We need global cooperation on an unprecedented scale to achieve this. All enterprises and all consumers must have strong incentives to make climate friendly decisions. One reliable way to make that happen is to put a price on carbon emissions.
By putting a price on carbon emissions, climate friendly technologies and practices will get an advantage at the expense of high emission alternatives.
A price on carbon can be introduced either through a tax or a system of cap–and-trade. Norway has a long time experience in pricing carbon – we introduced a CO2 tax in 1992. Now we have established a cap-and-trade system, which is linked to the EU cap-and-trade system with the most restrictive amount of allowances.
As one of the world’s biggest oil and gas-exporting countries, Norway feels a special responsibility to combat climate change. After all, the use of fossil fuels is one of the major causes of human made global warming. Norway is prepared to use some of our oil fortune to finance climate efforts throughout the world.The Norwegian Government Pension Fund has directed about 1 per cent of its funds, or 4 billion US dollars, into "green shares" targeting investments in the developing world.
I would like to highlight the importance of such long term investment strategies with respect to the transition to a low-carbon economy.
In addition to emissions reductions, the provision of predictable and sufficient financial resources to support climate action is a key global question.
The carbon market represents a significant source of financing. Norway has proposed to establish a new and innovative mechanism to finance climate needs; a mechanism that is predictable and independent of annual national budget decisions. Our proposal is that a certain percentage of the allowances in the global carbon market should be auctioned internationally. Revenues from this auction could potentially generate around 20 billion US dollars per year, depending on the carbon price and the demand for allowances.
A lot of this money should be earmarked to adaptation in the poor countries. Adaptation is an example of an area where public finance will be necessary. Reducing emissions from deforestation and forest degradation is another example.
Without reducing emissions from deforestation and forest degradation, the goal of limiting global warming to 20C above preindustrial levels will be almost unachievable.
An effective regime for reducing deforestation and forest degradation should be result-based and incentives-driven. Coordinated global action and an early start is essential. Norway has committed to allocate up to NOK three billion a year to stimulate early efforts to reduce greenhouse gas emissions from deforestation and forest degradation in developing countries. I hope that other developed countries follow Norway’s example and join in some of the programmes meant to reduce deforestation and forest degradation.
An important challenge in the climate change negotiations is to bridge the gap between the rich and the poor countries, and Norway’s policy regarding deforestation is one contribution to that.
Written by Mr Erik Solheim, Minister of the Environment and International Development.