The United Nations COP26 summit in Glasgow, Scotland, is seen as a make-or-break chance to save the planet from the most calamitous effects of climate change.
For sure, no longer is climate change a debatable concern. Some research models suggest up to a quarter of global GDP — currently around $80tn — could be lost if no action is taken to reduce carbon dioxide emissions.
“To slow climate change, make polluters pay for the damage they cause” is an idea that’s been around for more than two decades.
Now it’s turning into one of the hot topics for the climate talks in Glasgow.
More than 60 jurisdictions — nations, states and cities — have adopted what’s known as carbon pricing, an approach hailed by environmentalists, politicians and even many oil companies as an elegant, free-market alternative to direct regulation.
There are two main approaches to carbon pricing.
In one, carbon prices are set by governments as a tax or fee on carbon dioxide emitted. In the other, governments establish a limit on the total volume of emissions allowed, create a market and let participants in that market — utilities that produce electricity, most commonly — determine the exact price of carbon.
Does it work?
As a matter of fact, levies from Europe’s carbon trading system have hastened the transition to cleaner natural gas. The UK’s carbon tax is credited with helping the country rapidly phase out coal.
But environmentalists say most policy makers have traditionally been unwilling to set prices high enough to force changes in behaviour.
A price range of $40-80 a metric tonne is needed to achieve the 2015 Paris Agreement’s main goal of limiting warming to 2C (3.6F) above preindustrial levels, according to a 2021 World Bank report. Only about 4% of emissions are covered by a carbon price above $40 a tonne. Keeping warming below the more ambitious Paris goal of a 1.5C limit would require introducing a price of $160 per tonne or more by the end of the decade, according to consultant Wood Mackenzie.
Much of the controversy about the carbon market comes down to the integrity of the accounting, making sure that each carbon credit is rigorously validated, isn’t double counted and that its contribution to global emissions reduction can be verified.
The most climate-conscious countries and campaigners are trying to ensure that each step to reduce emissions only counts once. Push-back is also coming from countries including Brazil, India and China, who have said they want to use old, unused credits from the 1997 Kyoto Protocol’s defunct Clean Development Mechanism.
It’s also unclear which entity will be responsible for regulating global markets and ensuring offsets traded are high quality. There’s the potential for diplomatic spats over offsetting and accounting.
The global economy could lose as much $2.7tn a year by 2030 if countries continue to destroy biodiversity, impacting wild pollination, food from fisheries and timber from forests, according to the World Bank.
As companies around the world seek to burnish their green credentials, plans for a rigorous and regulated international carbon market to help countries and businesses reach their climate goals are becoming a key part of the fight against climate change.
Viewpoint
