Experts: Market players key to carbon pricing

The key to carbon pricing is sending a clear signal to market players, while market players need to play a key role in the actual formulation of carbon prices, experts said.

While speaking on Monday via video at a subsession during the ongoing COP 26 summit in Glasgow, Scotland, the United Kingdom, Zhu Xian, vice-president and general secretary of the International Finance Forum (IFF), noted that while governments of all countries have been putting great efforts into carbon pricing, actions should also be taken by market players, particularly from the private sector.

"Their role in the formulation of carbon pricing is equally important. And this is particularly the case for developing countries, like China," he said.

Zhu urged that a proper benchmark for carbon pricing is particularly important, because "without a benchmark, the market cannot really get a signal to do the right things."

In developing countries, since the scope of the market is relatively small, he believes it is more important for them to get prepared in infrastructure building, such as information disclosure. He believes developed economies like the European Union have gained rich experience in this respect and can share this with countries like China.

"This will save time for China and other emerging market countries to do the right things, and then eventually make the process much smoother," he said.

He also believes that as China's current carbon market is still relatively small and still restricted to energy companies, it can be expanded to other sectors -- including important ones such as steel, cement and the shipping industry -- so that the role of carbon pricing can be more widely leveraged.

Tom Howes, head of the Energy and Environment Division at the International Energy Agency (IEA), also believes that carbon pricing will be a flexible tool to help deliver a signal for change.

"It will be an effective tool for getting markets to change their behavior. And as it is flexible, the market will be able to plan investment horizons well in advance," he said.

He urged governments of all countries to take swift action so that market players will get clearer signals.

"Governments need to move from the pledges to the road maps, strategies and policies they're going to use. Carbon pricing can easily be a part of their own domestic measures," he said. "All countries will need to introduce measures. All countries can benefit from the introduction of carbon pricing. We need to start taking action in the short term to make sure we do start to implement it and see changes in a very short period of time."