Proposals for effective carbon pricing – leakage and linkage considerations

ICC key messages on carbon pricing at a glance

• Carbon pricing is an essential tool for comprehensive climate policy packages. It can assist governments in achieving existing nationally determined contributions at the lowest possible cost, scaling up investment for further climate mitigation and adaption efforts and ratcheting up ambition.
• The overriding common objective of carbon pricing should be to reduce greenhouse gas emissions. The development of sustained and robust carbon markets maximises the effect of carbon pricing in achieving that objective.
• When developing, designing and implementing national carbon pricing approaches, governments are encouraged to build on the ICC Carbon Pricing Principles and other existing guidance to increase effectiveness, minimise risks related to carbon leakage and promote linkage for greater international cooperation and coordination.
• Any approaches to prevent carbon leakage should be considered and designed carefully and proportionately and without compromising trade rules.
• National legal, regulatory and policy frameworks for carbon pricing market mechanisms should consider (i) linkage across national and sub-national compliance mechanisms to prevent greenhouse gas emissions leakage between countries; (ii) broader linkages between domestic compliance mechanisms, Article 6 mechanisms and the voluntary carbon markets, and (iii) broader climate, energy, trade and taxation policies. 
• Article 6 of the Paris Agreement on cross-border emissions trading itself is not designed to lead to a global carbon price. However, with the right operating rules, it has the potential to create the necessary transparency to forge a more cohesive multilateral approach to carbon pricing.