary action and coherent policy frameworks. This flagship report from the High-Level Commission on Carbon Pricing and Competitiveness is a critical contribution to this debate. The report presents the case for carbon pricing as one of the policy drivers to a low carbon economy and—through diligent consultations, expert inputs and academic research—shares insights on a variety of ways to address competitiveness risks.”

Anand Mahindra, Chairman of Mahindra Group who co-chairs the Commission with Feike Sijbesma, CEO of DSM said: “Bold and immediate commitment is needed to respond to the challenge of climate change. Carbon pricing is an effective response especially when coupled with other policies. It can result in remarkable opportunities for corporations, countries, and communities.”

Carbon pricing is a flexible and low-cost approach to reduce greenhouse gases. Carbon pricing, along with other policies, such as increased investment in low-carbon technologies, can drive innovation in industries and foster continuous process improvement. Taken together, these policies will facilitate the transition to a low-carbon economy, even in highly emissions-intensive and trade-exposed sectors.

“Carbon pricing has proven to be one of the most effective tools to unlock the potential from the private sector to support innovation and low-carbon growth. Carbon pricing is only one of many elements determining global competitiveness and plays a smaller role than other factors, for instance, labor and infrastructure,” said Mr Sijbesma.

The report finds a wealth of experience on how other policies, such as lowering other corporate taxes and providing technology innovation assistance to emerging industries, can support carbon pricing and alleviate competitiveness concerns. It finds that other variables—such as corporate tax rates, energy prices, wage rates, labour availability, infrastructure, geographic location, cost of capital, exchange rates, commodities and materials prices—have as large an impact as carbon pricing does on most industry decisions to locate or invest. Furthermore, early evidence from advanced economies shows that putting a price on carbon pollution does not curtail industrial growth or prompt polluters to move to countries that do not charge such a price.

Additionally, carbon pricing can be advantageous for low-emitting firms and has the potential to boost new industries and advance innovation in existing ones. For example, after British Columbia introduced a carbon tax, a new clean technology sector emerged, comprising over 200 companies collectively generating US$1.7b annually.

Other jurisdictions have also been successful at managing the impact of carbon prices on international competitiveness for high-emitting and trade-exposed sectors. Some examples include:

  • Sweden’s carbon tax, which is the highest in the world at kr1173/tCO2e (US$127/tCO2e) was accompanied by policies to deliver a significant reduction in the marginal tax rates on energy, capital, and labour. According to Sweden’s Ministry of Finance, during the 1990-2015 period, Sweden’s GDP increased by 75%, while GHG emissions went down 26%.
  • California successfully enacted a carbon price and other measures that addressed sector-specific competitiveness concerns, despite the fact that its electricity grid is connected to several states that do not have a carbon price. The state used border adjustment measures to address specific competitiveness, requiring electricity imported from border states to obtain emissions allowances, thus leveling the playing field.

The report has received broad support and endorsements from businesses, and leading organisations. The full list of endorsing companies can be viewed on the CPLC website.

Convened by the Carbon Pricing Leadership Coalition (CPLC) at its 2018 High-Level Assembly Meeting—and supported by the World Bank Group— the High-Level Commission on Carbon Pricing and Competitiveness brings together private sector leaders and senior government officials to explore the evidence base, concerns, and lessons learned from the design and implementation of carbon pricing policies vis-à-vis competitiveness.