In the ongoing fight against the climate crisis, carbon pricing stands out as one of the most crucial tools for driving change. In a recent interview, Nick Beglinger, Co-Founder and CEO of Cleantech21 Foundation, discussed with Muhammad Younis the ways carbon pricing can be effectively integrated into broader climate strategies. Additionally, the conversation addressed questions of how to design carbon pricing to minimise adverse effects on vulnerable communities and highlighted the need for these systems to be both reliable and impactful over time.
#CTS: How do you view our current progress and trajectory in terms of addressing the climate crisis? Do you see the glass half full or half empty?
Nick Beglinger: Let’s be honest, we are way off track. The science is real; it shows a dire status quo and a horrific future if we don’t get our act together. On most key performance drivers, actual Greenhouse Gases (GHG) reductions, funds available, etc, we are very far from where we should be. Not by a quarter or a half, but in some cases there are factor ‘gaps’ of more than 100! But, having said all that - we can still get it done, and must keep on trying. We are too late for an entirely ‘smooth’ transition, but with a few regulatory breakthroughs, first and foremost the pricing of GHG emissions, we still have a good chance to avoid the worst and, with a bit of luck and loads of dedication, we may even be able to still pull it off in a fairly decent manner. Acting decisively now, that is what we have to do.
#CTS: In what ways does carbon pricing serve as a pivotal tool for achieving global climate targets, and how can it be effectively integrated into our climate strategies?
Nick Beglinger: We call it ‘emission pricing’ to make clear that it concerns all types of GHG emissions. It is key for our climate targets, as these are, and rightly so, ‘ambitious’, meaning ‘difficult to achieve’. They cover the entire market, which is what has to go to ‘net-zero’. This we can only achieve by rapidly getting global emission to decline steeply, for which we have less than 30 years, meaning in many industries one single investment/decision making cycle is left, to get right! The only reasonable way to go about this, is to take ‘climate’ out of the ‘ESG’, ‘nice to have’, ‘extra effort’, ‘voluntary’ box, and straight into the mainstream. Instead of pursuing ‘impact investments’ we must realise that all our investments have impacts. We don’t need more ‘green bonds’, we need all bonds to be ‘green’ (i.e. climate-compatible). In other words, we need all of the market’s force to get this done, not just some part of it, the entire market. Every single market-decision needs to take the cost of emissions into account.
#CTS: Considering the current landscape of climate policy, is carbon pricing alone sufficient to drive the necessary transition to a low-carbon economy? What additional or alternative incentives could accelerate this transition?
Nick Beglinger: This is a frequent question in this context, and I must admit, I’m not a fan of it. That’s because it implies, those advocating for emission pricing would see it as the only thing necessary. Which it definitely isn’t. Or at least not anymore, let’s put it this way. The ‘standard’ answer I could give (the one most compatible with the ‘current landscape’ of climate policy), would be that, of course, a mix of policies is necessary, one of those being emission pricing. But let me tell you that this is not the right way to look at the importance of pricing policies. In fact, our view is that pricing is the main thing! With it, we are getting our maths right on climate and get rid of emission externalities. Pricing is not ‘one of many’, but it is the key climate policy needed. Clearly, the track record of the current policy landscape is not what it should be. More of the same is not what will get us to reach our target. Hence in our view, it is actually the landscape that needs to adapt to pricing. As was just analysed by a nature-published study on the effectiveness of climate policies, 1’500 of them, much of the ‘current landscape’ is outright ineffective (less than 5% of all policy efforts actually produce emission reduction results). These have little raison d’etre. A new climate policy landscape, with pricing at its core, could actually emerge with much less bureaucracy, fewer misdirected efforts, fewer rules, and more impact.
#CTS: Carbon pricing often faces resistance due to perceived economic burdens. How can we reframe the narrative around carbon pricing to emphasise long-term economic and societal benefits, and what role does public perception play in its success?
Nick Beglinger: Most climate efforts face resistance, and much of that is well orchestrated and funded! There is actually scientific consensus that acting now is, economically, cheaper than not acting, or acting later. So time has passed for a ‘debate’ on economic effects. But you’re right, in the case of pricing policies in particular, the current landscape is one of widespread resistance, as well as misunderstanding. Public perspective is of course really significant. And we see strong potential to improve it. Today, pricing has a multi-faceted branding problem. One tends to speak of ‘pricing’, i.e. making things more expensive, but not the money that accumulates as a result of it, i.e. the advantages that it could offer. Many pricing policies, particularly emission trading systems and voluntary offset schemes, are not at all trivial to understand and come across as intransparent and prone to misuse. The point is, much of the resistance to putting a price on emissions is due to poor choices when it comes to the specific policy design, and a general lack of attention to public perspective as part of that. Furthermore, if emissions are priced the wrong way, low income groups may experience an inequitable loss of living standards. This is because a relatively large share of their consumption is emission-exposed - think of heating or driving. If emissions, on the other hand, are priced by way of a tax that is then used for funding infrastructure projects, the cost increase occurs immediately, while reaping the benefits takes years. That is indeed unfair to many, and hence resistance against that particular pricing policy design must be regarded as absolutely justified.
