[00:00:20] Rachel Glennerster: Hello and welcome, I'm Rachel Glennerster, President of the Center for Global Development. And I'd like to thank those of us joining in person and everyone online for joining us. So today we're going to talk about the climate pricing. And this is something that, you know, economists have been thinking about and working on for a long time. You know, we've been suggesting solutions for climate change for many years, but we've made much less progress than we would like. And that's partly because changing policies to affect climate change is a wicked problem, by which I mean it's like the behavioral economist's worst nightmare for a number of reasons. It's like the proverbial boiling frog. We are well into rising temperatures before it's possible for any individual to notice that the climate has changed. The link between a cause like driving your petrol-driven car and the consequence like a hurricane two years later is really hard to explain and hard to grasp. And it's a global public good so that if one country takes action, most of the benefits go to others. Where we have made progress is from innovation driving down the price of green energy, like solar and wind, but we're massively under-investing in that innovation. So at CGD, we're doing a lot of work on how to better stimulate innovation into the needs for improving effectiveness of climate change policies. So for example, innovations like, you know, vaccines for cows to reduce methane or to reduce the cost of permanent carbon removal. Another way to get incentives right and get incentives which stimulate innovation and the right changes in behavior is carbon pricing. And this is something which, you know, economists have been advocating for a long time, as I say. But the problem is that putting a price on carbon tends to hurt domestic producers and give competitive firms an advantage. It's hardly surprising that we have actually made, you know, relatively little progress in encouraging countries to adopt carbon pricing. So the Climate Border Adjustment Mechanism, which the EU, for example, is introducing, offers a solution to this incentive problem by putting taxes on imports from countries that do not use a carbon price. So no longer are domestic producers at a disadvantage, at least domestically, and there's an incentive for other people to produce carbon pricing. So it's a very clever trick for flipping the incentives to actually make people want to introduce a carbon price. But low and middle income countries have been up in arms about this approach and the impact that it has on them, pointing to the fact that their exports will be hit even though they produce a relatively small amount of carbon per head. So the team that you're gonna hear from today have been working on trying to address that problem. And we're gonna dig into that in this session and look at new proposals to address some of those issues. So they're gonna draw on the Global Climate Policy Projects Project's flagship report, Building a Climate Coalition, Aligning Carbon Pricing, Trade, and Development. So it explores how a new coalition of countries could reduce global emissions at scale, support sustainable development, and generate nearly $200 billion in annual revenues, and create a much more level playing field for industries worldwide. Guiding the conversation and also guiding a lot of this work is Catherine Wolfram, William Barton Rogers Professor in Energy and Professor of Applied Economics at MIT Sloan School of Management and a real leader in this field. I'm gonna let her introduce the panel and look forward to the discussion.
[00:14:16] Catherine Wolfram: Wonderful. Thank you so much to Rachel for that warm introduction and informative introduction. She covered some of the groundwork that I wanted to do as a moderator, but we can therefore dive into the substance that much quicker. Let me start by introducing the panel and then I'll get into a bit of the report that she described. So just to my left is Marcelo Medeiros. Marcelo is a Climate Action Fellow with the Salada Institute at Harvard University, also the founder of ReGreen, that's working on reforestation and carbon removal in Brazil. So thank you, Marcelo, for joining us. Marcello is also a working group member and contributed to the report that Rachel described. Then to Marcello's left is Ian Mitchell. Ian's a senior fellow here at CGD who has worked on CBAM, thought about the impact of CBAM on low and middle income countries. And last but not least on Ian's left is Jennifer Winter. Jennifer is a professor at the University of Calgary and also serves as the departmental science advisor to environment, climate change, Canada. So Jen was also a member of the working group that put together the report. So just quickly, let me give a couple of minutes of introduction. As Rachel described, there's been an innovative new policy that the EU launched. It's called the CBAM. It's got kind of this funky acronym. And basically, what it does is takes the fact that the EU has a carbon price through the EU emissions trading system, through the cap and trade system, and assesses that carbon price on imports into the EU. So if you are a Malaysian steel producer and say it takes you two tons of CO2 to make a ton of your steel, if you send that steel to the EU, you have to pay at the border the same carbon price that the EU steel producers are paying. But, and here's the key but, if you have already paid a carbon price in Malaysia, then you're exempt from that. You get credited for whatever you've already paid domestically. And so I've done some work that's shown that the CBAM has really led to this proliferation and really kind of a global conversation about carbon pricing and about decarbonization more generally, how can we drive reductions in the sectors that are first covered by the C-BAM. So taking that momentum that we're seeing from the C-BAM, we see that as the positive, the good side of C-BAM. We wanted to try to address some of the more negative aspects of C-BAM with this coalition report and try to preserve