Remarks to Asia-Pacific Carbon Forum Jeju Island, Korea 6 Sept 2016 On carbon pricing and ‘clubs’ - The possible role of ‘Multilateral Cooperative Arrangements’ ` Michael Grubb Prof. International Energy and Climate Change Policy, UCL Editor-in-Chief, Climate Policy journal Board member, Climate Strategies Remarks to Asia-Pacific Carbon Forum Jeju Island, Korea 6 Sept 2016

‘All politics is local’ Facing the realities of international carbon pricing Some 5000? years after inventing money, we still do not have a single global currency .. Some 25 years after UNFCCC and Scandinavian implementation of carbon pricing, 20 years after the US Administration advocated for global carbon markets, 10 years after the EC set explicit objective to achieve that by 2020: Barely 10% of global carbon emissions covered by any carbon price Concerns about robustness or impact of existing systems … and almost all the systems (even across Scandinavia) are different in design, coverage, price, etc. The purpose of a carbon pricing ‘club’ must be to help national (and other) decision-makers, not to replace them!

Some key elements of ‘positive carbon pricing’ (see also CPLC Principles document) Not an abstract (externality pricing) but an instrumental rationale Investment as well as operational incentive A source of support for energy efficiency and innovation programmes Objectives and Narrative based around Long-run stability of energy expenditure ‘carbon leakage’ forestalled and eclipsed by ‘clean technology diffusion’ Allocation and stability: key design elements either Absolute cap with price corridor and mutual recognition trade linkages, and/or Output-based allocation plus downstream (electricity and materials consumption) pricing Linked with other pillars (distribution and technology strategy) Combined with internal carbon pricing in government agencies, financial institutions, and companies Set in international strategy / coalition implementation of PA

Filtering ‘Climate Clubs’ to get closer to pricing - and noting that international flexibility and pricing overlap but are not synonymous Clubs aiming to achieve objectives beneficial to climate Clubs quantifying or unitising their objectives Clubs allowing transfer or trading to achieve objectives Clubs applying compliance measures to achieve objectives Clubs using an explicit price instrument

Purposes of a ‘carbon pricing Multilateral Cooperative Arrangement’, could include: Pool experience, create narrative of a shared journey with common purpose, strategy and mutual benefits A vehicle for implementing NDCs and enhanced ambition towards the agreed Aims of the Paris Agreement Enhance domestic credibility and stability and expectations by anchoring in international commitments Creating international linkage between pillars eg. pooled funding for innovation and technology cooperation / capacity A forum for addressing competitiveness concerns and developing consensual approaches A framework for price expectations .. NB Workshop proceedings ‘Multijurisdictional Approaches to Carbon Pricing: Integrating Design Elements for a Low Carbon Club’ , www.climatestrategies.org

‘Multilateral Cooperative Arrangements’ - possible design elements Formulate as enhancing implementation and strengthening of Paris Agreement Jurisdictions with relevant legislative powers (whether or not nation-states) ‘Second chamber’ for industry and social groups Develop the institutional benefits eg. of common standards, mutual recognition, etc (Keohane et al, 2015) Consider the multiple forms of carbon pricing in international context Including possible trajectories for internal and ‘reference’ prices Develop norms for uses of revenues, potentially including Links with eg. Mission:Innovation and technology cooperation Consider international fund contributions eg. ‘2% club’ (as CDM levy, Quebec) Consider benchmarked / consumption-based approaches for carbon leakage For diverse participation (at least), need negotiated exchange rates to obtain benefits of linking without unacceptable loss of sovereignty control Combine these elements into a rules-based Multilateral Cooperative Arrangement – ‘club’ – to strengthen expectations, credibility and stability See eg. Grubb, de Coninck and Sagar (2015), Climate Policy 15:4. `

A key Question As we move towards 2018 review and 2020 revisions / extensions, is it time for the progressive countries in Asia-Pacific to take a lead? If so who, and through what regional processes?