#CTS: How can carbon pricing mechanisms be designed to address equity concerns, ensuring that they do not disproportionately impact vulnerable communities or exacerbate existing inequalities?
Nick Beglinger: Pricing emissions is about doing just that, not primarily about ‘mechanisms’. In the past, the approach with complex structures and schemes has delayed pricing progress and negatively influenced public perspective. In general, a pricing policy must be simple to understand, fair to everyone, and effective in terms of the emission reduction it achieves (i.e. come at a high per ton price, while still being fair). Our foundation has reviewed pricing policies for over a decade. We have defined general and technical performance factors. From our work we know: Simple, fair, and effective are indeed the most relevant pricing policy KPIs. We can now select the technical design options that best achieve those KPIs. And the results are clear. The best performing pricing policy, public perspective included, is the Climate Incentive. It prices all emissions (no sector differences, no exclusion schemes and exceptions). It does so high up the value chain - at the well or on importation, rather than at the gas pump or in the supermarket - and thereby is lean to administer, with pricing built in throughout the value chain, which in turn leads to faster, on the ground innovation. However, by far the most relevant design aspect is the use of pricing income. And the solution for that is elegantly simple: Disburse all pricing income back to all residents, in equal amounts.
#CTS: Wouldn't this be regarded as ‘big government’, or excessive state intervention, by many?
Nick Beglinger: It may be, but it’s actually the opposite. For one thing, there is absolutely nothing ‘excessive’ about getting everyone to pay for the costs of the GHG emissions they cause. Furthermore, the solution we propose keeps government intervention to a minimum. Firstly, upstream collection minimises the amount of collection points (a few hundred importers, wells, etc. vs. millions of retail sites). Secondly, it is not the government, but every single resident receiving their share of the pricing income, who is deciding on what to do with those funds. Thirdly, due to the Climate Incentive design of simply disbursing the straight average of what is collected, there is no need to ‘police’, i.e. administer, individual emission footprints. Hence our policy is vastly superior to one that foresees a tax, general spending with the income collected, and then has to employ a social fund to mitigate negative effects on low income groups. ‘Social fund’ means that beneficiaries need to apply, declare their income and emission levels. This does not only require lots of bureaucracy, it also raises privacy concerns. Our approach, in contrast, is inherently fair. This is because emission footprints correlate with income - meaning the more you earn, the higher your GHG emissions are. Given income distribution in most economies, pricing all emissions, and then returning the average collection amount to all residents, actually results in some 70% of all recipients ending up with a net financial gain - the money they receive back is higher than the cost increase in their emission-relevant consumption. Imagine what 70% of net beneficiaries do with respect to the public perception of the Climate Incentive pricing policy!
#CTS: But why levy a fee and pay back the proceeds? Wouldn’t it be much better to use the money for targeted interventions, such as EV-charging stations or building retrofits?
Nick Beglinger: Not in our view, for three main reasons. First, ‘target interventions’ sounds good but essentially means niche activities primarily steered by the government. But as mentioned, it is the mainstream that needs to be engaged in rapid climate action, and it's primarily the market, not government, who should decide on capital allocation. Second, many ‘interventions’ may be useful, but offer tangible results only in the medium- and long-term. And as mentioned, this presents a liquidity problem for lower income households - think of the yellow vest protests in France. Third, deciding what to do with the money will lead to extensive political discussions. Not everyone uses a car or owns a building - so some of these targeted interventions may not be fair to all.
#CTS: And why not just reduce government fees or taxes elsewhere?
Nick Beglinger: For one thing, it would likely bring quite some disruption in those ‘elsewhere’ areas, and it would thus have lengthy political dialog written on the wall. Further, adjusting ‘elsewhere’, for example with income taxes or tax credits, is likely not going to be fair for the lowest income groups - as these pay little or no taxes in the first place. Without the average income payment, received on a monthly basis, there would be much less visibility of the instrument, fewer nudging options, and much less of an overall incentivisation/action effect.
#CTS: With the rise of carbon markets and voluntary carbon offsetting schemes, how can we ensure the integrity and effectiveness of these systems? Are there risks of these markets being used as a way for companies to avoid making meaningful reductions in their emissions?
Nick Beglinger: As mentioned, for pricing emissions, we don’t need markets, but straightforward pricing policies that are simple and transparent, fair in their socio-economic impact, and at the same time meaningful in their emission reduction effect. This can only be achieved with mainstream regulatory/mandatory action, not voluntary schemes. Of course, some voluntary efforts are great, but the vast majority of offsetting and compensation projects had no meaningful emission reduction effect (note, for example, the 07/2024 report by the Science-based Target Initiative). And yes, there are substantial risks, of avoidance and of greenwashing.
#CTS: How can events like the London Climate Technology Show contribute to shaping public perception on emission pricing incentives, particularly by fostering collaboration between policymakers, industry leaders, and innovators?
Nick Beglinger: By putting pricing on the agenda - thank you for that! And by shedding light on the Climate Incentive as an innovative pricing policy. With the objective to speed up implementation, we actually offer the policy as a ‘RegTech’ solution to policymakers, and we very much look forward to collaborating.
