Dialogos Futuro Sustentável

DESCARBONIZAÇÃO DE TRANSPORTES

DIALOGUE 4

CARBON PRICING

CARBON PRICING, IN OTHER WORDS APPLYING A PRICE THAT PEOPLE DO NOT WANT AND APPLYING A STIMULUS WHERE PEOPLE DO WANTIT, IS FUNDAMENTAL TO ACHIEVING THE TARGETS OF THE PARIS AGREEMENT.

Marina Grossi

Presidentof the Brazilian Business Council for Sustainable Development (CEBDS)

PRICING AS A TRANSITION INSTRUMENT TOWARDS THE LOW CARBON ECONOMY

Continuing the Sustainable Future Dialogues series, a partnership between the iCS and the German Embassy in Brasília, leaders from business organizations, civil society, government and academia met in São Paulo, on June 19, 2018, to discuss carbon pricingin the world and in Brazil. The meeting was held in partnership with the Conselho Empresarial Brasileiro para o Desenvolvimento Sustentável(CEBDS), the Carbon Pricing Leadership Coalition (CPLC), the European Commission and the German Consulate General in São Paulo, and was supported by the Carbon Disclosure Program (CDP).

Silke Karcher

A PATH OF OPPORTUNITIES

The transition towards a lowcarbon- or zero carbon - economy is, on the one hand, a challenge for the capability of economies to absorb the impacts of this transitionand, on the other hand, creates an enormous range of development opportunities in sustainable bases. In this regard, carbon pricing is a fundamental mechanism to stimulate investment, to generate resources and to accelerate this transition

"You can promote ambitious policies to reduce emissionswhile also promoting sustainable development."

Ismo Ulvilla

Director General for Climate Action of the European Union

TAXATION OR TRADING OF EMISSIONS?

According to Lauro Marins, Executive Director of the CDP, investment decision-making in the public company business sector is already conditional upon the quality of its environmental performance and not only on the cost of the productor service.

One of the challenges for the implementation of carbon pricing is the definition of the mechanism. Axel Zeidler, the German Consul General in São Paulo, emphasized that, whatever mechanisms are developed, they will have to respond to specific national, sub-national or regional realities, which may connect with the regulated markets of other countries or regions, facilitating the trade of emission licenses between them.

Ana Toni, Executive Director of the Climate and Society Institute (iCS), raised the question of the subsidies for fossil fuels that, between 2013 and 2017, amounted to approximately 342 billion Reais in tax breaks and direct costs, as opposed to the necessity to reduce greenhouse gas emissions (GEE). In contrast, Zeidler highlighted that in Brazil there are interesting proposals to compensate for the burden of CO2 pricing through reductions in other areas.

Furthermore, many of the speakers considered that taxation could be a complementary mechanism to market policies.

CHALLENGES FOR THE DEVELOPMENT OF THE CO2 MARKET

The carbon price on the international market presented a recent recovery. However, according to specialists, there is no point in projecting a value per ton of CO2 if there are no market practices to test it.

Among the greatest challenges for the implementation of CO2 markets, according to Venkata Putti, a representative from the World Bank and from the CPLC, is the creation of new regulations, technological development and the capacity to absorb costs and investment.

ECONOMIC MODELS

Silke Karcher, from the German Ministry of the Environment, stated that in the European Union the decision was to establish a carbon market system (Emission Trading System – ETS), a more palatable path of acceptance for economies than taxation, and also more flexible for the planning of long-term business targets.

Annually, the ETS limits the right to greenhouse gas emissions, which conditions the companies to use this data in decision-making about business and investment, and allows both access to revenues with the issue of licenses and their reinvestment in actions to comply with the climate targets.

"The pricing presupposes that there is a target. To achieve it, there are two instruments: one is to demand that the whole world complies with a specific technological standard and the other is to place a price and for companies to have more flexibility to achieve that target, paying or not paying for the emission."

