A new estimate by Carbon Market Watch pegs US$80 per ton, several times higher than today’s carbon prices, as the threshold that would keep average global warming below 2.0°C if it is instituted across the board by 2020.
“While it is impossible to put an accurate price tag on all the damage that climate change causes, including biodiversity loss, ocean acidification, sea level rise, drought, famine, spread of tropical diseases, extreme weather events, political instability as well as other yet unforeseen effects,” the CMW analysis team argues, it is possible to estimate a range for carbon pricing that would constitute “a powerful policy tool to reduce greenhouse gas emissions,”
The Paris agreement and most climate scientists say global warming above pre-industrial levels must be contained below 2.0ºC, with a longer-term goal of 1.5°, to give modern human society the best odds of holding off the worst effects of climate change. Most policy leaders argue for making carbon emissions more expensive for emitters, as one of the major tools in the toolbox to achieve that goal.
How high the price needs to be to permanently change habits and energy supply choices has been a subject of much debate. Citing the High-Level Commission on Carbon Prices, a group of leading economists working with the Carbon Pricing Leadership Coalition, Carbon Market Watch reports that “a price of at least US$80/t CO2 by 2020, and US$50-100/t CO2 by 2030, is needed to achieve the Paris climate goals.”
And that, in turn, shows the gap between the need and today’s reality. While “more and more governments are implementing various forms of carbon pricing,” the report notes, “so far most prices languish below US$10.”
Earlier this month, Ontario became the latest member of the Western Climate Initiative, a carbon permit trading alliance that also includes California and Quebec. Last month, permits traded within the group for less than US$15 per ton of CO2. Canada’s federal government has committed to establish a national floor price of C$10 per ton by next year, rising to $50 per ton in 2022.
Achieving more robust carbon prices over the long term will need broad support, Carbon Market Watch asserts. To that end, “policy-making should not be a complicated, elitist project, but should be informed by input from civil society.”
Nor will pricing alone do the trick, the group’s briefing paper asserts. Also required are complementary policies that “flank” carbon prices with support for research and development, and which remove non-price barriers to investments in energy efficiency and other areas.
Where cap-and-trade systems are used to create a carbon price, the paper underlines, “a clear and robust price floor” must be instituted to avoid a “waterbed” effect, “the phenomenon where other climate policies, such as energy efficiency schemes or renewable feed-in tariffs, are successful in a given sector and reduce the overall demand for carbon permits.”