U.S. Senator Sheldon Whitehouse began by congratulating the European Union for its landmark CBAM agreement: “I think that’s very important and sets a really good standard. The thing that I would like to particularly say though, is to anybody who has a role in enforcement of the CBAM, please give us no mercy, no quarter, no waivers, no delays, no extensions, no exemptions. Because it could well be that the signal from the CBAM to the US is the tipping factor that gets us to at last step up to our responsibilities. So have no mercy. And by the way, as I understand it will be quite fine under the CBAM. It will raise tariffs to the EU, there will be companies that will have to pay tariffs. But it is not a bilateral matter. It is a global matter. And when you compare the tariffs that US businesses have today, with those that Chinese and other manufacturing countries will have to pay, what was predicted by the EU CBAM operators is that there’ll be a migration of manufacturing from those countries to the United States. So not only should you enforce CBAM vigorously for purposes of compulsion but you can also enforce the CBAM vigorously with confidence that it is actually good for your friend, the United States of America in a general sense, although there’ll be some squawking from certain sectors. So please again, no mercy no quarter no exemptions, no waivers, but delays, no sessions. 

Where are we in the US Senate? We have the reconciliation bill still alive and well. You know about Cinderella, the character that turns into a pumpkin? The reconciliation bill turns into a pumpkin on September 30, by operation of law. And we all go home sometime in August for the August recess. There’s going to be enormous pressure to stay out, because we have senators who are desperate to be home campaigning. So while the legal date is September 30, the de facto date is probably whenever we disembark for the August recess. So we have from now until then to sort out reconciliation. Climate is one of the three topics and reconciliation that the chairman of the Energy Committee has agreed to. And within that category of climate, there are three pieces that are being actively considered and reviewed. One is the clean energy credits, and the signals that we’re getting from the Finance Committee are that the bulk of those clean energy credits will be allowed into reconciliation. The second is the methane fee, which puts a price on methane leakage. And that was written by Chairman Harper and the Public Works Committee. And it looks like that is if we have a deal going to be a part of a deal. And the third piece is the big open question mark of do we get a carbon price, or a carbon border adjustment into the bill. I have a very good carbon pricing bill, which has a baked-in carbon border adjustment mechanism, because you really can’t effectively price carbon without a carbon border adjustment. And I have a carbon border adjustment bill, which has a baked-in carbon price, because you really can’t do a carbon border adjustment without a carbon price. So we’re working to see which and in what combination we can get those into this reconciliation bill. The little slippage in time and the recent vote in the EU on the CBAM may actually give us a little bit more negotiating leverage. But all of that’s being done in real time right now. And it remains to be seen how, but there is a real prospect that within a very few years, we will have between the EU and the UK, and the United States, and perhaps also then Canada, since they already have the carbon pricing infrastructure, a common platform of world carbon pricing with reinforcing border adjustments around it. And if we accomplish that, we will then have a mechanism to construct a pathway to climate safety. Without that, I do not believe we will be able to construct that pathway.”

He closed by saying “you’re hearing a lot of great talk out of corporate America about climate change. And you’re seeing wonderful commitments and pledges. The pledges are good. The commitments are good, the supply chain changes are good, and people are investing in clean-energy transition. But here’s what they’re not doing. They’re not coming to Congress and saying this is important to us. Their lobbyists are not saying that. Their trade associations are not saying that. Insurance industries, despite the checks they write to the banking industry, trade associations, despite the warnings from every central bank of all major economically developed countries, the voice is just not there. And of course, you have a really big corporate behemoth like the US Chamber of Commerce, which remains very heavily opposed to serious climate action. And then, of course, the foppish has its own armada of front groups through which it deploys hostile, very little hostile political pressure. So the environment in which we are making this happen in Congress is one without American core political support. And if it can change in the coming days, months, weeks and years, then we will be even stronger and have a quicker and better result. So with that, I think I’ve said enough. And let’s work effectively together to create that joint, multinational, carbon pricing, border adjustment defended platform that can create our pathway to safety. 

