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December 11, 2015

Business leaders are warming towards carbon-pricing

By Franchesca Hashemi

Business leaders are warming towards carbon-pricing in order to cut emissions, a survey of 1000 executives from around the world has found.

In light of Paris COP21 and growing interest in the business world for a sustainable future, EY’s Shifting the Carbon Pricing Debate report has surveyed 100 executives from Europe, the USA, and emerging markets including South Africa, Nigeria, India, Russia, UAE and Saudi Arabia.

More than half (54%) of respondents agree that carbon pricing is the most effective way to cut carbon emissions, with a slightly lower amount (48%) having said their company is in favor of such a cost. Of the 100 respondents, only 7% were against carbon pricing while 27% say it would have a negative impact on the appetite for investment in their country.

Yet at a regional level, 64% of European respondents and 59% of respondent from emerging markets were in favor of carbon pricing, compared to the USA where just 18% of companies were in favor. However, the vast majority of USA respondents (73%) were "neutral" on the topic.

According to the World Bank, there are two main types of carbon pricing. The first is an emissions trading system (ETS), which caps total level of greenhouse gas emissions and allows industries with low emissions to sell their extra allowances to larger emitters, and the second is a carbon tax.

Presently the EU Emission Trading Scheme is the largest of its kind in the world, yet it struggles infamously with low prices and excess allowances. On the other hand, New York State’s carbon tax bill proposes to increase carbon taxation to $35 per ton, increasing a potential $15 per year with a maximum ceiling of $185.

For many company executives EU ETS and national carbon tax are already a way of life, yet EY’s study has shown a clear demand for improving existing carbon-pricing schemes, with 63% of respondents agreeing current approaches must be rethought.

EY’s global leader for climate change and sustainability services Juan Costa Climent describes carbon pricing as a divisive topic within the business community, and one that highlights a particularly deep difference in regional thinking.

"While many large-scale businesses recognize that carbon pricing can cut emissions, many are calling for harmonized, reliable and transparent methods that can be implemented with rigor and discipline."

Moreover, 78% of respondents say carbon pricing would have a strong positive impact on their business innovation, with carbon pricing spurring initiatives beneficial to performance and compliance. In contrast, a quarter (26%) of respondents says that carbon pricing would have a negative impact on overall carbon emissions for their organization.

Already, however, 75% of executives say their company benchmarks their carbon emissions against average industry emissions as part of a reduction strategy.

The same number of respondents confirmed they invest in low-carbon technologies, while 60% have made a renewable energy commitment. However, EY’ states internal carbon pricing of this calibre is most prevalent amongst companies s with $10bn revenue.

Yet the reasons for companies enacting a carbon price scheme vary. Of the respondents who have implemented a carbon-lowering strategy, 33% say it is primarily for regulatory reason, 29% consider it a voluntary action that aligns with the company’s values, 19% say it is part of a global effort, and the remaining 12% say it is to better understand carbon regulation and impacts on regulation in future.

Elsewhere and 55% of respondents agree that COP21 will lead to a fair carbon pricing scheme, but 68% believe it is up to national governments primarily to enact such a cost.

Costa Climent says business leader’s involvement in the run up to COP21 has had a positive impact.

"Many businesses realize that the benefit of carbon pricing can extend beyond simply meeting regulatory requirements.

"Yet the global business community wants a strong consensus from COP21 before low-carbon market practices are consistently implemented worldwide."

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