G20 Endorses use of Carbon Pricing

The use of carbon pricing mechanisms and incentives was included in the G20 communique among the set of tools to facilitate the transition to a more sustainable economy.

The G20 in its latest communique has endorsed the use of carbon pricing mechanisms and incentives among the set of tools to facilitate the transition to a more sustainable economy.

The communique was issued on Saturday (10 July) after a meeting of the G20 finance ministers and central bank governors in Venice.

“Tackling climate change and biodiversity loss and promoting environmental protection remain urgent priorities,” the communique said, adding that the G20 agrees that closer international coordination on climate action may help achieve its common goals.

Ahead of the meeting, the FSB (Financial Stability Board) called on nations to coordinate action designed to address financial risks posed by climate change.

Closer international coordination can better inform discussions on the appropriate policy mix to shape just and orderly transitions to a low-greenhouse gas emission, more prosperous, sustainable and inclusive economy, the communique says.

It pointed to a “wide set of tools” that can be used achieve this, including:

  • investing in sustainable infrastructure and innovative technologies that promote decarbonisation and circular economy
  • designing mechanisms to support clean energy sources, including the rationalisation and phasing-out of inefficient fossil fuel subsidies that encourage wasteful consumption
  • the use of carbon pricing mechanisms and incentives
  • providing targeted support for the poorest and the most vulnerable

The communique also highlighted the need for quality data and comparable frameworks of disclosure to address climate-related financial risks and mobilise sustainable finance.

The G20 will work to address data gaps identified by the FSB and highlight the importance of financial authorities considering scenario analysis, including “drawing on common scenarios as appropriate”.

In addition, the G20 nations will work to promote implementation of disclosure requirements or guidance building on the TCFD framework to “pave the way for future global coordination efforts … aimed at developing a baseline global reporting standard.”

The communique says the G20 welcomes the work programme of the IFRS Foundation to develop a baseline global reporting standard, as well as the FSB roadmap for addressing financial risks from climate change.

“This will be a living document and will complement the work carried out by the SFWG [G20 Sustainable Finance Working Group].”

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