“We have been talking about this proposal for decades. But now we are acting. It’s not at all protectionism. It’s just having a level playing field. We are putting a carbon price on our industries. We are now reaching 85-90 euros per ton of carbon.  We voted on the CBAM. We know it’s a global first. We know it raises questions, issues in some countries with some trade partners. But we are ready to discuss- not to change the device, but to have a cooperative space for that discussion. So that’s why we are also very supportive of some sort of climate club, where, whether it is at WTO level or at OECD level or at any other relevant level, that would open a cooperation, a cooperative space for discussion. I know you in the US, you are working as well on this topic, discussing proposals in the Senate to at least explore what a carbon pricing/border adjustment mechanism could mean. That’s exactly what we need. We as Europeans, we move first, I hope that the United States could follow and then we will have global discussion on this topic.  So, are you ready to?”

“We are going forward. There might be disagreements, but the overall direction is clear. A clear majority in the European Parliament and within EU member states want to continue the success story of the emission trading scheme, and want to start writing a new success story with CBAM. We do this hand in hand with industry with our partners and people throughout the world that are looking for more the size of action. And we are going forward and we hope the US and Canada can go forward too. The world is looking at you and us, the youth, the innovators, the entrepreneurs, the victims of natural disasters, awaiting our leadership in this historic battle. It’s also about showing in the face of autocratic trends that our democracies can actually deliver. It’s about preserving our quality of life, and that of the next generations on this planet. And it is about acting before climate disorders become the single major global security threat. And we know the challenge of politics. But where there is a will, there is a way, let’s be smart. And we will find a way.”

France has made the fight against global warming the central priority of its presidency of the Council of the European Union in the first half of 2022. The implementation of a carbon tax at the borders of Europe is critical to reducing emissions by 55% (1990 levels) by 2030, and will mitigate competition from countries with lower standards. Ambassador Philippe Etienne underlined the importance of creating these spaces for dialogue and public debate between North America and Europe, bringing together experts and policymakers as well as students committed to a green future. 

Our Dialogue takes place in the context of the climate emergency, once again highlighted by the latest IPCC report, demonstrating more than ever the need for collective action to reduce global emissions. An important element of decarbonization will be Carbon Border Adjustment Mechanisms (CBAM), such as that proposed by the European Commission last year.  This month, the Parliament approved CBAM, which will require importers of certain carbon-intensive goods to pay a fee on the emissions released during the good’s production.

It is an important instrument to accelerate the decarbonization of our industries while preventing the risk of leakage to countries with lower environmental standards. It also incentivizes industries in these countries to further limit their carbon emissions. CBAM responds more than ever to Europe’s strategic ambition to accelerate our energy independence, ensure our energy security and safety, and enable us to meet our commitments under the Paris Agreement. It is in the spirit of a statement made by Presidents Biden and Macron late last year, in which they affirm their determination to strengthen bilateral and transatlantic cooperation, and also to work together to find urgent solutions to the climate crisis. Other actors are also rising to the challenge. The Canadian Prime Minister recently called for additional measures to combat climate change, including carbon pricing. and many U.S. Senators who are actively engaged in this work are advocating for key initiatives. This dialogue is essential, and now is the time to have it. A dialogue that will continue into the future.

The purpose of this dialogue is to explore effective policies to reduce carbon emissions. In Europe we have made important progress and proposed promising legislation to address these issues. As the war in Ukraine reaches the threshold of the EU, we have not lost sight of the climate. On the contrary, we have seen it as an issue of crucial importance to work on with the rest of the world. 

We have been working to ensure that those who cause harm are held accountable by those who are harmed, that there is an appropriate price for the environmental and social damage caused by carbon emissions, that the price on carbon is not constrained because of the complex implications for the economy, international trade, industrial policy, the environment, health and equity.

