"Towards a global price on carbon: Pathways for linking carbon pricing instruments" explores ways toward a global carbon price and examines possibilities to link different carbon pricing instruments like emissions trading schemes, carbon taxes and regulatory systems. The report was commissioned by the German Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB) to support the political discussion within the G7 about global carbon pricing and carbon markets.
In their report, the authors explore three different scenarios for globally converging carbon prices: (1) a scenario of linked ETS; (2) a scenario where ETSs are linked with carbon taxes; and (3) a scenario where ETS and taxes co-exist and collaborate with regulatory systems. The results show that across all three scenarios, ETS-only linking is the most cost-effective one as it unlocks the widest array of mitigation options. It is also the only scenario that would create a single global carbon price, reducing concerns about carbon leakage.
The report ends with recommendations to G7 members that were also discussed at a workshop of G7 Director-Generals on Climate Change in Berlin in April 2015. The authors recommend that G7 members should continue to promote carbon pricing at home, and if appropriate, scale up to the national level. Furthermore, establishing a voluntary platform consisting of G7 members and other major emitters may provide an appropriate forum for initiating a high-level strategic discussion on these issues, building on the work of ICAP and other initiatives. Finally, at the international level, it will be crucial to ensure that the Paris climate conference delivers an outcome that opens the door for carbon markets to play a role in cost-effective mitigation efforts and to their prospective linking.