December 19, 2023

Carbon Pricing Adoption Advances Worldwide

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  • Carbon pricing is recently considered as a countermeasure against global warming. Carbon pricing is a system that sets a price on greenhouse gas (GHG) emissions such as carbon dioxide (CO2). It includes a taxation system based on the amount of GHGs emitted by companies and other entities, as well as trading with a price attached to the amount of emissions reduced, with the ultimate goal of encouraging emissions reductions. The goal is to reduce GHG emissions by introducing carbon pricing. Because the taxes are based on emissions, it imposes significant costs on companies and individuals who do not reduce their emissions. This creates a competitive advantage for companies that offer products and services that have a low impact on the natural environment. Furthermore, companies and individuals who engage in emission reductions can expect economic benefits as well, as they will be more efficient in their energy use and reduce costs.

    Carbon pricing consists of three main categories: carbon taxes, the Emissions Trading System (ETS), and carbon credit trading.

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    A carbon taxes is a system of taxation based on the amount of emissions. Companies and individuals pay taxes based on the amount of GHG emissions they produce. If emissions are high, more taxes is imposed; if emissions are low, less taxes is imposed. From the end-user’s perspective, goods and services that emit more GHGs will be priced higher due to the carbon taxes, triggering them to choose those with lower GHG emissions.

    An emission trading system (ETS), also known as a cap-and-trade system, is a market-based approach to controlling pollution. In an ETS, a government set a limit on the amount of emissions that can be released by a particular industry or sector, and companies are allocated permits that allow them to emit a certain amount of pollution. Companies that emit less pollution than their allocated allowances can sell their excess allowances to other companies that exceed their allocated allowances, creating a financial incentive for reducing emissions. Conversely, companies that exceed their allocated allowances must purchase additional permits to cover their excess emissions, creating a financial penalty for pollution.

    A carbon credit trading is a system for trading reduction units (carbon credits) that companies and organizations can voluntarily purchase to offset their own GHG emission reduction targets using credits. Carbon credits are issued from existing projects. For example, if a project reduces GHG emissions by protecting forests or introducing renewable energy, carbon credits will be issued for the reduction effect.

    Trends in carbon pricing introduction

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    The World Bank’s State and Trends of Carbon Pricing 2022 report shows that a total of sixty-eight (68) countries and regions around the world have introduced carbon pricing schemes such as carbon taxes and emissions trading schemes. In ASEAN, Singapore has been the first country to introduce carbon pricing in 2019. In ASEAN, Singapore is introducing a carbon taxes in 2019. Carbon pricing is a system that is attracting attention as a way to achieve an environmentally friendly society, but its introduction has socioeconomic implications that require careful policy consideration. For example, companies with high GHG emissions will be burdened with investments in reduction measures. In addition, international coordination is needed because of the possibility of competition with countries that have not made progress in emission reductions.

    In 2021, the government of the Philippines announced that the Department of Finance (DOF) and others would conduct studies and deliberations to introduce a carbon pricing scheme before, but as of 2023, no concrete plans have been announced, including the scheme and timing of implementation. Private companies are under pressure to reduce emissions and are considering measures available in the Philippines to reduce emissions. Government-led initiatives such as the establishment of an emissions trading system and a carbon credit trading system are awaited.

    NRI Manila supports companies in the area of sustainability and ESG through our sustainability consultation services. We support companies in developing their sustainability strategies in terms of corporate culture, structure, assessment and reporting in order to achieve a more sustainable future.

    About the contributor

    IMAGE from Jon Bernard Dumdum

    Jonas Marie Dumdum is an ISC consultant for Nomura Research Institute Singapore – Manila Branch. He is also a climate reality leader and sustainability science and strategy advocate who has worked on projects that tackled various environmental issues such as climate change and sustainable energy.

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