G20 ministers endorse carbon pricing to help tackle climate change

G20 finance ministers have collectively endorsed carbon pricing for the first time, describing the once contentious idea as one of “a wide set of tools” to tackle climate change.

The issue of taxing carbon dioxide emissions has long divided G20 members, with the US in particular historically opposed.

“Tackling climate change and biodiversity loss and promoting environmental protection remain urgent priorities,” G20 finance ministers said on Saturday after talks on a global tax deal and other issues in Venice. The solutions could include, “if appropriate, the use of carbon pricing mechanisms and incentives”, the group said, expressing support for a carbon price in a communique for the first time.

Speaking at the Venice International Conference on Climate on Sunday, the day after the G20 talks, Christine Lagarde, president of the European Central Bank, also underscored the need for carbon pricing clarity, emphasising the importance of an “effective carbon price that reflects the true cost of carbon.”

A carbon price is a necessary precursor to the establishment of a carbon border tax, which would serve as a tariff on imports from countries without carbon pricing. The growing calls for a such a tax, came as the European Union prepared to launch a series of climate policy proposals on Wednesday, including a carbon border tax adjustment mechanism.

William Nordhaus, an American economist and Nobel laureate, gave the keynote address at the conference, calling for a “climate club” of countries willing to commit to a carbon price.

“A key ingredient in reducing emissions is high carbon prices,” he said, adding that a “climate club” would have to impose a penalty tariff on countries that did not have carbon pricing in place.

Nordhaus said such an approach would help solve the problem of free riding, which has plagued existing global climate agreements, all of which are voluntary.

“It is a painful, painful realisation, but I think we need to face it: Our international climate policy, the approach we are taking, is at a dead end,” said Nordhaus referring to the annual COP climate summits.