According to the World Bank, 46 governments, more than half of which are in the European Union but also which include China as of last summer and 13 U.S. states, as well as nearly half of the world’s 500 largest companies have adopted various policies to price carbon emissions, all with the sole purpose of reducing those emissions. Since 1990, the European Union has been able to reduce its greenhouse gas emissions by 30%, while our economy has grown by 60%. We have therefore demonstrated that it is possible to decouple economic growth from increased emissions. This has very important implications for the rest of the world. 

Policy must stimulate low- and zero-emission economic activity, both from new and existing industries. Decarbonizing industry is a very important part of that effort. And it’s very important to reduce emissions at all levels. We must continue to create economic incentives to introduce new technologies and new business models. 

The U.S. single market is intertwined with the global economy. That’s why, last summer, the EU proposed the European carbon border adjustment mechanism to prevent the risk of our carbon emissions moving to other countries that will continue to produce and manufacture without meeting the same environmental standards. 

Countries around the world must work together to translate the Paris climate agreement into action and directly address carbon emissions. In turn, companies and businesses on both sides of the Atlantic, and hopefully around the world, will be well-positioned to play a leading role in the clean economy of the future. And that, in turn, will motivate and pressure all emitters to join us.

The idea of carbon pricing is of course not new. Before COVID, and before the war in Ukraine, Ukraine was a reflection of the situation of European industries, steel, fertilizer, glass, electricity, all these industries in transition, were expected to face international competition along with an additional cost burden, bringing them closer to climate neutrality. This was a challenge in itself. That’s when the idea of the border adjustment mechanism for carbon was born. And that’s when we Europeans decided that this would be the right way to bring climate into the international trade discussion. But the reality turned out to be much more brutal and unexpected than we ever feared. Russia’s aggression forced the EU to face our hydrocarbon gluttony.  We are entering a new era.  The war in Ukraine reaffirms the need for carbon pricing, and now we also have the legal framework ready to be implemented. The border carbon adjustment mechanism, whether it is European or transatlantic, or whether it is a grouping of like-minded countries that believe that climate change is a real threat, and that we need to put our money where our mouth is, will help us implement our values in international trade.

It is important that this mechanism reflects our values and not our fears. We must therefore transform European industries, but above all we must engage others on the same path. We must therefore commit ourselves, we must not let this lead to the fragmentation of international trade, because then it will be a lose-lose game.

Stefano Di Clara points out that between climate ambition, that is the long-term ambition that countries and companies put forward, and climate action, being the concrete action that we see on the ground today, there is a considerable gap. 

90% of global emissions are currently covered by climate ambition commitments to be met by 2050. Analysis done by the International Energy Agency tells us that if these commitments are met, then they will take us to 1.5 degrees above pre-industrial levels, which is pretty close to the goals of the Paris Agreement. 

But if we get a little closer to home and look at the shorter-term commitments, expressed in nationally determined contributions (NDCs), which generally go out to 2030, we start to get a darker picture.

We lack the right policy frameworks and policy tools that can help to achieve the long-term goals and objectives of the Paris Agreement. Carbon pricing has emerged as a key policy tool that can help decarbonize economies. There is a long history of carbon pricing in action, and it has proved a versatile tool in that it can take on many different forms and be implemented at the international, regional, national and sub-national levels.

Venkata Putti, from the Carbon Markets and Innovation Unit, discusses the World Bank’s engagement on carbon pricing issues and carbon markets: 

According to the WB’s 2021 State and Trends on Carbon Pricing report, there are about 68 carbon pricing instruments in the world, which include both emissions trading schemes (ETS) and carbon tax initiatives and are implemented at national, sub-national jurisdictions.  Major initiatives include the long running EU-ETS, of course, the more recent Chinese ETS. A few other programs are planned to be launched soon in Indonesia, Austria and the Washington State in US 

We’re already seeing some results in terms of carbon emission reductions. There are some issues that are gaining momentum right now, including cross-border approaches to carbon trading. They could help in terms of developing their national policies, depending on the implications for different countries of preventing carbon leakage and increasing mitigation across national borders.

One of the key features of 2021 was the record revenues generated by carbon pricing at about $84 billion, mainly due to very high prices in the European Union’s ETS and a few other schemes, and carbon taxes have also increased substantially in some jurisdictions.

