Carbon Pricing for Energy Transition and Decarbonization

CARBON PRICING FOR ENERGY TRANSITION AND DECARBONIZATION

NOVEMBER 2022

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ISBN 978-92-9269-845-4 (print); 978-92-9269-846-1 (electronic); 978-92-9269-847-8 (ebook)

Publication Stock No. TCS220517-2

DOI: http://dx.doi.org/10.22617/TCS220517-2

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Cover design by Edith Creus

Contents

Tables, Figures, and Boxes

Foreword

The increasing frequency and magnitude of climate-induced disasters and their devastating socioeconomic impacts call for urgent action to achieve the targets under the Paris Agreement. The adverse impacts of climate change require an urgent transition to clean energy while ensuring access to reliable, affordable, and low-carbon energy to reduce poverty and promote development.

The Asian Development Bank (ADB) recognizes the importance of a just energy transition as a key element for climate action. ADB has been supporting its developing member countries (DMCs) in the energy sector for more than 40 years to increase access to electricity, and this has played a critical role in poverty reduction and economic growth. ADB is responding to the transition to an increasingly multifaceted energy sector with a new forward-looking energy policy to guide its operations and to be mainstreamed with other bank policies and goals. ADB’s new Energy Policy recognizes the need to support universal access to reliable and affordable energy services, while promoting the low-carbon transition in Asia and the Pacific.

As Asia and the Pacific can only realize its climate goals if it pursues a transition away from coal-based energy in the near term, ADB is working with regional and international partners to support, study, and pilot a scalable Energy Transition Mechanism (ETM). ETM is a collaborative initiative developed in partnership with DMCs that will leverage a market-based approach to accelerate the transition from fossil fuels to clean energy. ETM will be a win for the climate, a win for local communities, and a win for developing economies. It will significantly shorten the life of legacy coal-fired power plants and unlock new investments in sustainable and renewable energy.

As Asia and the Pacific’s climate bank, ADB’s efforts on energy transition is part of its wider effort to enhance climate action in the region. Under ADB’s Strategy 2030, among its operational priorities is tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability. ADB committed to fully align its new sovereign operations with the goals of the Paris Agreement by 1 July 2023,; 85% of new nonsovereign operations by 1 July 2023,; and full alignment of all operations by 1 July 2025. In 2021, ADB announced it is elevating its ambition to deliver climate financing from its own resources to its DMCs to $100 billion from 2019 to 2030. In addition, further climate finance is needed and a comprehensive and effective climate policy mix with the appropriate policy instruments will be crucial