C-BAM, hopefully expand on it, expand on the number of countries that are doing this, expand on, ideally, the sectors that will be covered by the CBM, but also think hard about fairness, think about low and middle-income countries. And so at the Global Climate Policy Project, it's a joint project between Harvard and MIT, we convened a working group of 17 thought leaders. We had two people from Brazil, Marcelo and a colleague of his, two people from the EU, two people from China, two from India, one from Indonesia, one from Africa, Jen from Canada, and then a couple of us from the U.S. And so this working group really wanted to think about what would a coalition of countries that's pricing carbon, that's imposing border adjustments, what would that look like and how could we recognize fairness principles. So one of the things that we did is we proposed that the carbon prices to be in the coalition could be graduated. You could have a lower carbon price for lower income countries and higher carbon price for higher income countries. The way the EU is doing it, everyone gets hit with the same carbon price at the border. If you haven't got a carbon price that's high enough, say with my Malaysian steel producer, you at the border have to make up the difference between what the EU carbon price is and what you're paying. So we thought, well, maybe we should credit a lower income country like Malaysia with a lower carbon price and get them exempt from the border adjustment at that lower carbon price. And so we put together this report. We have a couple of key takeaways. One is just noting that if carbon pricing proliferates, this will bring in a lot of revenues, a lot of fiscal revenues to countries. So for instance, for India, the carbon prices that we model in our report, the domestic revenues would be about 2% of India's total domestic fiscal revenues. It's a lot of money for the Indian government. The next thing we do is look at how many emission reductions we would drive. We think that the coalition could drive seven times the emission reductions as what we would get with just the current policies. And finally, we show how with this graduated carbon price, low and middle income countries are poised to benefit, especially low and middle income countries, like some of the African countries, where they have very clean production. A world that is pricing carbon is a world that rewards clean production, like the production in Malaysia. So what I wanted to do, or what we wanted to do on the panel is think about this climate coalition that the working group has proposed, think about why different countries might find it compelling and think about how we might move forward with implementing it in practice. So with that in mind, let me turn first to Marcelo. Marcelo is from Brazil. Brazil has an emissions trading system. Brazil is one of the countries that recently, in part in response to the CBAM, has been adopting carbon pricing. So you've got this emissions trading system, you're facing policies like the CBAM. How do you see these policies affecting Brazil's competitiveness as an exporter? And do you think joining a broader climate coalition with the shared rules and support could be a better path forward than acting alone.
[00:20:57] Marcelo Medeiros: Thank you. Thank you, Catherine. Thank you for the invitation to be here. I think there are a number of tangible outcomes from joining a coalition. And two of the most obvious ones are the access to export markets and revenues and tax revenues the country can generate. And I think those two tangible objectives are not the ones that interest Brazil the most. If you look at export markets, I think there's-the difference is going to be minimal. The only product of the-products that are going to participate in the CBAM protection are products that Brazil is not a big exporter, except for steel. And Brazil exports more than 50 percent of the steel exports to the U.S., which is certain not to participate. So it's not a big incentive for Brazil to say that it's going to have more access to export markets, especially for these products. And the second one, revenues, I think it's something that's very desirable, the government striving to get more tax revenues, but it's not a good selling point for the government to justify joining the coalition for the tax revenues. However, all the other non-tangible assets are extraordinarily valuable for Brazil. First, Brazil is implementing its own carbon market, its own ETS in Brazil right now. And without joining a coalition, the discussion on how to regulate and how to price this market is going to be impossible within Brazil. If Brazil is left to discuss this with its own internal political forces with no outside agent, I think we will-discussion will get completely out of hand, will be captured by lobbies, by interest groups, and the fact that we're going to have the discussion side by side with discussion of how to join the coalition and having to adhere to some of the rules and regulations and price of the coalition, it's going to be a tremendous benefit to the establishment, the creation of the ETS in Brazil. So this is one clear benefit. The other one is joining a group of rational players that are interested in solving the climate crisis, and it would be a forum for Brazil to advance its own discussions in which Brazil is primarily interested, like forests, carbon offsets. And this discussion is completely off-track in the existing forums. I just heard the CEO of the 28th COP, Admin Adam, and he was mentioning that when asked what would you change if you-in the negotiations of the Paris agreement, he said, the negotiators. And everybody laughed. And he said, look, not because I don't think they're the best possible negotiators. The problem is that they've been negotiating among themselves for 10 years. And they're going nowhere. And they lost track of what the reality is. So the coalition is a fresh look at some of the old problems and a chance to discuss things from a different angle. And I think this is going to be very good for Brazil.