From a global perspective, there are two problems in scaling up carbon pricing: first, the carbon prices remain extremely low, with only 4% of the schemes having a price above the levels that are needed. A High Commission report from the CPLC (Carbon Pricing Leadership Coalition) showed that in order to be able to meet the Paris goals we need to hit a price range of $40 to $80 per ton of carbon by 2030, and $50 to $100 by 2050. This is one of the biggest challenges in terms of setting a reasonable price on carbon that could actually lead to real emission reductions. 

The other issue is that historically, carbon pricing has been largely focused in the developed countries. It’s only recently that the other emerging economies, like China, South Africa and others, have joined in. The encouraging news is that of the nationally determined contributions that have been submitted to the UN process, two-thirds of them have mentioned the use of carbon pricing as a tool to achieve their climate ambition and emissions reduction targets. 

The challenge now is how to translate that intent into action. That’s one of the things that the World Bank has been trying to address over the last decade with different programs – such as the Partnership for Market Implementation (PMI) — with strong support from a number of European countries, the European Commission and the United States.  The goal is to have carbon pricing instruments in place by 2025 in at least 30 developing countries and emerging economies.

There has been carbon pricing in place across Canada since 2019. Sub-national jurisdictions (provinces/territories) have the flexibility to implement their own pricing systems, whether through a direct pricing system or cap-and-trade, as long as these systems align with common minimum national stringency requirements (the ‘federal benchmark’). These were strengthened for the 2023-2030 period, and include a rising carbon price trajectory for direct pricing systems out to 2030. Currently, the benchmark is CAD$50 per ton, which will rise by CAD$15 per year starting in 2023 to hit CAD$170 in 2030.

In provinces/territories that request it, where there isn’t a system in place, the federal ‘backstop’ carbon pricing system applies. The federal carbon pricing system consists of two parts: a regulatory charge on fossil fuels (the fuel charge) and a performance-based trading system for heavy industry (called the Output-based Pricing System).

Both parts of the federal system are revenue neutral, which means that all proceeds are returned to the jurisdiction in which they arise. In Ontario, Manitoba, Alberta and Saskatchewan, the federal government returns about 90% of fuel charge proceeds directly to households in the form of carbon dividends, which are known in Canada as Climate Action Incentive payments.

The overall approach takes into account that there have been different types of carbon pricing systems in place at the sub-national level in Canada for over a decade, including a carbon tax in British Columbia since 2008 and a cap-and-trade system in Quebec (linked with California) since 2013.

The development of a federal approach to pricing carbon pollution was undertaken jointly by Canada’s Department of Environment and Climate Change and Department of Finance- climate policy is highly interdimensional and so inter-departmental coordination was key in implementation. 

 The ETS is a cap-and-trade system. It is one of the political means to reduce emissions in the power sector, in carbon-intensive industries, but also in intra-European aviation, which covers 40% of all European emissions and accounts for less than 10% of global emissions:

We set a target emissions cap at a certain point in the future: 2030, 2040, and then 2050, and reduce that cap over time. The installations that are covered by the European cap-and-trade system have to buy allowances or receive allowances through auctioning, slots, or allocation to be able to emit on an annual basis, and we do a price calculation on an annual basis.

Since 2005, with 17 years of experience, the system has had its ups and downs, but the robustness of the price of European allowances is a success. It is one of the policy tools in an economy-wide basket of measures. Emissions that occur in sectors covered by the ETS have declined by more than 35% since the introduction of the ETS, while our GDP has increased by 62%.

The ETS is also successful because it creates revenue.  By 2021, we have generated $30 billion 70% of all that revenue was allocated to climate action by our EU member states. This month alone, $2.4 billion will go to 45 investment proposals from EU Member States. That’s a lot of money for climate action.

Carbon pricing is also successful as a driver of innovation. It stimulates emission-reduction innovations directly, by incentivizing companies to develop clean technology, and generates revenue to fund further innovation through the EU’s Innovation Fund.

