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The Carbon Price Conundrum

The race between climate change and emissions reductions remains tight. Limiting the damage already done will require the use of all available tools and broad global participation. Two recent carbon-pricing proposals highlight the political sensitivities involved, especially given countries’ different levels of economic development.

WASHINGTON, DC – With less than three months until the United Nations climate change summit (COP26) in Glasgow in November, formal and informal discussions and pre-negotiations are now in full swing. A new US administration recognizes the urgency of the situation, and there is much broader political support globally for ambitious climate policies. The world still has a chance to limit global warming to below 2°C compared to pre-industrial levels.

But as a major new assessment from the Intergovernmental Panel on Climate Change shows, the race between climate change and emissions reductions remains tight. Limiting the damage already done will require the use of all available tools and broad global participation. As two recent carbon-pricing-related proposals demonstrate, however, there remain important differences between approaches to reach those goals.

The 2015 COP21 summit in Paris did not seek a binding international treaty that would impose policies on countries. Accordingly, the approach enshrined in the Paris climate agreement allowed for countries to declare their own voluntary emissions-reduction goals – Nationally Determined Contributions – and climate policies, with the understanding that these would become more ambitious over time.

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