[00:24:16] Catherine Wolfram: Awesome. So it helps solve some of the internal political problems with setting up the ETS. That's interesting.
[00:24:22] Marcelo Medeiros: Yes. I think it's possibly one of the only ways to solve this. If not, this discussion is gonna drag forever.
[00:24:29] Catherine Wolfram: Interesting, interesting. Ian, let me turn to you next. You have a recent CGD paper that argues that CBAM could affect Africa's growth prospects, even as it's meant to strengthen global climate ambition. So from your perspective, what do you see as the risks and opportunities from the CBAM? And could a climate coalition better support development in low-income countries?
[00:24:54] Ian Mitchell: Right, thanks, Catherine. Yeah, exactly. We've had a look at the CBAM and its developmental impacts, particularly on Africa. And I guess, you know, Africa being so close to the EU, it being such an important export market, the impacts are potentially, you know, getting up towards 1% of GDP, which isn't huge, but actually, you know, if any of our economies were getting a 1% GDP hit, we'd be thinking about that very seriously. I'll come on to a bit more what the coalition can do about that in a moment. But I suppose, just first of all, for the EU, I mean, actually, the reason we're in this situation is because the EU has been one of the only major economies to implement a carbon price. And that carbon price is at a significant level in a way that it's not almost anywhere else in the world. And so, in the introduction to CBAM was, as Rachel said in her introduction, a very sensible response to A, the risk of leakage and B, industrial complaints within the EU that they are being punished by the EU's climate policy. So it was really critical to maintaining support for the scheme. And it also, as Marcelo, is not so relevant for Brazil, but the revenues of the emissions trading and the CBAM are relevant for the EU, which is trying to demonstrate it's value-added. I think where it went wrong, and you mentioned COP28, it was incredible, the bad feeling around, what I'm arguing EU is arguably the most progressive climate actor was being harangued from all sides for the introduction of CBAM, because it seemed to ignore this principle of common but differentiated responsibilities, and that principle was in the climate negotiations and in the trade negotiations, and the emissions per head, it just doesn't make sense for Africa, which is emitting one tonne per head, to be taxed by the EU, which is emitting seven or eight tonnes per head. I think it failed the kind a common sense test. But I do think the CBAM is important and valuable and I think it can learn the lessons from the CBAM's initial design. And I guess the one thing that we've seen, it's been two years since the CBAM timetable has been confirmed, but 75 low and lower middle income countries of that group of 75 countries, only one has implemented a carbon price, which as Ukraine, and another two have got one under design. So it just shows you the capacity for these economies to implement a carbon price is very low. And I think that's where the coalition ideas about support and Catherine's written a paper on this saying, why would you pay the revenue to the EU when you can, you know, if you introduce a carbon price and you can raise the revenue yourself. And a carbon pricing, it's focused on industrial sites, it's quite manageable to raise that revenue and lower income countries sometimes struggle with that. So I think, for me, having, I mean, the coalition having a story for lower income countries that aren't emitting enough, but do have industry, and B, having that support, you know, is a significant feature of the design of the proposal, I think.
[00:28:00] Catherine Wolfram: Great, thank you. Since you brought up my work, I'm gonna take the moderator's prerogative, and I'll say you brought up the statistic that I've seen as well that CBAM will potentially reduce an African country's GDP by 1%, which is a big hit, I agree. Although I would question the conclusion of that report, I do think that some of what's been done is just kind of assumed that like aluminum is equally dirty no matter whether it's produced and has not recognized the fact that aluminum produced in South Africa is very different from aluminum produced in its neighbor Mozambique. Mozambique has a electricity system that is essentially 100% hydroelectric. South Africa, by contrast, has an electricity system that's like 95% coal and so from a carbon perspective that those two aluminum producers are very different. So while South Africa, their GDP might be hit quite substantially, it's potentially at the benefit of Mozambique. Mozambique with this very clean aluminum, much of which is exported, they're not consuming a lot domestically, has the potential to expand its aluminum production. A world that is pricing carbon is a world that attracts aluminum production to places like Mozambique that have a lot of clean hydro or, you know, solar if they want to develop solar, clean electricity. So yeah, I do think it's important to recognize that there's heterogeneity.
[00:29:37] Ian Mitchell: As long as it can implement the carbon price, so it would have to demonstrate, Mozambique would have to demonstrate that its energy is clean.
