Carbon Pricing: An Inevitable Opportunity

04/14/2016 02:21 pm ET Updated Apr 15, 2017
KLITTEN, GERMANY - FEBRUARY 14: Boxberg Power Station is reflected in the lake 'Baerwalder See' in Klitten on February 14, 20
KLITTEN, GERMANY - FEBRUARY 14: Boxberg Power Station is reflected in the lake 'Baerwalder See' in Klitten on February 14, 2016. This lignite-fired power station is the fourth largest in Germany. (Photo by Florian Gaertner/Photothek via Getty Images)

Regarding climate change, the global community has excelled in procrastination. But time is running out. The scientific evidence is mounting, and the impact of severe climate changes is more tangible than ever. It is time for the global community to take responsibility and lead the way forward to implement a price on carbon.

The COP21 Paris Agreement brought us closer to a future of low-fossil-carbon prosperity. A future, in which those who emitted the least greenhouse gasses won't have to face droughts, floods, and other devastating effects, resulting in poverty, migration and conflicts.

UN Secretary General Ban Ki-Moon said after COP21: "What was once unthinkable is now unstoppable". When the Paris agreement is formalized at a United Nations signing ceremony on 22 April, Earth Day, it is time to reflect and realize that the current plans are still not enough to limit the temperature rise to 1.5 to 2 degrees Celsius.

Carbon pricing is inevitable to reach truly this ambitious goal for the following three reasons.

First, carbon pricing is a critical instrument to unlock the private capital needed for the transition from the fossil fuel to the (bio)renewable age. Putting a price on carbon makes alternative energy solutions, such as solar, the wind and advanced biofuels more competitive while creating opportunities to pursue additional low-fossil-carbon alternatives and charging the -- currently cheap -- fossil resources the right pollution price.

Second, by putting a meaningful price on carbon, the current generation can take financial responsibility for its carbon footprint and stop treating the planet like an undepletable bank account and transfer the bill to the next generation.

The gravest threat to humanity since the end of the cold war is now also recognized by central banks. Mark Carney, Governor of the Bank of England, recently called climate change (referring to the tragedy of the commons) a "tragedy of the horizons" because climate impacts stretch beyond the traditional horizons of business and governments. In The Netherlands, the Dutch Central Bank concluded that a radical transition away from fossil fuels is urgently needed.

Third, the political momentum for carbon pricing is unparalleled. Around 40 countries and more than 20 cities, states and provinces are already realizing mechanisms to tax or trade carbon or are planning to do so. Some, such as Quebec and California, have already linked their trading schemes.

Already more than 400 companies are considering or already using an internal carbon price. At Royal DSM, we apply an internal carbon price of €50 per ton CO2 equivalent when reviewing large investments. I call on business to do the same: it will make your business more future proof.

Facilitated by the World Economic Forum, around 80 CEOs voiced their support for a meaningful carbon price in the run-up to COP21. The current low oil price creates the right moment to introduce a price on carbon.

Today's reality is, many governments around the world still have direct or indirect fossil fuel subsidies. And in many jurisdictions, the carbon price is not high enough for low-carbon innovations to thrive. By sharing best practices, governments can learn from each other.

To help speed up this collaborative process, I feel honored to co-chair with Ségolène Royal, Minister of Ecology, Sustainable Development and Energy of France, the High-Level Assembly of the Carbon Pricing Leadership Coalition (CPLC) facilitated by the World Bank, which is convening for the first time (15 April) in Washington DC.

This coalition brings together leaders from across government, the private sector, and civil society to share the experience of working with carbon pricing and creating the most effective carbon pricing systems and policies.

The CPLC's long-term objective is for carbon pricing to be applied throughout the global economy.

In addition to facilitating leadership dialogues, the CPLC will also mobilize business support to put an internal price on carbon.

Accelerated implementation of a meaningful carbon price across the globe can turn the notion of Tragedy of the Commons into an Opportunity of the Commons and create low-carbon prosperity for all. It not only makes business sense: our children and their children will thank us for finally stepping up.