World Trade Organisation chief Ngozi Okonjo-Iweala said four leading international institutions, including the International Monetary Fund, must join forces before the next G20 meeting and adopt a common approach towards a global carbon price.
Ms Okonjo-Iweala told delegates attending Britain's Global Investment Summit on Tuesday that the IMF, the World Bank and the Organisation for Economic Co-operation and Development should "come together" with the WTO to develop a common methodology for a global carbon price.
This should happen before the next meeting of the Group of 20 major economies at the end of this month in Rome, Italy, she said.
"This is the future but what we have now is a very fragmented system of 68 or 69 jurisdictions with different approaches to carbon taxes,” Ms Okonjo-Iweala said. “Having to navigate this is a bit of a nightmare for business.”
As governments around the world raise the cost of pollution to their economies, Ms Okonjo-Iweala fears that this could lead to carbon leakage where the higher price of carbon in one market forces investment and production shift to another where carbon prices are lower.
This could cause carbon-constrained economies to suffer industry failures and job losses, with global emissions still an issue as polluting production is simply happening in another jurisdiction.
Ms Okonjo-Iweala pointed to the inconsistency of current carbon pricing systems, “that range from less than $1 a tonne of carbon dioxide in Ukraine to $130 per tonne in Sweden”.
“We have the EU coming up with a carbon border adjustment; maybe Canada and the US will look at that too,” she said.
With each national or regional system working differently, agreeing on a global carbon price aligned with the Paris Agreement would be the best solution.
“It would really help business. It would help households and it would even help finance ministers,” said Ms Okonjo-Iweala, pointing to her previous role as finance minister in Nigeria.
“This is a new approach, a new way and I am very excited about the possibilities of that.”
International trade secretary Anne-Marie Trevelyan said getting “carbon taxing right” is a really important question.
She said that it was “great" that a number of different organisations are thinking about it and are testing out the balance.
“But for business, there needs to be a consistency and there needs to be a fairness because if we are going to have that just transition, we all understand that there has to be a pricing element to this which is landing in the right place fairly and which will therefore drive the change that I say we need to be doing at pace.”
Earlier this year, former international trade secretary Liam Fox said Britain should adopt a carbon border tax to help the global fight against climate change.
The tax, a levy on emissions attributed to imported goods that have not been carbon-taxed at source, should form part of the world’s response to tackling global warming and Britain should embrace the policy, Mr Fox said.
Mr Fox, who served as international trade secretary from 2016 to 2019, said the UK’s chairmanship of this year’s G7 offered the country a great opportunity to introduce the carbon border levy.