After COP: One Step Forward, Many More Needed

While we view the agreement in Paris as a positive step on the road toward a global response to the problem of climate change, words must now be translated into action. In particular, while we agree with and support the spirit of the agreement, we note that the text of the agreement is largely reticent on the subject of how these goals are to be met, and which tools will be used to achieve them.

However, we appreciate that the agreement, in particular Article 6, left the door open to market based approaches and mechanisms to curb carbon emissions, namely carbon pricing systems. During the climate negotiations and beyond, we at BDI urged the widespread, global adoption of carbon pricing systems as the preferred mechanism to reduce greenhouse gas emissions. We continue to argue for market based approaches as an effective way to provide economically-based price incentives.

We applaud the steps being taken around the world to that end, from China to Canada to California. In particular, we are encouraged by the reform of the European Emissions Trading System and the growing number of such systems worldwide. We hope these important steps continue and are replicated by governments and sectors around the world, and to see carbon pricing systems become the global model for emissions reductions.

There are many forums and opportunities to exchange information and best practices on market mechanisms and facilitate the spread of carbon markets. In particular, the G20 brings stakeholders across government and industry together and provides an opportunity to find common ground on carbon markets. The BDI urges the German government to include the adoption of carbon markets and the diffusion of market mechanisms as a key priority during its 2017 G20 chairmanship.

Market based mechanisms are vital for success in combatting carbon emissions because they provide the economic incentives and consistency the private sector needs to make investments in new technologies, equipment, and research. This is crucial, because without the private sector the emission neutral future promised under the Paris Agreement will not be possible. We appreciate that the participation of the private sector was acknowledged in the UNFCCC process, but were disappointed that a reference to the crucial role of business and industry was not included in the final text. Furthermore, we were disappointed that greater efforts were not made to enhance and encourage private sector and business participation throughout the process.

Given that private sector innovation is crucial to curbing carbon emissions and combatting climate change, we at BDI stress that there is still much work to be done to create the conditions necessary to unleash such potential. Beyond the establishment of market mechanisms and the proliferation of carbon pricing system, reducing carbon emissions will require a rethinking of how we invest in and finance such projects, how we create partnerships between businesses and governments to implement such projects, and how we insure these projects and incorporate the risks of climate change into financial and insurance calculations.

In particular, governments will need the help, assistance, and partnership of the private sector to meet their INDCs. This will require new ways of thinking about public-private partnerships, increased engagement between the public sector and industry, and potentially new guidelines and goals formulated with this nexus in mind. This will require public investments in research and development and partnerships with industry for demonstration and deployment.

Furthermore, while Paris was a step forward, countries will have to go beyond the promises in their individual INDCs and make them became reality. To do this effectively, investment and action should be targeted to areas in which the most reductions can be made at the lowest cost. Identifying these opportunities will require new models relating emissions to investment, improvements in transparency and updated information, and the presence of comparable incentive schemes and market mechanisms in all countries.

Finally, it should be noted that within business community, different sectors have various roles to play. The banking and financial sector must continue to create and improve innovative models to finance investments in energy transitions and attract capital to long term projects. The insurance sector must transform how risk is calculated when it comes to climate change and determine how to protect these investments. Industry must continue to reduce their own greenhouse gas emissions while developing the technology to help others follow suit.

We at BDI are aware of and up to these challenges. German industry has the experience and expertise, the technical skills and the technology, and most importantly the will, to help governments meet their INDCs and provide the tools to reduce emissions. We have a crucial role to play, and we are eager to fill that role. However, industry cannot solve this problem in a vacuum, nor can they do it alone. The proper incentives must be in place to drive technology development and new frameworks for cooperation must be established to shoulder the risks - and share in the opportunity - of such projects.

In order to meet these challenges, BDI asks the following:

1. For the German government to promote the adoption of carbon pricing and carbon markets, including through the sharing of best practices and lending of technical expertise.
2. For the German government to include the adoption of carbon markets and the diffusion of market mechanisms as a key priority during its 2017 G20 chairmanship.