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ACCA (the Association of Chartered Certified Accountants) is calling for more ambitious policies to achieve net zero emissions by 2050, targeting green infrastructure investment from the public and private sector and a form of carbon pricing. Early and global action on this, as well as the right incentives and support are necessary, says the global body.
Recent events, including devastating floods in China, Europe and north east US, forest fires in Greece and California have underscored the need to act on climate change. In the 2015 Paris Agreement, countries agreed to ‘holding the increase in the global average temperature to well below 2°C above pre-industrial levels’ to avert catastrophic outcomes, and this will require bringing net greenhouse gas emissions to zero by 2050.
Michael Taylor, ACCA’s chief economist of says: ‘The importance of the delayed UN Conference on Climate Change COP26 meeting scheduled to take place in Glasgow soon cannot be overstated. As we say in a white paper briefing published today, ACCA believes that the policies that will achieve net zero emissions by 2050 need to be much more ambitious than they have been so far.’
For ACCA, global and EU policy-makers and governments have a crucial role in reducing carbon emissions through regulation, the provision of green infrastructure and appropriately targeted subsidies. But as with so much policy designed to change economic behaviour, the adoption of early and anticipated policy changes is the most effective approach. Such policies also need to be pursued at a global level.
Michael Taylor explains: ‘Recent ECOFIN’s conclusions on climate finance say that carbon pricing and phasing out environmentally harmful fossil fuel subsidies are key in achieving net zero commitments. We could not agree more. A shift from fossil fuels to low carbon energy requires the replacement of existing carbon-intensive capital with low-carbon capital. Our recommended strategy to reach these ambitious goals involves two key elements: green infrastructure investment from the public and private sector and a form of carbon pricing.
‘ACCA is calling on a global minimum carbon price, as in an integrated global economy unilateral action by individual countries has limits. While substantial progress to net zero can only be made by the bigger emitters such as China, the US and EU reaching that goal themselves, net zero will still be missed unless emerging markets also reduce emissions. The challenge is however much greater for emerging markets striving also for faster economic growth and higher living standards’, he adds.
Carbon pricing can take the form either of a straightforward tax that raises the price to a certain level or in an emissions trading scheme (ETS) ‘cap and trade’ where the quantity of CO2 emissions is set and permits issued for this quantity. In either case, raising the price of carbon provides incentives to transition towards low carbon alternatives and away from fossil fuels.
However, a limiting factor in the geographical spread and level of carbon pricing is the risk of ‘carbon leakage'. One way of correcting this is through Border Carbon Adjustments, which in effect are import tariffs that raise the import prices of energy intensive goods such that they include the carbon price applied to domestic producers.
Michael Taylor concludes: ‘In July the EU announced its intention to introduce a Carbon Border Adjustment Mechanism (CBAM) covering iron and steel, cement, aluminium, electricity and fertiliser. An alternative approach than CBAMs favoured by ACCA would be an agreed global minimum price of carbon, which would allow for a lower carbon price floor for countries with lower per capita incomes in recognition of differing responsibilities between countries.’