Microsoft started its carbon initiative in 2012. Microsoft’s commitment is to be carbon neutral by 2030, and to continue until we have eliminated all of our historical emissions from the atmosphere by 2050. 

The carbon calculation for companies is different from the carbon map for countries, because we have global footprints and are not confined to a single territory. Our carbon commitment is across all of our businesses. One commitment is for our direct emissions, the emissions from the fleet that transports Microsoft executives or staff from one office to another. The commitment is for all the electricity that powers Microsoft’s offices and data centers around the world.

The group has built a royalty and funding model. So, it collects the money, and then it invests the money. Carbon pricing policies can have many different purposes. For Microsoft, we design it to influence behavior, accelerate the changes we want to see, thus enabling Procurement to buy the carbon-related goods and services we need to meet our commitment. Some of these goods and services are in very nascent markets, so we need clarity on what we will need to spend to be able to innovate in these areas. So we will not just buy every year, but we will be able to invest more in these products and use different financial tools.

As the speakers discuss, carbon border adjustment mechanisms and other integration proposals will be key to ensuring emission reductions everywhere, not just locally, and can also enrich economies.

Fit for 55, is a program to implement policies that will get us to climate neutrality in 2050 in Europe. But we don’t want production or dirty production to simply go elsewhere, or imports of products that are not clean to come in, because that would make it all moot. So we put forth the carbon border adjustment mechanism for carbon.

The carbon border adjustment mechanism was designed entirely as a climate instrument to avoid carbon leakage. It was not designed to support industry, to be punitive, or even to be pecuniary. To support industry at the moment we have free allowances in our cap-and-trade ETS; when we phase in CBAM we will have to phase out those free allowances, because otherwise it doesn’t work. 

We knew the CBAM proposal isn’t perfect, being the first of its kind, but still, we believe it is the best solution. So, we put it on the table, and as we did it started moving markets, and moving governments. It was a key part of every conversation we had, whether it was with the Russians, the Turks, the United States, as well when we talked to Secretary Kerry and his team.

We have worked to make the carbon border adjustment mechanism we are proposing consistent with international law. We commit to being completely transparent.  It is a climate instrument, not a monetary instrument; it’s designed to prevent carbon leakage and create a level playing field with a long phase. It is not there to be either punitive or protectionist. Any country that signed the Paris Agreement is going to have to contend with leakage somehow- there is no way out of it.

In September, EU co-legislators (the European Parliament and the Council of Ministers) will start negotiations aimed at finalizing the legislative text on CBAM. Before the end of the year, we hope that these negotiations will conclude. 

The EU continues to be interested in discussing CBAM with the US and finding solutions to carbon leakage jointly. 

IETA believes that it will be important for the EU, US, Canada and Mexico to improve their cooperation to enable businesses to deliver net zero climate ambitions. This cooperation is essential for environmental, economic and security reasons. In particular, the “net” will mean balancing remaining sources of emissions with removals. Many countries will not have enough natural or technological removals inside their own borders, so a cooperative system under Article 6 will be essential. Many European and North American businesses are interested in a system of “carrots and sticks” in the form of market linkages (carrots) and border carbon adjustment mechanisms (sticks).

IETA supports the high ambitions of the EU Emissions Trading Scheme, the Western Climate Initiative and other emerging carbon markets, which will lower the caps for covered industries. But we recognize the potential for emissions “leakage” outside of Europe to distort competition. We are now entering an energy transition that will require new incentives. The EU and North American carbon markets have successfully used free allocation to address leakage in the past, but the strengthening targets will mean there are not enough allowances to solve the leakage problem. Other policies will be needed. Across North America, there will be a mix of mandatory policies, market incentives and voluntary commitments that could deliver similarly significant climate action.

Governments interested in exploring “carbon clubs” might consider whether a club could be organized to drive convergence of mandatory emissions trading markets and voluntary carbon markets to accelerate delivery of Paris net zero goals.