[00:29:42] Catherine Wolfram: Yeah, so there's that, there's implementing the carbon price, but also you know, even if they can't implement the carbon price, hopefully they will. It's a it's a no-brainer for Mozambique to implement the carbon price and we're actually working with the government. I don't know if they're one of your two that have it in plan but it's definitely in process in Mozambique. But even without it, it's just that it becomes very clean electricity and so that clean or sorry, clean aluminum has a competitive advantage. Yeah. All right, Jen, let me turn to you. Sorry, not to leave you out of the conversation. So you're from Canada. Canada has experience with carbon pricing, lots of experience. Why does a climate coalition approach matter for a country like Canada? What's at stake in terms of climate leadership, competitiveness, and fairness?
[00:30:35] Jennifer Winter: Okay, well it's great to be here and I think before I start with my remarks I just want to let everyone know that while I am departmental science advisor my position today is not that of the government of Canada. I wouldn't want my remarks to be misconstrued as official position. So yeah, like Canada has a lot of experience with, with emissions pricing, most of it sub-national, starting in 2007, with the, with, with Alberta implementing industrial pricing. Alberta is where I'm from. And I think the coalition approach for Canada is really like rooted in the collective action problem of climate change, in that Canada is a small open economy, it's trade exposed, and a lot of its important economic activity is both emissions-intensive and trade-exposed, and so a big preoccupation in Canada is if we do something, if we take action on lowering emissions either through regulation or pricing, are we going to lose competitiveness relative to the rest of the world? And that's, you know, fundamentally the collective action problem of addressing climate change. So Canada has a long history of collective decision-making and collective action. And carbon pricing came into effect in Canada, and Canada-wide carbon pricing, because there was, at the moment, political consensus on taking action. And that meant that because everyone was going to do the same thing within Canada, that meant that there wasn't that competitiveness issue within Canada. So I think it's just like a little bit of a microcosm because it's like, it's a big country. There's differences in energy systems and economic activity in the different provinces and territories. And so it really is a little bit of a microcosm of that collective action problem. And I think like the other really interesting thing about Canada is that we're emissions intensive trade exposed. And we're also a country that swaps between being a net exporter of emissions and a net importer of emissions. And so that's also why having a level playing field is important for businesses in Canada.
[00:33:09] Catherine Wolfram: Great, wonderful. Okay, so we've kind of laid the groundwork where different countries might be coming from, why the coalition might be attractive. So I want to turn now to thinking about how to actually potentially get the coalition implemented, what are some potential challenges that we'll run into, what are some pathways. So let me turn first to Ian, and just to set up this question, one thing that we contemplate in the report is, in addition to having the coalition countries agree on carbon pricing, on some additional kind of complementary climate policies and particularly climate policies that could help induce low and middle-income countries to join the coalition. So we think for instance about agreements around either tariff free or lower trade barriers to the trade in the inputs to clean aluminum or clean steel. You know maybe we'd agree to have free trade of electrolyzers within in the coalition as a way to make it easier for low and middle income countries to decarbonize. Maybe even more importantly, we think about potentially having some of the high income countries use their domestic carbon pricing revenues to have climate finance. Maybe they could set up a trust fund at one of the MDBs or at several of the MDBs to have programs that would subsidize clean aluminum or clean steel production in coalition members that are lower middle-income countries. So I want to turn to Ian, and I know that you have experience working in the UK government and engaging with the EU, so how would you recommend designing incentives like these that are attractive for low and middle-income countries as well as palatable to the donors within the coalition?
[00:35:07] Ian Mitchell: Great, thanks Catharine, and I mean in your proposal you suggested potentially three different levels of carbon pricing, which I think the IMF have suggested as well, and I think that's certainly one way to do it. I know when the EU considered that, it's a global public good, the price should be the same everywhere, and that was the compelling argument for them. But I think that the idea of allocating some of the revenues from the CBAM or from the carbon pricing into lower-income countries would help a lot with the politics. I think that it's quite difficult to assure that that money is additional. So the EU at the moment, I think, is gonna move towards saying, well, our development aid will support carbon pricing in lower income countries in response to the C-BAM. We're waiting to see what they're gonna say in their vision today, but that's one of the things that's been trailed. So I think there is value in that, but I guess lower income countries need to be realistic about whether that's an additional stream of income or whether it's just a diversion. I thought the other things in terms of sort of the design and experience in UK government, there was, I think you considered it in your report, probably the best and maybe the only example of a kind of trade incentive for international action is the Montreal Protocol, which was agreed in 1991 and tackled the gases that affect the ozone layer. And we were talking beforehand about how remarkably quick that was, and it was a US-led initiative. And the way that it worked was, if you weren't in the coalition, you couldn't trade in the products containing these gases. So it was a very steep incentive. You were either in and you could trade or you were out, but having the world's largest economy in hosting that made that a powerful incentive. So I think there's also something in that. I mean, having a coalition with a large proportion of the global economy and emissions would be important. And the most recent, again, there have been some thoughts around this in the G7 at least to create a climate club, which was a Germany-led initiative two years ago. That hasn't got binding membership requirements in the way that you're talking about for the coalition. It's got 46 countries in that coalition now, though, and Indonesia and Malaysia are two of those countries. So it is broader than just the northern countries. But I think for that sort of coalition to work, it needs a broader grouping with Brazil. And if you're going to be creating trade incentives that really work, then maybe you also need China in it, given the world we're in and the fact that you'd need to incentivise certain large northern economies to rethink their approach to climate. Then I think that's the challenge. It's a multipolar world and it means working with new partners.
