CalPERS and Other Investors Call for More Robust Carbon Pricing Policies

By Nick Hedley

A group of investors including the California Public Employees' Retirement System (CalPERS) has called for an overhaul of carbon pricing policies to ensure the world averts the worst impacts of climate change.

Ahead of the G7 Leaders’ Summit in Berlin, taking place in late June, the Net-Zero Asset Owner Alliance has argued in a position paper that carbon pricing and associated policies need to be bolstered to encourage a faster shift towards low-carbon technologies.

The 73 members of the UN-convened alliance have $10.6 trillion in assets under management among them. They include CalPERS, U.K.-based Aviva, Germany’s Allianz, Australia-based Cbus Super, South Africa’s Old Mutual, and PensionDanmark.

The group notes in its paper that carbon prices are mostly well below the levels needed to limit global warming to below 2°C, let alone 1.5°C. As of 2021, less than 5% of global greenhouse gas emissions are covered by a carbon price that is consistent with limiting warming to 1.5°C.

A study by the Organisation for Economic Co-operation and Development (OECD) shows that achieving net-zero emissions by 2050 would require a carbon price of around $147 per ton by 2030.

The Net-Zero Asset Owner Alliance says carbon pricing frameworks need to be supported by a mix of policy instruments, including international coalitions, to provide “predictable price signals” for investors, companies and consumers.

“Carbon pricing has the potential to accelerate the low-carbon transition across a wide range of sectors, markets and businesses. But blunt, poorly designed instruments can have regressive impacts, such as carbon leakage across borders and a disproportionately negative impact on lower income earners when revenues are poorly distributed,” the alliance said.

Best practice in carbon pricing design includes international cooperation in the form of “climate clubs,” effective carbon border adjustment mechanisms (CBAMs), pricing systems that have appropriate coverage and ambition, and complementary policies such as higher investment in abatement technology innovation, and the removal of fossil fuel subsidies that counteract carbon prices.

Meanwhile, market stability measures, such as the binding price corridor proposed by the Alliance last year, would minimize price volatility.

Günther Thallinger, a board member at Allianz and Chair of the group, said: “The sharp rise in energy prices is putting enormous stress on households and the business sector. Continued government support and relief is needed to bridge these difficult times.

“Yet, in addition to better managing the near term, we also need to better position ourselves to avoid this happening again in the future.”

Accelerating the shift to net zero is essential in this regard, Thallinger said, and requires policy incentives. “These take time to implement and should not be delayed.”