‘Policy inaction’ on carbon pricing preventing net zero transition, LGIM warns
Policy inaction in areas such as carbon emission pricing is preventing a market led transition to net zero, according to a report from the UK's largest asset manager.
Legal and General Investment Management (LGIM) found that while achieving a Paris-aligned outcome right now has the potential to be cheaper and easier to achieve than ever before, the window to successfully meet a 1.5°C climate outcome is closing at “a worrying speed”.
According to LGIM, the biggest policy lever available to help guide the transition and drive real change, is carbon pricing, however this solution remains “largely unused”.
Around 23% of global emissions are currently subject to a carbon price, but according to LGIM prices are often set at a level too low to make a difference.
Globally, emissions currently cost on average $6 per tonne of CO2, and only around 4% of emissions are covered by a carbon price within the range needed by 2030 to meet the Paris targets.
An upside to this can be found in EU’s Emissions Trading System, which went from trading at €57 per tonne of carbon emissions in November 2021 to over €100 per tonne later this year.
According to comments first published in the Financial Times, LGIM also predicted that a delayed shift to a low-carbon economy could leave global equities more than a third lower than in a rapid transition and that a quarter of companies that currently issue investment-grade bonds could face downgrades if net zero is not achieved by 2050.
Nick Stansbury, head of climate solutions at LGIM and co-author of the report, said: “We believe the single most effective policy measure that the world could take to drive global emissions down, is to put an effective price on them."
He stressed that "a meaningful carbon price, covering all global emissions by an explicit tax or a cap- and-trade mechanism, is desperately needed to induce the immediate and dramatic capital allocation required to build a low carbon energy system."
However, Stansbury warned that "an objective perspective on the current policy environment would not suggest that this sort of policy is likely any time soon. Instead of tangible action, continued procrastination seems the path of least resistance.”