[00:37:57] Catherine Wolfram: Yeah, so thinking about getting the right countries in as an initial first step, yeah, that makes a lot of sense. So Jen, let me turn next to you. Canada has had a lot of experience with carbon pricing, so what lessons can we take from those experiences about the politics, the practicality of implementation, how do you build durability? I know Canada has some more durable carbon pricing systems than others so what are some great lessons that you can convey?
[00:38:29] Jennifer Winter: Yeah okay and I'll try not to go on too long because it so carbon pricing in Canada is fairly complicated. What's in place now is a federal minimum standard that provinces and territories have to demonstrate they meet and if the say the provincial policy doesn't meet that federal minimum standard, then a federal backstop is imposed. So that's sort of the basic structure that was implemented in in 2016 and that the sort of the coalition of the willing, there was cross-Canada consensus to implement emissions pricing as an efficient and effective way to address emissions. I think I also want to note that it's like yeah Canada has a lot of experience with emissions pricing and it was Alberta that was the first province to implement it in 2007 with industrial pricing and so you may or may not know that like Alberta is the home of the oil sands and the majority of Canada's oil and gas production and I think it's not necessarily recognized that it was Alberta that was the first mover in Canada with emissions pricing, followed by Quebec with a cap-and-trade system. So there's lots of variation. What was really, really challenging in Canada in particular was that when we started implementing Canada-wide carbon pricing, it came into force in 2019. And at the same time, there was anxiety about affordability. And then we had numerous global shocks following along, Russia invading Ukraine, COVID, et cetera, supply chain disruption. All of that contributed to some extreme short-term price increases, like very, very high inflation. And emissions pricing got wrapped up in that concern. And there was also political change. And it was very successfully used as, I would say, like a wedge issue around affordability. And in this year, what happened was the federal government removed the consumer-facing emissions price, and the provinces and territories followed along soon after by setting their price to zero. We still have industrial pricing across Canada, and that will account, or that will mean that the majority of emissions in Canada are still priced, just not as much as it was before. And so I think it's, the real lesson is that emissions pricing is often unfortunately complicated to explain. I once spent Christmas dinner explaining to my parents how it worked, you know, for the economists in the room, it's, you know, income effect and substitution effects associated with the tax and the rebates. And it's like Canada did have tax-based rebates that were uniform, and that was meant to compensate households for the increase in costs. It wasn't understood very well. And so the political narrative about affordability became just unfortunately all-consuming. And I think that's one of the key lessons is that you can have a coalition of the willing and it can disappear, and then other factors can have extreme disruption on your desired policy direction. That said, I'm still optimistic and we still have industrial pricing and I also think it's sometimes economists will often get fixated on efficiency and the lowest cost pricing system. And that means that sometimes the perfect is the enemy of the good. But I think it's a real lesson from Canada's experience is that their can will always be policy change.
[00:43:07] Catherine Wolfram: Interesting. I guess I take it, too, and I think you said this, is maybe consumer-facing goods are harder than more upstream. Is that fair? So you still have the industrial carbon price, you don't have the retail gas price.
[00:43:22] Jennifer Winter: Yeah, yeah. I think it's upstream. I think Quebec's cap-and-trade system, for example, is much less controversial. And that's because the price is, you know, hidden in the cap and trade system. And it's probably a lesson from the European Union. The other part of it was people just fundamentally misunderstood what was happening. There was polling before Canada's carbon price was implemented in, so it came into effect April of 2019. And so there was public opinion polling about how much the carbon tax had increased gasoline and the cost of living in March 2019. And it was over six, it was like two-thirds of respondents said it had either increased a lot or some are a lot, right? So it was just the fact that people knew about it meant that they thought it had affected prices even though it hadn't.
[00:44:15] Catherine Wolfram: And then Russia invaded Ukraine and their gas prices went way up. Exactly, exactly. They were really mad, okay. All right, Marcelo, Brazil is about to be the host to the major climate conference, COP30. Why does Brazil see this conversation as timely and important and how do fairness and inclusivity come into play?
