Innovative approaches to achieve a global carbon market under the Paris Agreement

Abstract

Fundamental behavioural change, including in the way many if not most economic activities are conducted, is necessary if dangerous anthropogenic climate change is to be avoided by holding global mean temperature increase to well below 2°C above pre-industrial levels in accordance with the Paris Agreement. Carbon pricing is integral to bringing about this behavioural change and embedding a price or cost for carbon in economic activities is essential. An initial step to achieve this would be to build a global, or even international, carbon market through which a stable carbon price or price range could be established. Given the ever increasing urgency of the need for concrete and effective action, yet the ever decreasing timeframe in which to do so, the Earth’s atmosphere cannot afford the luxury of many further years to reach acceptable, negotiated, compromise agreements that may or may not, ultimately, make any real difference to anthropogenic impact on the climate: innovative approaches and thinking are needed now. This article posits three illustrations: first, that individual domestic carbon markets be networked rather than linked and how this can happen without delay; second, distributed ledger technology exists to make systems work better and more efficiently and needs to be applied: central bankers have a role to play here by expediting the development and operational implementation of central bank digital currencies that will enable realisation of the full benefits that disruptive technologies can bring to a global carbon market; and third, as the role of Mark Carney, UN Special Envoy on Climate Action and Finance demonstrates, central bankers can have a bigger role to play: they need to apply the immense influence at their disposal as custodians of the global financial system, grasp the nettle, and help embed a price for carbon in economic activities.

Keywords: Paris Agreement, networked carbon markets, distributed ledgers, common metric, mitigation value, central bank digital currencies, Network for Greening the Financial System