Carbon pricing is becoming a key issue in climate change mitigation. Pricing is a flexible, fair, cost-
efficient and technology-neutral tool to meet the climate challenge.
In our daily life, we are used to paying for the goods we consume: fresh water, waste water, household waste, electricity, heat, etc. This is self-evident and fair. However, for decades or centuries mankind has released greenhouse gases – carbon emissions – into the atmosphere for free. How come?
“Polluter pays” is one of the commonly agreed principles in international environmental law and a principle that is extremely applicable in terms of carbon emissions. Climate change is a global challenge, and the impact of carbon emissions is similar regardless of location or type of emission source.
Market-driven emissions reduction
The basic idea of carbon pricing is simply to capture the so called external costs of carbon emissions – such as damage to crops and health care costs from heat waves and droughts – and to tie them to their sources through a price on carbon.
Pricing gives an economic signal that lets the emitters decide whether they want to discontinue the polluting activity, reduce their emissions, or continue polluting and pay for it. Pricing enables achievement of the environmental goal in the most flexible, cost-efficient and technology-neutral way. A global price would be fair and would abolish carbon leakage and stimulate clean technology and innovations.
Various ways to price carbon
The two main types of carbon pricing are emissions trading systems (ETS) and carbon taxes. The choice of the instrument depends on national and economic circumstances. Agreeing on a global tax may not be realistic, and a global carbon market is a long-term goal. Negotiating a uniform price commitment at the international level and letting countries gradually implement it in their own way may be the simplest way forward. Other, more indirect ways of carbon pricing include, for example, fuel taxes or the removal of fossil fuel subsidies.
Private sector insisting on carbon pricing
The global momentum to put a price on carbon is building. Right now, 12% of global emissions are subject to carbon pricing.
The private sector has been increasingly outspoken in its support for consistent carbon pricing. The Caring for Climate Initiative created by the United Nations and the World Bank’s Carbon Pricing Leadership Coalition are just two examples of global cooperation involving a big number of companies.
International climate talks are culminating in the Paris COP21 meeting. Carbon pricing and carbon markets should be a key element of a successful agreement. Carbon pricing matters for the future of mankind.