At Equinor we believe that you can put a price on carbon. In fact we have to because it is one of the most effective ways to combat climate change.
A cost on carbon pollution encourages polluters to reduce their greenhouse gas emissions. This is often referred to as a carbon price. By putting a price on greenhouse gas emissions (carbon), Equinor and other companies, producers and consumers have an incentive to find new and cost-efficient ways to reduce emissions. Carbon pricing systems, if properly designed, drive fuel switching from coal to gas and investments in energy efficiency and low carbon technologies such as renewables and Carbon Capture and Storage (CCS).
Carbon pricing usually takes two forms: a carbon tax or a requirement for emitters to purchase permits to emit (also called emissions allowances). Because such permits are tradable and emissions are limited by the total number of available permits (the overall cap), this system is known as ‘cap-and-trade’.
Equinor's view is that carbon pricing is the most proven and cost effective way to tackle climate change. Equinor's CEO, Eldar Sætre, has spoken of how Norway has had a carbon tax for over 20 years and this has helped Equinor prioritise investments and inform their decision making: “We know that carbon pricing works. If more governments put a price on carbon, business will follow suit and quickly.”
Norway is not alone. A growing number of governments and companies are addressing climate risk by putting a price on carbon, and are seeing reduced emissions, strong economic performance and healthier development. 40 countries are already imposing a price on carbon or preparing to do so and 40% of global GDP is now covered under some form of greenhouse gas emissions trading scheme. The infographic above shows where carbon pricing is successfully working.
Local, national or even supranational carbon markets when first built were not outward facing, focusing only on their specific regions. But as more and more carbon pricing schemes are created, carbon emissions allowances have the potential to be traded globally and will start to exhibit similar characteristics to financial markets. However, there remains scepticism over the ability to introduce a universal carbon pricing scheme, with some critics suggesting that a truly global scheme is unworkable. But recent developments have shown that linking these markets is achievable.
In order to achieve this, a key next step is to agree on common monitoring, reporting and verification procedures which will allow the linking of carbon pricing schemes. As Jeff Swartz, Director of International Policy at the International Emissions Trading Association (IETA), points out: “The momentum for harmonising carbon pricing mechanisms is growing. Countries are communicating that they plan to increase their overall ambition by trading emissions allowances with other countries.”
The momentum for harmonising carbon pricing mechanisms is growing. Countries are communicating that they plan to increase their overall ambition by trading allowances with other countries. Well-designed carbon pricing systems that are able to expand by linking with other systems over time will both advance environmental objectives and reduce costs.
Jeff Swartz, Director of International Policy at the International Emissions Trading Association (IETA)
The linking of these markets has taken place voluntarily. Bilateral recognition of allowances under cap and trade or through a linked set of policy instruments is the single most effective way to reduce global emissions. The next step to ensure that this global carbon market is fair and sustainable is the creation of a global benchmark – a global carbon price. The price of carbon will vary in different areas in the initial phase, but as Eldar Sætre says it is crucial to create a “framework that enables the different carbon markets and trading systems that already exist to be linked and work towards a more harmonised global carbon price.”
Six chief executives of some of the largest oil and gas companies, including Equinor, wrote to the UN Framework Convention on Climate Change (UNFCCC) and the President of COP 21 advocating for a global carbon price to be a key element of any global climate change agreement. This would give energy companies long-term certainty and stability, encourage investment in low carbon technologies and help mitigate against carbon leakage (the term used to describe the transfer of production to countries with less stringent greenhouse gas emissions regulations). Although they acknowledge that this will add to the oil and gas industry’s costs, these CEOs agree that it is necessary for a sustainable future.
Pricing carbon obviously adds a cost to our production and our products – but carbon pricing policy frameworks will contribute to provide our businesses and their many stakeholders with a clear roadmap for future investment, a level playing field for all energy sources across geographies and a clear role in securing a more sustainable future.
Letter from CEO’s of BG Group, BP, Eni, Shell, Equinor and Total
A clear goal for Equinor is not only to make sure that carbon pricing is debated but actually becomes the cornerstone for tackling climate change.