A car­bon price-and-re­bate plan

Financial Mirror (Cyprus) - - FRONT PAGE -

So far, in­ter­na­tional cli­mate talks have failed to find a mech­a­nism that will suc­cess­fully re­duce global green­house-gas emis­sions. The 1997 Ky­oto Pro­to­col at­tempted to use a sys­tem of trad­able quo­tas to es­tab­lish a price on car­bon-diox­ide emis­sions, but foundered af­ter the United States and sev­eral emerg­ing coun­tries re­fused to join.

The 2009 Copen­hagen Cli­mate Change Con­fer­ence in­tro­duced a pledge-and-re­view process, in which coun­tries uni­lat­er­ally de­cided how much they would cut. As a re­sult, the US and sev­eral emerg­ing economies made com­mit­ments to re­duce emis­sions for the first time. But this sys­tem, too, is badly flawed. What it does not do is re­solve the clas­si­cal freerider prob­lem or guar­an­tee re­duc­tions in de­vel­op­ing coun­tries. In­deed, some coun­tries may have been en­cour­aged to do less than they oth­er­wise would have in or­der to main­tain a strong ne­go­ti­at­ing po­si­tion.

As world lead­ers meet in Paris from Novem­ber 30 to De­cem­ber 11 for the United Na­tions Con­fer­ence on Cli­mate Change, they will have a new op­por­tu­nity to forge an ef­fec­tive agree­ment. To en­cour­age govern­ments to act in con­cert, it is es­sen­tial to work to­ward a sys­tem of car­bon pric­ing that is both straight­for­ward and trans­par­ent. We pro­pose a car­bon “price­and-re­bate” mech­a­nism, which si­mul­ta­ne­ously sets a price on emis­sions above a cer­tain thresh­old and de­fines how the rev­enues raised should be used.

Stud­ies ahead of the Paris con­fer­ence sug­gest that in­ter­na­tional co­op­er­a­tion could al­low for rapid re­duc­tion of green­house gases. They also high­light the knock-on ben­e­fits that tak­ing quick ac­tion on cli­mate change could have, in­clud­ing re­duc­tion of lo­cal pol­lu­tion, greater en­ergy and food se­cu­rity, and faster in­no­va­tion. To ac­cel­er­ate the move to­ward a low-car­bon econ­omy, an in­ter­na­tional agree­ment must be ap­pli­ca­ble to all coun­tries; in­clude a com­mon and con­sis­tent sys­tem for mon­i­tor­ing, re­port­ing, and ver­i­fi­ca­tion; and pro­vide strong eco­nomic in­cen­tives at a global scale.

Our price-and-re­bate mech­a­nism is in­spired by the “bonus/malus” scheme in France, in which buy­ers of new cars are taxed or given a bonus de­pend­ing on the ve­hi­cle’s CO2 emis­sions. In our sys­tem, a coun­try ex­ceed­ing the world­wide aver­age for per capita emis­sions would pay a spec­i­fied amount on ev­ery ton of CO2 (or its equiv­a­lent) above a set thresh­old. Coun­tries with lower-than-aver­age emis­sions would be com­pen­sated for pol­lut­ing less.

This sys­tem would ini­tially ben­e­fit coun­tries with the low­est per capita emis­sions, mean­ing that most of the funds would flow to­wards the least-de­vel­oped coun­tries. Once it is fully op­er­a­tional, the price-and-re­bate mech­a­nism would en­cour­age all coun­tries to re­duce their per capita emis­sions, thereby re­duc­ing the gap be­tween pay­ments and re­bates.

The ideal car­bon price would de­pend on the ob­jec­tives of the agree­ment. A price of $1-2 per ton would gen­er­ate $14-28 bln, enough to fund the de­ploy­ment of the mon­i­tor­ing, re­view, and ver­i­fi­ca­tion process in de­vel­op­ing coun­tries. The Copen­hagen Ac­cord in­cluded a com­mit­ment by rich coun­tries to spend $100 bln a year af­ter 2020 to help un­der­de­vel­oped coun­tries mit­i­gate and adapt to cli­mate change. A rate of $7-$8 per ton would gen­er­ate enough rev­enue to de­liver on this prom­ise, with the money flow­ing to coun­tries with low per capita emis­sions. Of that $100 bln, a lit­tle over $60 bln would come from Western coun­tries and Ja­pan, and just un­der $20 bln would come from hy­dro­car­bon-ex­port­ing coun­tries (Rus­sia and Saudi Ara­bia in par­tic­u­lar) and high-growth Asian economies (in­clud­ing China and Korea). The in­tro­duc­tion of a price-and-re­bate sys­tem would thus re­dis­tribute funds among coun­tries in con­form­ity with the prin­ci­ple of “com­mon but dif­fer­en­ti­ated re­spon­si­bil­i­ties and re­spec­tive ca­pa­bil­i­ties.”

A price-and-re­bate sys­tem would be both ef­fi­cient and fair. Ev­ery ci­ti­zen in the world would have the same right to emit green­house gas, and ev­ery coun­try would face the same in­cen­tives at the mar­gin to re­duce emis­sions.

The main ob­sta­cle to be over­come in es­tab­lish­ing such a sys­tem will be to con­vince donor coun­tries’ govern­ments to pay for their car­bon emis­sions. This cost will be mod­est rel­a­tive to the size of their economies, and any suc­cess­ful cli­mat­e­change agree­ment will re­quire sim­i­lar com­mit­ments. If rich coun­tries are un­able to agree to pay even a mod­est price for car­bon, the talks in Paris will surely be judged a fail­ure.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.