The price of carbon, a vital instrument in the fight against climate change.

By Mireille Martini, Sustainable Finance Manager

for the NG0 Finance Watch (Brussels)

 



"Decarbonization is a way to achieving growth.

At COP21 in Paris, nearly 200 countries agreed to keep the « the increase in the global average temperature to below 2 °C». This target is motivated by the concerns aroused by the magnitude of the economic, social and environmental damage that could result from climate change. Achieving this target calls for a complete transformation in the economic activity, which means not only a major change in the energy system, but also in the industrial processes, the forms of urbanization and the use of land, including for agriculture. This transition is compatible with growth, development and the reduction of poverty; it has the potential, if properly conducted, of being an attractive and sustainable way of achieving growth, and improving everyone’s well-being. We have but little time in which to stimulate these profound changes. The longer we delay this, the greater will be the concentration of Co2 in the earth’s atmosphere, with the risk of triggering off irreversible phenomena, some of which have already begun, such as the acidification of the oceans.

What is carbon pricing?

By « carbon pricing » we mean all the economic policy instruments that make emissions costly. The tax or the axing of subsidies are not the only way of putting a price on Co2. We can also organize an emissions trading market or impose emission standards on industrial processes. Lastly, we can subsidize R&D for energy saving processes and CO2 capturing technology. At present 87% of the global emissions of Co2 are not the subject of any pricing, and approximately three quarters of the emissions that are covered by carbon pricing are charged at less than 10 dollars a tonne of CO2. This means that producing Co2 emissions still costs very little on a global scale. And therefore that industrialists and investors are not encouraged worldwide to develop production methods that use less emitting energy. The carbon price should not just be seen as a means of dissuasion. Many projects today are not viable, as the emissions they save are not worth the trouble. If the emissions were sufficiently costly, such projects would become viable. An adequate carbon price is the pre-condition for the « green » economy to take off.