The California Resource Board was created about 50 years ago because of the significant air quality problems in California. The standards we set in California have been taken up across the country.  We have developed a series of regulations and incentive programs as well as through regulations for cap and trade. Low carbon fuel standards, zero emission vehicle standards, etc- all have carbon trading and signaling elements in their fundamental design.  

50% of our greenhouse gas emissions in California are transportation related. 80% are NOx emissions, nitrogen oxides, which form ozone and secondary particulates that negatively impact public health. 95% are diesel particulate emissions. Our actions in favor of the climate are our actions in favor of air quality and equity, so we try to eliminate combustion wherever we can.

Leakage is a big concern. It doesn’t make sense to design programs to achieve greenhouse gas reductions if the way we get those reductions is by pushing the industry out of state and importing the product that is dirtier. No one wins in this situation: California loses economically, loses jobs and no one will want to partner with you given your high standards.

Careful monitoring is essential to know how the program is going. And we need to send a stronger signal to the automakers, to the oil producers, to all the industries, that if we unite there is an opportunity.

The IMF proposes establishing a carbon price floor for all countries, which would rise slowly over time and could, according to simulations, achieve the carbon targets we have set for the world. 

In most cases, countries have a goal of achieving zero emissions by mid-century, but are not really on track to achieve that with the policies they have in place. A carbon price floor could play a very important role in getting there. It’s what economists call a first-best solution.  

How would such a solution play out? If the United States, the European Union, China, and India were to reach an agreement on a minimum carbon price, those four entities alone would cover about ⅔ of all carbon emissions. If you expand such an agreement to the G20, it would cover more than 85% of all carbon emissions. So, it wouldn’t be necessary to enact a treaty covering all 200 countries in the world- just a core group that agrees on a minimum carbon price and accounts for the majority of the carbon adjustment that we need over time. 

The advantage of a minimum carbon price is that it can be flexible. It can be based on carbon taxation in one country, and on cap-and-trade in another, or on regulatory mechanisms, or some combination. In collaboration with the World Bank, the IMF has developed tools to convert regulatory mechanisms into an implicit carbon price, which allows it to be integrated into the carbon floor system. It also avoids the problem of leakage between participating countries, because there is a common floor price. 

So the first-best solution for the IMF would be a carbon floor price. The second-best solution would be individual carbon pricing systems in the different countries with a border adjustment mechanism for carbon. And the third solution would be to let all countries go their own way, but here there is a great temptation for a race to the bottom, that is, temptation to reduce the price of carbon rather than increase it. This is precisely why countries began to push for a global minimum corporate income tax, because they wanted to avoid this race to the bottom in corporate income taxes. The same thing could happen here with carbon pricing. 

“The Paris Agreement asks countries to set NDCs in the context of long term strategies that are 30, 40, 50 years ahead with regular moments to catch up. These are called global stock-takes. Regular five year cycles where you can check where we are, what has progressed, and adjust and say, “Oh, climate change is moving faster, we need to move our targets faster,” or “We have not been good at implementing, we need to accelerate.” But that is why that challenge, to evaluate short-term progress, was already built into the framework. And it’s up to politicians to live up to that.”

Levaï further recalled that the EU set the standard in the early 2000’s and is now doubling down on the ETS, expanding carbon markets in order to tackle industrial decarbonization, a prerequisite to meet its decarbonization goals – 55% by 2030 and net zero by 2050. The EU, like many other geographies, considers its the most effective and efficient tool to bring down emissions for industries and households alike. Discussions are ongoing, but the direction is set. Only the pace might change. Their goal is not the deployment of the instrument but the achievement of net-zero emissions in less than 30 years, which requires regulatory action on the public side coupled with voluntary engagement at the private sector level.

A different approach was pursued in the US:  due to a number of political roadblocks, a decentralized approach to promote carbon pricing was chosen over a centralized carbon pricing mechanism. A number of stakeholders from the private and public sector have decided not only to advocate for carbon pricing at the federal level but in establishing local markets or taking the cost of carbon (social or otherwise) into consideration in policies and business dealings alike. These different perspectives raise questions on the future for carbon pricing to accelerate climate action, which should be considered and anticipated. 

