Following President Trump’s decision, many stakeholders wish to restore momentum to the transition towards a low-carbon economy – i.e. an economy that emits no, or low levels of, greenhouse gases.

To achieve the targets set in Paris in December 2015 and to keep the increase in the average temperature on the planet’s surface below 2°C, a 40-70% reduction in global greenhouse gas emissions is required by the year 2050 (80-85% in Europe).

To trigger this dynamic, putting a price on greenhouse gas emissions (often referred to as “carbon pricing”) is a widely recognised economic tool, although it is still underused: globally, 87% of current emissions are still not subject to a carbon price!

Putting a price on carbon makes it possible to induce required changes in investment, production, and consumption patterns because it means:

• Charging the emitters of greenhouse gases a sum proportional to their emissions.
• Rewarding those who reduce their greenhouse gas emissions.
• Orienting investment and consumption choices towards solutions and technologies that emit low levels of greenhouse gas emissions.

A number of methods exist for carbon pricing:

• Establishing a “carbon market” (or “market for pollution rights”) where actors exchange emissions permits (1 tonne of greenhouse gas emitted = 1 quota), the number of which is limited and decreases over time.
• Taxing carbon emissions to make polluters pay in proportion to their emissions.
• Defining standards that indirectly encourage reductions in greenhouse gas emission (e.g. emissions standards, removal of subsidies for fossil fuels, etc.).

Whatever the method chosen, what matters is that this price is significant enough to trigger actions and decisions that lead to the reduction of greenhouse gas emissions.

This level of prices will therefore vary according to region, subject to differences in energy and industrial systems. It is also important to adapt price levels to the differing situations and public policy choices of each country. For example, a low-income country, which will have difficulty protecting vulnerable populations from any negative consequences, may decide to start with a lower price that increases later on.

Rather than trying to define a single global price, it is therefore much more relevant to define regional carbon prices.

To supervise these different prices and ensure that they are in line with the ambitions of the Paris Agreement, the idea of defining carbon pricing “corridors” (with a floor price and a ceiling price) is increasingly being put forward.

The underlying idea is to ensure that the different prices imposed by each of the signatory countries of the Paris Agreement on their economies are bound by a minimum price, ensuring that all actors put in the minimum effort required to trigger the transition.

Another advantage of the carbon pricing corridor is that it provides good visibility of the evolution of the carbon price signal for long-term investments, via the ceiling price.

At the European level, the Canfin-Grandjean-Mestrallet report – presented to President Hollande in 2016 – argues for the introduction of a “price corridor” within the European carbon market. Thus, a floor price of €30 in Europe would make it possible to substitute the production of electricity from gas for the production of electricity from coal. The resulting emission reductions in the electricity sector would exceed 100 million tonnes per year.

At the international level, the International High-Level Commission on Carbon Prices chaired by Lord Nick Stern and Joseph Stiglitz is working to define a carbon price corridor that will allow the international community to set prices permitting it to reach the Climate objectives of the Paris Agreement in an efficient way, while encouraging growth. To assist in this process, the Carbon Pricing Corridor Initiative, led by the organisation We Mean Business and the Carbon Disclosure Project (CDP) and composed of companies – including ENGIE – is working to define price corridors for the energy sector.

Recently, President Macron and the Minister for Ecological and Solidary Transition Nicolas Hulot voiced support for the concept of a price corridor, involving a first stage for which France is trying to convince Germany to set a common floor price for the electricity sector.

While carbon pricing is essential for the implementation of the Paris Agreement, it must nevertheless be accompanied by measures to promote energy efficiency, renewable energies, innovation, technological progress and long-term investments in sustainable infrastructure.