[00:44:38] Marcelo Medeiros: Well, I think two of the top priorities of Brazil are the TFFF, the Tropical Forest Forever Facility and the coalition. I think they made this very clear. Those are the two top priorities and they kind of complement each other. For the TFFF, Brazil's basically asking the world to contribute money to help protect the forests, the Amazon forest. In the other one, Brazil is showing commitment to a climate agenda. So they kind of tie together nicely and Brazil is not just asking things, Brazil is contributing and Brazil is offering to take a bit of a leadership role in discussing this and taking the responsibility for promoting the agenda. So I think this should look nice in Brazil. I think Andrea Corrêa do Lago, the co-president, see this connection and is working with it. The other good thing about this is this has helped connect the three important, the two important, the Ministry of Finance and the Ministry for the Environment are connected in this agenda. They see benefits for those two things being together. And the president of Brazil saw this connection And he also agreed to connect those two top priorities. So I think this is very, very timely. And I don't think Brazil would be as much involved and forthcoming if it wasn't for the COP. So I think it's very timely. In terms of fairness, I think one of the concepts that is dear to Brazil, Brazil has always been right there in the middle, capable of entertaining discussions with the G20, but also having a dialogue with the poorer countries. And the fact that you have a differentiated terrorist for countries and they're taking this into consideration in the discussion, I think it's dear to Brazil and makes Brazil a good actor in the discussion. I think this is something that goes well with the Brazilian diplomacy and the type of relationship that Brazil has with both sides of the equation, with the very poor countries and with the developed countries. There is another question of fairness and inclusivity, which is the inside Brazil. And this would-the two things would have also to connect to the fact that Brazil sees the 28 million people that live in the Amazon, both victims of the climate situation. We had severe droughts and natural disasters in the region. And also the fact that you're going to have to protect the forest sounds to the people that live around the forest like loss of income, loss of revenues. So to the extent that we can show that a coalition is a window to new opportunities and to participation in a group of countries that will permit us to create new economic opportunities for Brazilians, I think this also helps in the discourse.
[00:47:58] Catherine Wolfram: That's great. So it's my understanding that with the TFFF, Brazil itself has committed to invest. Brazil has committed some money. So to me that's an important step that a middle income country is saying, look, we're not just looking for climate finance, we're going to be contributors to it.
[00:48:23] Marcelo Medeiros: It was a strong symbolic gesture, but it's $1 billion, there's $124 billion to go.
[00:48:30] Catherine Wolfram: OK, but China is also, right?
[00:48:32] Marcelo Medeiros: Yes. I think it was a strong symbolic gesture. Yeah, it's still going to sound to the world that we need the money and we're asking for large contributions. But I think it was a good gesture and a timely one.
[00:48:48] Catherine Wolframs: OK, OK. All right, as a warning to the audience, I'm going to ask one more quick question to the panelists, and then we will put it out to you for a Q&A session. So the panelists, why don't we go this way, start with Jen. Yeah, kind of one or two minutes each. What's the single biggest challenge to launching a coalition and what makes you optimistic?
[00:49:12] Jennifer Winter: Okay, so I think what I see as a single biggest challenge, and it's rooted in the fact there are lots of examples of climate-focused coalitions, like the G7 Climate Club, the Global Methane Challenge, Canada's Global Carbon Pricing Challenge. The majority of them are focused on information sharing and best practices, and I think that's great for more general policy coordination, but to have it rooted in specific actions, like the Paris Agreement. The Paris Agreement is, I think, the single coalition that is actually rooted in an action, an objective, And so I think moving from these coordination coalitions to action coalitions is, I think, a big challenge. But the fact that there are so many coordination coalitions also makes me very optimistic, because the fact that there is a desire to coordinate over policy means that it is easier to step to action, because it addresses competitiveness, fairness, et cetera.
[00:50:20] Catherine Wolfram: All right, great. Thanks. Ian?
[00:50:22] Ian Mitchell: I agree with that. I mean, I think there's a lot of coalitions, as you say, around best practice and ambition. You know, if we're going to defeat climate change, we need economic policies, and you're not going to subsidize your way out of climate change. Countries cannot afford to use subsidies as a tool, and so you need to use tax as a tool, and that is the carbon price. And so, for me, I'm really glad Brazil was taking this seriously, because if you don't get progress on that, then we really aren't going to, if we haven't got economic policy to tackle emissions, which basically is a form of carbon pricing in whichever form it takes, whether it's cap and trade or a different form, we absolutely must have that to make progress. And so that's the prize. And I think the challenge is exactly, as you said, Jen, is just to get enough countries willing to make that concrete step. Because I think there's a lot of low carbon prices. We actually calculate them in our Commitment to Development Index. You can look at how much the carbon pricing in a country adds to the cost of carbon. In most countries, it's very low. Only really the EU is into the $30, $40 per ton, and that's the big challenge, I think.
