2020 has been marked by a global pandemic and the lasting impact it will have on individuals, societies, and economies. But as we reflect on this past year, we should acknowledge other issues of global importance, many of which have been advancing quietly.
For those of us dedicated to addressing climate change, we anxiously observed, and in some cases endured, the most active hurricane season and most intense wildfires in the U.S. We also witnessed several events that signify progress toward an effective, durable solution to the problem.
First, there was a unified sense of urgency from businesses, financial institutions, and trade organizations that regularly deal with risk and recognize that inaction is not an option. Second, the need for more certainty emerged among policymakers across the world. In the U.S., policymakers began seeking solutions that transcend the whims of one administration to another.
At the Alliance for Market Solutions, we believe a revenue-neutral carbon tax will not only reduce carbon emissions but also drives innovation and is superior to subsidies and regulations. And this year, support for market-based solutions like a carbon tax increased.
Below is a list of the noteworthy events in 2020.
In February, BlackRock, a global investment firm, delivered a letter to its clients in which CEO Larry Fink warned of the risks and structural changes that will be attributed to climate change. He wrote:
Over the 40 years of my career in finance, I have witnessed a number of financial crises and challenges… Even when these episodes lasted for many years, they were all, in the broad scheme of things, short-term in nature. Climate change is different. Even if only a fraction of the projected impacts is realized, this is a much more structural, long-term crisis. Companies, investors, and governments must prepare for a significant reallocation of capital.
In September, the Business Roundtable, an association of CEOs, unveiled its climate policy principles, advocating for a carbon price and other market-based measures to curb emissions. Business Roundtable Chairman and President of Walmart Doug McMillon stated:
Climate change is one of the greatest challenges facing the planet today, and we believe businesses are an essential part of the solution…[T]he new Business Roundtable position on climate change reflects our belief that a national market-based emissions reduction policy is critical to reducing greenhouse gas emissions to levels designed to avoid the worst effects and mitigate the impacts of climate change.
U.S. Trade Partners
In September, European officials announced their intention to impose a carbon border adjustment by 2023. The intent is to not only protect their domestic industries but avoid carbon leakage while encouraging others to price the true cost of carbon dioxide externalities. If policy changes in the U.S. are not made, trade between our two economies will change dramatically. We have argued that this should not be viewed as a point of friction, but embraced as an opportunity to collaborate and pressure countries, such as China and India, to reduce emissions.
(Others have highlighted the competitive advantage that the U.S. would have if we put a price on carbon emissions and applied a border adjustment mechanism. Detailed analysis can be found here).
And in October, China—the world’s top-polluting nation—pledged to be carbon neutral by 2060.
Commodities Futures Trading Commission
In September, the Commodities Futures Trading Commission released a report, “Managing Climate Risk in the U.S. Financial System,” stating that climate change poses a major risk to the stability of the U.S. financial system and its ability to sustain the American economy. The summary noted:
[T]he central message of this report is that U.S. financial regulators must recognize that climate change poses serious emerging risks to the U.S. financial system, and they should move urgently and decisively to measure, understand, and address these risks.
Federal Energy Regulatory Commission
Following a technical conference hosted by the Federal Energy Regulatory Commission, or FERC, in September, then-Chairman Neil Chatterjee issued a statement on the role of carbon pricing in curbing carbon emissions. His statement included:
As states actively seek to reduce greenhouse gas emissions within their regions, carbon pricing has emerged as an important, market-based tool that has wide support from across sectors. The Commission is not an environmental regulator, but we may be called upon to review proposals that incorporate a state-determined state carbon price into these regional markets. These rules could improve the efficiency and transparency of the organized wholesale markets by providing a market-based method to reduce GHG emissions.