Ronaldo Seroa da Mota

Professor at the State University of Rio de Janeiro

According to Ronaldo Seroa da Mota, professor at the State University of Rio de Janeiro (UERJ), the market models offer more flexibility, while the carbon tax can be subject to fiscal policy interference, although it is easier to implement.

INVESTMENT AND COMPETITIVENESS

Another consensus among the specialists is that the public sector cannot be expected to pay for the cost of transition to a low carbon economy on its own. The presence of the private sector is crucial, both in investment and in the contribution to new economic models and regulation.

Contrary to that stated by critics of carbon markets, experience has demonstrated that they are beneficial to the competitiveness of companies, obliging them to become more efficient.

The commercialization of emissions is broadly supported by several sectors and jurisdictions as a form of pricing and favors the relationship between countries. An example that was mentioned at the meeting was the Pacific Alliance, which groups together Mexico, Colombia, Peru and Chile in the search to establish a regional system.

Stefano De Clara, from the International Emissions Trading Association - IETA, considers that the participation of the private sector is fundamental to direct the policies from the beginning, to guarantee adhesion and for companies to be aware of the challenges.

EXPERIENCES IN BRAZIL

Different specialists highlighted the competitiveness of Brazil in the context of the low carbon economy, as a result of its geographical characteristics and pioneering spirit in the search for renewable sources. On the other hand, it is one of the last countries in the ranking of energy efficiency.

Brazil has to overcome shortcomings in infrastructure, technological development and training, as well as to create public policies, regulation and governance that guarantee liquidity and credibility, independent of the political instabilities.

The pricing system should be seen as a mechanism that intends to seek an agenda of long term development and investment and, in a way, to clean up the regulatory scenario in order that the potential growth and innovation of Brazilian companies can, in fact, be leveraged."

Aloísio Melo

Brazilian Ministry of Finance

According to Gustavo Fontenele e Silva, from the Brazilian Ministry of Industry, Foreign Trade and Services, it is necessary to consider the heterogeneity of the industrial sector. Companies are exposed to the effects of pricing differently, depending on the sector in which they belong, the size of the supplier chain, the location of the plant and the power of the market, among other factors.

PERSPECTIVES OF THE PRIVATE SECTOR

In addition to the participation of entities such as the CEBDS, which encompasses hundreds of organizations, the private sector was represented by the companies Siemens, Brasken and Engie. It demonstrated itself to be optimistic, confident and active in relation to the creation of carbon pricing alternatives and to investment in clean and sustainable technology, having as a consequence the generation of wealth and the increase in resilience of the Brazilian energy network.

"Our precise role is to bring investment, capital and technological solutions to help countries such as Brazil take advantage of the energy transition to set out on a path of better economic and more efficient development.”

Philip Houser

Vice-President of energy transition of Engie

"The continuous search for the reduction of the carbon footprint is, in truth, a search for efficiency and efficacy in the use of natural resources. To reduce the carbon footprint is to reduce the footprint of all the other pollutants that are emitted during the production process. Therefore, it is the incessant search for productivity."

André Clark

President and CEO of Siemens Ltda.

Marcelo Cerqueira, of Brasken, highlighted that it is necessary to increase the efficiency of the production process in Brazil with an intelligent model of CO2 pricing.

Alfredo Sirkis, President of the Fórum Brasileiro de Mudança Climática (FBMC) [the Brazilian Climate Change Forum], ended the meeting contemplating that carbon pricing requires a structural discussion of taxation reform in Brazil, which departs from the practices that are already in existence.

"I believe that people should avoid to some extent this discussion of a carbon tax, which is somewhat Manichaean. What is at issue is the taxation system in the light of a new criterion of carbon intensity."

Alfredo Sirkis

President of the FBMC

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"Public money is not enough. We need the presence of the private sector, which will also provide new ideas and new investment."

Silke Karcher

German Ministry of the Environment

Speeches