[00:51:29] Catherine Wolfram: Canada's up there, right? Canada's, give credit to Canada. But to your economic policy point, this is what Marcelo's talking about, like having the Ministry of Environment talking to the Ministry of Finance. You need both those involved if you want to make environmental policy that recognizes the economic incentives. OK, Marcelo.
[00:51:53] Marcelo Medeiros: I think I'm going to talk about something we heard this morning. Catherine and I were at another seminar, and we heard the senator saying that CBAM is absolutely critical. I think he mentioned three things, CBAM, homeowners, and the villains. But he talked first about CBAM, how CBAM is absolutely critical to solving the climate crisis. Without C-BAM, we don't have a chance. And I think this coalition is something that first and foremost raises the profile of C-BAM. Everybody knows what C-BAM is. There's a lot of talking about C-BAM. And a coalition of countries getting together to make it work and to make it stronger, I think it's absolutely critical if we want to have a chance. Also creates a new group with actors that are willing to resolve things, that are willing to move things forward. And unlike the Paris Agreement, which became probably too big with too many countries and two different agendas that are different and became a tit-for-tat negotiation, this one is one that's meant to work, that's meant to achieve practical results quickly. And building on a base, as you showed this morning, that's already there. 80% of the products that are coming into this coalition are already taxed. So it's just getting together and make it work. And I think that's something to be very optimistic about, the idea that the coalitions will just catalyze a movement that will make CBAM work and start a new and fresh negotiation about the climate agenda.
[00:53:36] Catherine Wolfram: Let's hope. Let's hope. Yeah, Marcelo, I described my favorite statistic in the whole report this morning, which was that amongst the sectors that the CBAM is targeting first and that the report suggests as targets for the coalition, 80% of the emissions globally are already covered by carbon prices. So we kind of have to talk about this. These are heavily traded goods. We have to talk about how that's gonna work, which is what the coalition is offering to do. All right, I think we have about 10 minutes remaining. If you have questions. Questions from the audience.
[00:54:23] Audience question 1: Hi, my name is Kelly. My question is, I think, Jennifer, you mentioned the impact of inflation just within Canada on this, but I guess my question is how are currency fluctuations, at all being considered in terms of maybe CBAM and trade more broadly, particularly the impact on developing countries who are trading and are getting these carbon prices placed on them, especially if they're going into markets that are not in their currency?
[00:54:53] Jennifer Winter: I can maybe answer based on Quebec's experience. So Quebec has a cap-and-trade system and it's linked with California and there's a minimum price path that is it's set in both currencies and then it's okay sorry so yeah the minimum price path is set in in both currencies and they're like initially assuming like one to one dollar per dollar and then when the trading happens it's whichever is the higher currency matters. So it's, the system has built in an accounting for exchange rates and those fluctuations. It's, I think, like, maybe it's perhaps not the best example for you because the Canada-US exchange rate is relatively stable. Like, it does fluctuate, you know, depending on economic conditions in both countries but at the same time it's relatively stable and I also think it's like we're both also like developed stable countries and we're fairly integrated and so that means firms on both sides of the border are used to accounting for fluctuations in exchange rates in doing business and so it's you know just part of the natural order of things.
[00:56:24] Marcelo Medeiros: That's a very good question. I don't think it came up while we were discussing, but if you fix $25 for poor countries, and in poor countries where you're going to see the widest variations of currency, is it going to be fixed at $25 even if there is big movements in the currency? That's a very good question.
[00:56:46] Catherine Wolfram: Yeah, I have two thoughts on that. One, I agree, it's a good question. And there are lots of technical implementation details that the report did not dive into. So in addition to currencies, how do you compare a carbon price market that's offering free allowances to a carbon price market that is tied to the intensity, the production, like China's carbon price is now? I think there are ways to compare them, but we need to develop the set of rules that the coalition would use to recognize different flavors of carbon pricing. So I guess I would add that to the list of kind of technical things that we'd have to think about, which is exchange rates. I don't know if this is what you were talking about, but I suspect that for the vast majority countries, maybe all the countries, trade in these goods isn't enough to move the currencies. So I think starting with the smaller set of industries, you're not gonna see kind of an endogenous response to the coalition, but.
