DOUBTS ABOUT IMPLEMENTING CARBON PRICING

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29 october 2015

Everyone’s favorite climate change fix

Economists, officials, and executives across the globe increasingly support carbon pricing to stem the rise of greenhouse-gas emissions. Can it work?

by Cristina Maza, staff writer of The Christian Science Monitor • Oct. 29, 2015

On the first day of the hottest June ever recorded, a letter from a group of concerned citizens arrived at the United Nations Framework Convention on Climate Change. Rising greenhouse-gas emissions, the letter warned, would warm the planet to dangerous levels unless more action was taken to transition to cleaner energy. The letter’s authors called on world leaders to implement a global price on carbon to “help stimulate investments in the right low carbon technologies and the right resources at the right pace.”

The message itself was not so extraordinary. For years, economists and environmentalists have made the case for using price signals to efficiently and effectively tilt global energy toward cleaner sources. But this letter didn’t come from a think tank or an environmental group. Instead, the signatories of the June 1, 2015 dispatch were chief executives of some of the world’s most carbon-intensive companies – oil supermajors like BP, Eni, and Statoil – companies that profit enormously from the very fuels carbon pricing aims to curtail.

“Pricing carbon obviously adds a cost to our production and our products,” the letter continued, “but carbon pricing policy frameworks will contribute to provide our businesses and their many stakeholders with a clear roadmap for future investment, a level playing field for all energy sources across geographies and a clear role in securing a more sustainable future.”

Some dismissed Big Oil’s call for a popular climate policy as a public-relations ploy. Others noted that only European firms signed on, representing just one slice of a sprawling international oil and gas industry. But if taken in earnest, the letter from six oil supermajors reflects a widening acceptance of climate change as a challenge humanity should – and can – tackle. Even more significantly, the letter offers up a solution embraced by an increasingly diverse group of businesses, governments, non-profits, investors, and other institutions.

In Brussels and in Beijing, at top universities, in board rooms of the world’s largest companies, in city and state capitals throughout the US and beyond, and across the liberal-conservative spectrum, momentum is building behind the wonky financial tools that make carbon emissions more expensive. Taxes and markets have been used to solve global environmental problems of the past. Now there’s hope they can address today’s climate challenge. It’s a viewpoint espoused by nonprofits like the Sierra Club. But it also gets the backing of energy multinationals like Royal Dutch Shell.

“The transition to a cleaner future will require government action and the right incentives,” Rachel Kyte, the World Bank’s vice president and special envoy for climate change, wrote in an email to the Monitor. “At the center should be strong public policy that puts a price on carbon pollution.”

The idea is simple. We consider carbon-heavy fuels like coal cheap because we usually don’t factor environmental costs into the final market price. Inflating that price – either through a tax on carbon emissions or carbon credits that emitters can buy and sell – sends a clear and strong signal in the universal language of money. Markets adapt to the added cost burden, discouraging emissions-heavy fuels and encouraging lower-carbon ones like natural gas, or zero-carbon sources like nuclear power and renewable energy. Unlike clean-energy quotas or other top-down policies, carbon pricing offers a certain level of predictability, flexibility and efficiency that makes it attractive to a wide range of diverse constituencies. Carbon taxes and emissions trading tell producers to reduce carbon emissions, but it allows each producer to determine for itself how to do so.

Putting the idea into practice, however, is another story. Exactly how much should carbon cost? Set the price too high and there’s a risk of public backlash against more expensive gasoline and other everyday goods. Set it too low and emitters have little incentive to change their behavior. Europe experienced the latter when it rolled out an emissions trading system in 2005. US efforts to implement a similar cap-and-trade system stalled in the Senate. Australia implemented a carbon tax in 2012, only to repeal it three years later amid shifting politics.

Setbacks aside, faith in carbon pricing as a climate-change solution is growing. Last month, China announced it would implement a nationwide emissions trading system (or cap and trade) by 2017. As the world’s most populous country and the world’s largest emitter, it would make for the world’s largest and most significant carbon market.

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