A carbon tax is necessary to unlock trillions of dollars of private capital needed to meet emissions reduction goals, experts and business leaders said Thursday. In a speech at the 2023 annual meeting of the World Economic Forum here, they called on development banks to take more risk and coordinate their green investments to accelerate decarbonisation.
Despite the urgent need for climate finance, numerous barriers prevent the flow of private capital to decarbonisation projects around the world and particularly in the Global South, they noted.
Financial experts agreed that the main obstacle is the need for a carbon price
Kristalina Georgieva, managing director of the International Monetary Fund says “We are still arguing that carbon has to be priced and the price has to go up, public opposition to a carbon tax has prevented many countries from pricing carbon through taxation, but taxation is not the only way to prevent emissions, she added.
carbon market in India
The carbon market in India was introduced through the Energy Conservation (Amendment) Bill, 2022 in the wake of the United Nations Climate Change Conference (COP26) as an attempt to reduce fossil fuel consumption using non-fossil sources such as green hydrogen, green ammonia, biomass, and bioethanol as energy and raw material.
The Government of India has set up a carbon market in India, improved the Energy Efficient Building Code and helped build the Energy Efficiency Authority’s governing board through a growing membership.
The bill aimed to mandate the use of non-fossil fuel sources for energy and promote feedstocks such as green ammonia, green hydrogen, ethanol and biomass.
Experts say on Carbon trading
Experts say Carbon trading, regulation, and various pricing schemes are alternative strategies that countries use to impose the cost of emissions. Better coordination of these strategies would incentivize private capital to invest in net-zero projects around the world.
Another obstacle to private financing is the lack of common standards and data on emissions reductions. Experts have expressed frustration that after nearly three decades of COP summits, common metrics for many environmental goals are still lacking.
Standard Chartered Bank Group chief executive Bill Winters said: “We need standards. We are all afraid of being accused of greenwashing even when we are doing the right thing. Multilateral development banks such as the IMF, as well as national development banks, must play a leading role in catalyzing private finance for climate change adaptation.
One problem is that national and multilateral development banks compete for projects and do not share information, the expert said, stressing that better coordination among public financial institutions could encourage more risk-taking and improve the risk assessment of various bank projects.
Financial experts agreed that, given the urgency of reducing emissions, understanding the costs of inaction is also critical to accelerating private finance.
written by: Vaishali Verma
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