Putting a price on carbon

A commentary by Karin Baba, Heena Gambhir, Eimear Duff, Stephanie E. Trpkov, David A. Trejo Pizzo (YGCs 2019)

Climate change has put the globe in a state of emergency. At the Global Solutions Summit on March 18 and 19 in Berlin, once again, broad consensus was reached at least on one point: Researchers, policy advisers, members of the civil society, government representatives, dignitaries and the Young Global Changers agreed, that the battle cannot be fought individually. The whole world needs to act; however, the only action seems to be the acknowledgment of climate change as one of the biggest threats facing the world today.

In 2018, over 61 million people were affected by extreme weather events, according to data by the Center for Research on the Epidemiology of Disasters. This was not just in Asia or Europe, but across the entire globe. According to OECD, carbon dioxide emissions from fossil fuels increased by 60% between 1990-2013. The UK Environment Agency warned of water shortage in the next 25 years in England. Arctic ice is already receding; coral reefs are bleaching.

We are part of a critical moment in the planet’s history, and many researchers believe we need to reach a carbon- emissions peak as soon as possible. “There is a need to cut carbon emissions by 35 percent between now and 2030 at a time when every year [carbon levels are] going up,” said Amar Bhattacharya, a senior fellow at the Brookings Institute.

A potential solution, surprisingly enough, is already available: Carbon pricing is key to combating climate change.

Picture: Foto-Rabe, Pixabay

But what is carbon pricing?

Carbon pricing means putting a price on carbon emissions to mitigate global climate change. A carbon tax is a form of carbon pricing. Another option is a permit-based emissions trading system (ETS). The European Union created the EU ETS, the world’s first major carbon market on which companies are allowed a limited number of emission permits. It helped the EU put a cap on the level of greenhouse gas emissions.

“We have no time to wait,” said Gabriela Ramos, OECD Chief of Staff, at the Global Solutions Summit. “Only eleven countries have developed a climate action plan. There is a need to invest in sustainable infrastructure. We need to increase the price of carbon. This is the only way.’’

Even German Chancellor Angela Merkel recognized the challenge ahead. “We have a huge task to reach the climate targets of 2030. Carbon pricing is the best option.’’

The G20 countries account for 80% of the world’s annual carbon dioxide emissions, according to the World Resources Institute. Reports suggest that some 88 countries have started seriously look at carbon pricing. Much can be learned from Sweden, which managed to decrease carbon emissions by almost 26% by implementing a carbon tax in 1991. Argentina imitated the design of carbon tax from Europe, which was not as successful as hoped. This is an example of policy experimentation and iteration, that is now being reformed.

Picture: Pixabay

Political acceptance remains one of the biggest challenges in implementing a carbon tax.

Australia introduced its carbon pricing scheme in 2012, but issues like political credibility and the lack of a convincing narrative may have contributed to its abolishment just two years later. This shows that establishing energy goals is not enough: Political will is equally important.

Virginie Marchal from the OECD believes that to be successful, a carbon tax needs to be “predictable, increase in time, and be at a level dependent on country-specific factors.” Despite climate change being a global problem, solutions need to incorporate local and national circumstances. There is no one-size-fits-all design for the carbon tax scheme.

Locally-oriented carbon pricing can help compensate for time lost as efforts to secure common, global agreement continue. While we must foster international cooperation and multilateral discussions, we just as urgently need local implementation.

In the current system, emitting carbon is cheap and easy. Finding a way to reflect the societal costs and risks of emission-intensive activities, while holding the drivers of emissions accountable, can be an effective tool.

Incorporating such an approach is a bold step, one that can soon lead to more than just an acknowledgement of the risks posed by climate change: An ounce of action is worth a (carbon) ton of theory.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of the Global Solutions Initiative.

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