Tubiana insisted that forward approaches mix both bilateral transatlantic cooperation between the US and the EU – along the lines of the steel and aluminum trade deal – and international cooperation combined with mutual accountability. The suggestion by the IMF to have differentiated carbon pricing around the world depending on development levels was underscored as a particularly interesting way to implement strategies to achieve the goals of the Paris Agreement.

Carbon pricing and its trade corollary, the CBAM, contribute to advancing these three policy agendas.

EU leadership has a unique opportunity to set ambitious targets that address the three needs we have described here, while promoting global equity through the current and future disruptions in the global energy supply chain, as well as in the upcoming energy transition. Whether you decide to call it global warming, climate change, or avoidable loss of life due to more frequent extreme weather events. The problem is not something that will happen. It is something that is here. And it has shown that it has no respect for political or geographic boundaries. As leaders, as our leaders, you have a responsibility to find solutions and provide a solid foundation for those of us who wish to follow in your footsteps. We can and will meet this challenge, because what better way to tell our children and grandchildren how we faced the moment and overcame it through unexpected partnerships.

Jay Kairam explained the rationale behind Walmart’s ambitious zero emissions commitment by 2040, its engagement to decarbonize its supply chain, transportation, refrigeration, energy use and some of the work around customer education. He also described the incentive-based strategy, known as Project Gigaton, that Walmart uses to accelerate avoided emissions in their supply chain and advance adoption of science-based targets across the retail sector. These commitments underpin their engagement in the national and international climate  policy debate where they support market-based mechanisms, including a price for to create the right decarbonization incentives across the economy without generating competitive imbalances.

Although the carbon market is being built and will only emerge next year, this dynamic explains why both Mexican States and the federal government have seeked transnational cooperation with American States and Canadian Provinces, as well as transatlantic cooperation with the EU. Beyond just sharing lessons and knowledge, Mexico’s interest in linking carbon markets is to become a sink for others’ credits. In establishing these partnerships, trade agreements and procurement practices have provided an avenue to accelerate the energy transition. Different climate objectives and carbon pricing policies can exist at the national and sub-national levels; they sometimes conflict and sometimes complement each other. Transnational collaboration on carbon pricing is fundamental and allows for the inclusion of societal agents, businesses, governments, and all kinds of institutions. The EU ETS guarantees specific emission reductions and taxes establish clear prices for pollutants. Some countries, such as Mexico, want to combine these instruments at the national and local levels.

Kristin Igusky gave an exhaustive overview of the instruments that States have developed to take action and deliver their part of the US climate pledge. She highlighted the successes and benefits of fuel standards, for example, but insisted on the political and legal hurdles that have emerged and prevented certain States to go as far as they would have wanted. She demonstrated that a large majority have opted for one form or another of carbon pricing instruments as the most effective way to advance climate policies while raising revenues that can be invested directly or in support of the transition. She added that many states are exploring ways to expand their use of the social cost of greenhouse gases in order to help justify strong environmental policies across all sectors and allocate funds more effectively. And this “race to the top” has been driving climate ambition across the Alliance States.

Carbon pricing schemes are already transforming high-emitting industries (such as steel, aluminum and cement) and trade measures such as CBAM will reinforce green-manufacturing in other regions for those who aim to access the European market. And this will help them domestically to make progress, improve their emission trajectory and provide economic growth and jobs. Pricing carbon and border adjustments allow for precise carbon accounting. Such objective measurements are critical to drive progress and innovation, and only by working in cooperation can countries benefit from each other and not have to reinvent the wheel. It is critical to find ways to constructively implement these environmental and climate policies in trade agreements, especially considering that countries don’t have the same policies and starting points. Trade agreements, or in these trade policies that we include this issue, it’s important also for the companies, and also for the people, because we can give them an answer. So there are many opportunities for cooperation between large regional organizations or countries. And of course, it can also be for implementation, technical support and exchange of best practices, as emphasized in the Paris agreements.