[00:57:51] Audience question 1: Yeah, more like in certain periods, it almost seemed like a double tax, right? Because of the exchange rate, if you have to pay US dollars, then it'd be. Yeah, I think I was thinking of it more where in certain periods, it would almost seem like a double tax. I see. Because of the exchange rate fluctuations.
[00:58:11] Catherine Wolfram: Yeah, no, that's a really good point. That's a great point, thank you.
[00:58:14] Jennifer Winter: Well, I think that gets into design, right? The design is really important. And it's like, the lessons are from Quebec and California, and then the UK and the EU ETS. And in both of those instances, exchange rates were taken into account in the design of the system.
[00:58:40] Catherine Wolfram: So there's technical work to be done, but some precedent. Yes. Right. I saw another.
[00:58:48] Audience question 2: My name is Amir Rajani. I'm a recent graduate of a public policy program from the University of Chicago, and I work in carbon credits both in U.S. and in Pakistan back home. My question is regarding the technical deficiency, especially in the developing countries, around calculation of carbon credits and validation of that information at a global scale. So what actions or what options do you suggest can be implemented, especially in the developing countries to correct that issue?
[00:59:24] Catherine Wolfram: I'll go with carbon credits. Marcelo's thought a lot about carbon credits.
[00:59:28] Marcelo Medeiros: Well, the, you mean the carbon credits offsets? Yeah.
[00:59:32] Audience question 2: To identify how much carbon emission has been reduced by a certain company or an organization.
[00:59:39] Marcelo Medeiros: That's, I didn't mention it at the beginning, but in the non-tangible benefits to Brazil, for instance, is to introduce this discussion because in the paper that Catherine's group produced, there is a provision for discussing carbon offsets, carbon credits, so one of the benefits to Brazil is to have a coalition where you can have a rational discussion about the carbon offsets for developing countries in general, and for Brazil in particular, this is very important. If we can neutralize part of the emissions with what we can do in terms of removals in Brazil, and it's going to be the same for Indonesia, maybe the same for India, that's an important component. And the discussions are probably going to be much easier to entertain in a group like the coalition than they have been lately in the Paris agreement. And that was a bit what was in my mind when I said that I like the phrase that we have to change the negotiators, because they have been going around and around and around for 10 years and didn't come to a conclusion. It's fairly simple to do some basic standards to accept carbon offsets, but they haven't reached an agreement on that, and we're just missing the chance of making this work. This could be a very interesting contribution from the developing world to the climate crisis. crisis. So, and I think the coalition, it's going to help a lot. I'm again optimistic about that.
[01:01:16] Ian Mitchell: I think there's two parts to this. And one is just the compliance with the CBAM. And we were touching on this a bit on this earlier with regard to Mozambique. And, you know, if the aluminum plant uses low carbon energy, can it demonstrate that as it got the capacity? Now, it's probably an international company and maybe yes. But if it's also got to do a similar process for exporting to Canada and a different one for the UK and then a different one elsewhere, then that's going to be a big burden and problematic. And then I think there's the question of, have the countries got the capacity to introduce carbon pricing and how do you do that? And back to the prerogative of the chair, this is where Catherine's paper is excellent and sets out the steps that a country would need to take. But as I was saying earlier, the proof of the pudding is in the eating. The CBAM starts in January and countries haven't got carbon prices. So they are finding it very difficult, I would say. And it will be interesting to see, after it's implemented, what the actual consequences are for EU exporters.
[01:02:15] Catherine Wolfram: One more question?
[01:02:18] Audience question 3: Hi, I'm Lucas, a student at AU. My question is, do you see this conversation happening in current international global organizations or new organizations that would be like a secretariat to enforce, validate, and then develop the capacity in developing countries.
[01:02:39] Catherine Wolfram: I have thoughts on that, but maybe I'll start. It's very hard to start new organizations. I think the ideal is to use existing organizations. I think, for instance, the Coalition of Finance Ministers for Climate Action might be a good organization. We've talked about the role of finance ministries in this type of policies, so that's like the right set of countries or right set of ministries. Yeah, I mean, eventually maybe if it really takes root, then you can think about starting at a bespoke institution, but I think originally or initially it makes more sense to start with existing institutions.
[01:03:27] Ian Mitchell: I definitely say on behalf of my colleagues, be sceptical about there being a new climate fund, right? I mean, every year COP sets up a new climate fund. So my colleagues have called for a moratorium on that. So I think there's plenty of financing mechanisms. I think eventually, if it becomes a serious sanctioning group of countries, you're going to need to have full governance and establish it as a body, but whether it's an evolving body from a group, I guess remains to be seen.
[01:04:02] Catherine Wolfram: All right. Please join me in thanking the wonderful panelists, and thank you to the audience.
