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Paris Targets Will Require a Big Boost in Global Carbon Prices

A commission of eminent economists led by Nobel Laureate Joseph Stiglitz and Lord Nicholas Stern has determined how high a carbon price it will take to “induce the change in behaviors needed to deliver on the temperature objective of the Paris Agreement”. And it’s a lot higher than what Canada is planning.

The High-Level Commission on Carbon Prices was established with World Bank and French government backing late last year to examine the role of carbon pricing in achieving the aims of the Paris Agreement. Its report, released this week, finds that “a well-designed carbon price is an indispensable part” of achieving the Paris goal of limiting average global warming to 2.0ºC above pre-industrial levels.

But for an explicit carbon price to produce different behaviours and decisions, “particularly those driving investments in infrastructure, technology, and equipment needed to deliver on the temperature objective of the Paris Agreement,” the commission warns, that price needs to be “at least US$40 to 80 per tonne of CO2 by 2020 and US$50 to 100 per tonne by 2030.”

At today’s exchange rate, the commission’s 2020 minimum carbon price works out to about C$53 per tonne of CO2—slightly more than the $50 that Canada’s announced carbon pricing plan will reach only by 2022. The upper end of its estimated effective price range by 2030 comes to about C$135 a tonne today.

The commission makes no attempt to estimate the damage from climate disruption that would result if no effort were made to reign in greenhouse gas emissions through carbon pricing. But commission member Ottmar Edenhofer of the widely-respected Potsdam Institute for Climate Impact Research, called it “a dirty lie that CO2 emissions from fossil fuels have so far come with no cost. They cost us in human health, damage to our climate, and billions of dollars in subsidies worldwide.”

Through that lens, Edenhofer added, “putting a clear price-tag on CO2 emissions means finally telling the truth.”

Citing the Canadian experience, Edenhofer challenged the idea that a carbon tax burdens the poor. “It can even drive social justice,” he asserted, “if income from CO2 pricing is given back to the people, as they do in Canada.”

The commission acknowledges, however, that carbon price implementation models would have to reflect a variety of national priorities.

Efficient carbon price trajectories begin with a strong price signal in the present, and a credible commitment to maintain prices high enough in the future to deliver the required changes,” the report notes. But while “relatively high prices today may be more effective in driving the needed changes and may not require large future increases, they may also impose higher, short-term adjustment costs.” Trade-offs will need to be made, and prices adjusted in the medium to long term. “based on technology development and the responsiveness to policy,” Stern, Stiglitz, and colleagues observed.