A Harvard Climate Action Week panel focused on a new proposal by the Global Climate Policy Project at Harvard and MIT outlining how to create a new climate coalition, a voluntary association of countries that would coordinate carbon prices. The report argues that such a coalition could slash global emissions and raise billions of dollars for climate mitigation and adaptation.

There are two reasons why the idea of such a coalition is important now, said Catherine Wolfram, the William Barton Rogers Professor in Energy and Applied Economics at MIT’s Sloan School of Management, who chaired the panel discussion. First, she said, “we are seeing rising interest in the global community about carbon pricing. We’re seeing more and more countries adopting carbon pricing, particularly for heavy industries.” Second, since broad consensus may be difficult and slow to achieve, “we need to be thinking about things that a subset of countries can do together.”

Wolfram explained that the purpose of this new report is “to lay out a framework, and a really concrete set of steps, that policymakers can think about following in order to form this coalition.” The coalition, she said, could address key issues such as “how to set carbon prices, how to think about the border adjustments and incentives for low- and middle-income countries, in addition to potentially differentiated carbon prices” for countries based on their economic conditions.

As an example of the importance of international cooperation and coordination in carbon pricing mechanisms, Ignacio García Bercero, senior fellow at European think tank Bruegel, described the European Union’s CBAM program – Carbon Border Adjustment Mechanism – which is poised to assess a carbon price on imports and require EU importers to report the embedded greenhouse gas emissions of specific products. García Bercero explained that “the fundamental idea behind the introduction of CBAM was ensuring the integrity of the decarbonization commitments for heavy industries.”

But when that is applied to imports, other countries complained of unfairness, because in some cases they had already imposed a carbon price domestically – or if they hadn’t, the CBAM would provide a disincentive for doing so.

“The carbon price imposed on imports should not be higher than the one which is imposed domestically,” García Bercero said, “and all imports from certain countries should be subject to the same carbon price.”

“A way forward for us”

The new report, which was written with input from a working group that included officials and thought leaders from major emitting countries, is more than an academic exercise. In fact, said Cristina Fróes de Borja Reis, undersecretary of sustainability for the Brazilian Ministry of Finance, “this is a priority for the Ministry of Finance.” Brazil will host the next UN climate summit (COP 30) in November, which she hopes will be a major turning point, because “we have the chance to really start implementing things,” and the coalition for carbon markets could be an important step in that direction.

De Borja Reis said that “the minister of finance of Brazil is pushing a hard agenda that we call the ecological transformation plan,” and the climate coalition is one of three main components of that plan. The hope is that this coalition “can bring fairness and inclusivity explicitly to the way that we shape markets.”

Mari Pangestu, the Indonesian presidential special envoy for international trade and multilateral cooperation, said that “for developing countries like Indonesia, the issue of challenges between development and climate is always there, but I think we believe that we can achieve economic growth and it is not a trade-off with climate.” But agreements such as this coalition could play an important role.

“We really see the value of a coalition on carbon pricing with respect to border carbon adjustments, because it will really offer a way forward for us. So instead of punishing Indonesian industries in export markets like the EU, the coalition, we hope, will be able to provide us with a better level playing field,” she said, joining the panel by video link.

The time is right

Daouda Sembene, president and CEO of AfriCatalyst, who was part of the working group, echoed that sentiment. “I see several opportunities for the carbon pricing coalition for developing countries, particularly low-income countries in Africa,” he said.

All 54 nations in Africa have signed the Paris agreement, he said, and any mechanism that would help them move forward in implementing those goals is very welcome. “Being part of a climate coalition gives you that opportunity, because it allows you to mobilize more climate finance for collective climate action,” he added, pointing out how revenues from border carbon adjustments would be useful to African countries paying for mitigation and adaptation.

The coalition model offers some African countries a competitive advantage, he said. For example, because of an abundance of clean hydropower, even some low-income nations can produce some metals more efficiently than others.

Sembene said that “the time for global consensus unfortunately has been waning, and it’s going to be waning for the foreseeable future. […] So what you really need is these types of coalitions of like-minded countries and governments and actors to get together, and push for these climate causes to be actually achieved.”