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Leading up to the Venice summit, the G20’s record on climate already looked less than ideal.

Since 2015, the G20 countries have collectively spent $3 trillion on fossil fuel subsidies, and several key members, including major polluters India and Saudi Arabia, have not yet committed to reaching net zero by 2050.

Ahead of the summit, environment ministers from developing countries called for stronger action on climate finance. Yet the pledge to provide $100 billion in climate finance, essential for helping developing nations to reach their climate goals, remains unmet.

Despite making progress on issues such as a global corporate tax rate, the G20 showed little ambition to take on climate problems, with implications for outcomes at the COP26 Conference this November. 

While the G20 Finance Ministers’ communiqué reiterated key commitments to providing climate finance, it ultimately failed to deliver substantive, concrete proposals. Instead, it promised to “encourage” green investment and “promote” the implementation of climate risk disclosure practices.

However, the G20 communiqué did for the first time mention carbon pricing as a potential policy tool. Carbon pricing systems are financial tools which transfer the cost of releasing greenhouse gas emissions to producers, incentivising investment in more sustainable practices.

The most common version of this is ‘cap-and-trade’. Inspired by the 1990 US Clean Air Act against acid rain, this sets a ceiling on emissions that businesses can emit, and provides for a fixed number of emissions allowances, which companies purchase and then trade amongst each other. 

Any emissions over the limit are charged, encouraging companies to reduce emissions in the most economical way. The most prominent example of this is the EU’s Emissions Trading Scheme (ETS), which has contributed to a 35% reduction in greenhouse gas emissions by 35% since 2005.

Another carbon pricing system, the carbon tax, simply taxes all greenhouse gas emissions at a set rate and in some cases invests the funds in green infrastructure. This first emerged in Scandinavian countries in the early 1990s, such as Finland and Sweden, which has cut its emissions by 25% since 1991, whilst its economy grew 60%.

Hence why French Finance Minister Bruno Le Maire said that ministers were “pushing very hard” to include carbon pricing in the communiqué. However, the G20 should have built on the more ambitious proposals being developed elsewhere to meet Paris Agreement targets.

Only days after the summit, the European Commission unveiled a sweeping new climate plan that included a powerful new carbon pricing tool: the carbon border adjustment mechanism (CBAM). This places an emissions-based tariff on imports, designed to prevent businesses moving production abroad to avoid regulation (called “carbon leakage”). This could provide a significant financial incentive for overseas producers to adopt more sustainable practices. 

Such tariffs also protect domestic industries from less regulated, more environmentally harmful competition overseas. If passed, the CBAM proposal could be a decisive step toward meeting net zero targets, provided it can overcome opposition from countries such as Australia, and comply with WTO trade regulations.

In the US, the Biden Administration is backing a similar proposal as part of a proposed $3.5tn budget package. Senate Democrats are hoping a carbon tariff can pressure China and other heavy polluters to cut emissions. This will likely draw support from key US financial institutions, with Treasury Secretary Janet Yellen favouring the carbon taxes to drive sustainable reforms among businesses.

So, where does the UK stand on the CBAM proposals? While the Government briefly considered adopting a carbon tax after Brexit, officials instead opted for a revised version of the EU’s ETS scheme. And in response to a memo leaked to the press in February this year, No. 10 flatly denied that a CBAM is being considered. 

Yet such measures are increasingly popular, with a recent poll suggesting two-thirds of UK voters favour a carbon tax.

As the COP President, it is vital the UK shows climate leadership ahead of the summit in Glasgow in November. Already, over 100 developing countries have demanded much more significant emissions cuts and financial assistance from wealthy nations ahead of COP26, and recent foreign aid cuts further exacerbate this.

Whilst there are various ways to reach net zero, the Government should commit to more ambitious action to combat climate change, such as a carbon tax or tariff. If the UK is to set itself apart as a climate leader, then it needs to keep up.

John is currently undertaking work experience at Bright Blue. Views expressed in this article are those of the author, not necessarily those of Bright Blue. [Image: Billy Wilson]