Global Carbon Price

Is globally-coordinated carbon price the next step to reach global sustainability goals? Watch the latest episode of Looking Back, Looking Forward (LBLF) by Professor Douglas Arner as he enumerates the roles that finance or digital finance play toward sustainable development.

Further reading: BigTech and Platform Finance: Governing FinTech 4.0 for Sustainable Development by Douglas W. Arner (The University of Hong Kong - Faculty of Law; University of Hong Kong), Ross P. Buckley (University of New South Wales (UNSW) - Faculty of Law), Kuzi Charamba (University of Hong Kong), Artem Sergeev (The University of Hong Kong - Faculty of Law)

Dirk A. Zetzsche (Universite du Luxembourg - Faculty of Law, Economics and Finance; Heinrich Heine University Dusseldorf - Center for Business & Corporate Law (CBC); European Banking Institute) :: SSRN Last revised: 8 Nov 2021

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LBLF Video Trancription:

We've talked a lot about how the big issues for finance over the decade of the 2020's are going to be technology, sustainability and an ongoing tension between globalisation and fragmentation.

And certainly if we think about the COVID pandemic, one of the biggest impacts of COVID as a sustainability crisis has been to drive forward an increasing consensus about the importance of sustainability; The importance of building systems that are resilient in the face of crises and systems which are capable of supporting sustainability, particularly as we think across the UN Sustainable Development Goals between now and the end of the decade because, after all, the key target for the UNSDG is 2030.

But at the same time as we think about sustainable development, COVID has also highlighted the very real existential threats of health crises, of biodiversity crises, of inequality crises, and in particular of climate change.

And of course November 2021 is marked by the G20 meetings and also by the COP26 meetings in Glasgow in the United Kingdom.

And as we are talking about a 2030 deadline to reduce emissions, to keep us within 1.5 degree celsius climate change by the end of the century, what role can finance play?

I think, first, is a real recognition that we are very close to not being able to make that goal at all. And if we are going to make that goal, we're going to have to make some very substantial, not only commitments, but actually changes over the coming years. And when we think about finance, the starting point, of course, is from the standpoint of trying to make sure that our financial system is resilient to the coming risks of climate change.

And I think what we are likely to see in an increasing range of countries, particularly across the developing world as a result of increasing heat, of migration, as well as of sea rise and flooding, is real dramatic systemic challenges.

And these are the sorts of things that we need the financial system to be resilient towards, but in some cases the threats are so existential that there really is no choice other than, even from thinking about it from a risk perspective, of the necessity to think about how can we redirect finance, not only to build better resilience in the face of crises, but actually to build better frameworks to reduce the likelihood of the crisis, in particular climate-relate disasters happening in the first place.

And if we think about from the standpoint of finance, in particular digital finance, we can see this from a number of directions.

The first, the resilience of the infrastructure, and this is a key role of digital payments and of financial inclusion. And something that we've discussed and has been very well highlighted by COVID.

But at the same time, we need to come up with substantial resources, hundreds of billions of dollars a year, to increase spending on technologies, to reduce methane, to reduce carbon, to increase energy efficiency, and really to build technologies to transform the way that our methane and carbon-intensive world works. And key to doing this is finance.

And of course, we can think of it from a number of different directions. First, of course, is redeploying existing financial resources, and many of the efforts in the context of building taxonomies for ESG, these are very important, and encouraging investors to invest in companies in technologies, in opportunities which not only make the world a better place and improve sustainable development generally, but also increase energy efficiency, reduce methane use and reduce carbon intensity. The second aspect is very much around how do we get additional financial resources.

And one aspect of this is financial inclusion: bringing people into the financial system. Making it cheaper and easier for people to use finance and to direct finance into beneficial areas, to support the global transformation of our economies and societies are necessary, really, to start before the end of this decade.

But of course, the final bit is also new money from the standpoint of being able to direct resources from the developed countries, in the context of their pledges, in the context of the multilateral development banks, the international organisations. All of these will need new resources and we're going to have to think very creatively about how to do this.

And I think one of the key ways that we need to focus on going forward is a carbon price. Not just trading of carbon. We've tried that and it's worked, but not that well.

But rather a globally coordinated carbon tax that will make carbon-intensive, methane-intensive activities more expensive, that will change incentives to direct investment in necessary directions, and will provide additional financial resources not only to support investment, but also to ameliorate the damages that are going to happen and already are happening as a result of climate change, and also to support future development of societies going forward, particularly those that are going to have to rely on a different energy mix going forward.

Time has come. A big idea. A carbon price.