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How High Does Carbon Need to Be? Somewhere From $20-$27,000

Bloomberg logoBloomberg 10/10/2018 Mathew Carr

(Bloomberg) -- The idea that carbon markets can help rein in greenhouse gas emissions got fresh momentum this week from a panel of scientists convened by the United Nations.

But whether the idea gains more political currency this time depends on the price that policymakers set for emitting Earth-warming carbon dioxide into the atmosphere. The UN panel set out a number of scenarios, suggesting that markets alone won’t solve the problem.

“A complementary mix of stringent policies is required,” scientists said in the report.

The market has the potential to shave 10 billion tons off global emissions by 2030, a 25 percent reduction from current levels. Another dividend: money collected from carbon pricing could be used to soften the blow of higher energy prices.

Back to Life© Bloomberg Back to Life

The panel stopped short of recommending a price. Instead, it said the price required depends on the goal policy makers want to hit and what other rules and regulations they impose. The idea is that a market together with regulations and taxes will provide both incentive and penalties for polluters to roll back their emissions.

Carbon prices would probably need to be 20 times higher than current levels in Europe to rein in fossil fuel emissions if that was the main policy mechanism in place, the Intergovernmental Panel on Climate Change said in its report. After assessing peer-reviewed academic research, it concluded:

Prices need to average between $140 to $590 a ton from 2030 to 2100 to keep global temperatures from rising more than 1.5 Celsius above levels seen before the industrial revolutionFor a less ambitious target of keeping temperatures from rising 2 degrees, average carbon prices could average from $20 to $150 over the same periodFor the more ambitious limit, prices may need to jump above $1,000 sometime before 2030 and perhaps reach as much as $27,000 by the end of the century

Carbon in Europe rose above 20 euros ($23) a ton for the first time in a decade in August, although it has remained well below levels the UN envisioned for much of the life of the continent’s Emissions Trading System, which started in 2005.

Advocates of emissions trading systems say higher carbon prices would steer consumers away from the dirty technology they are used to, said Glen Peters, senior researcher at the Center for International Climate and Environment Research in Oslo.

He expects high carbon prices, which are a reasonable policy, probably will fall victim to short-term fixes and political apathy about climate change. Five years ago Australia backed out of a carbon pricing system that promised effective tax cuts.

“Right wing parties should love carbon taxes, but they don’t because climate is a left-wing issue,” Peters said. “Climate leadership is gone.”

The IPCC report is another attempt to resuscitate debate about carbon markets after President Donald Trump vowed to pull the U.S. out of the 2015 Paris Agreement on climate change. The UN scientists see a “double dividend” from carbon trading as it both encourages restraint on emissions and raises money that can be spent on projects that cut pollution or help the poor.

Paths to Slow Global Warming© Bloomberg Paths to Slow Global Warming

“The design of carbon pricing policy implies a balance between incentivizing low-carbon behavior and mitigating the adverse distributional consequences of higher energy prices,” the report said.

Substituting a levy on carbon for payroll taxes can “potentially decrease labor costs without affecting salaries,” reducing economic damage caused by climate policies, the report said.

Last month in Bangkok, envoys to the UN climate envoys produced a draft negotiating text outlining options for new global carbon markets under the Paris deal. If the measures get broader backing at the end of this year, countries will be able to voluntarily trade emission-reduction credits bilaterally, or via a new international program, known as the Sustainable Development Mechanism.

“I hope that the governments, scientists all come together to find a solution to our climate challenge,” said Fatih Birol, executive director of the International Energy Agency.

The scientists’ report and climate talks are seeking an immediate decline in emissions, yet global emissions are set to rise again this year to a record, Birol said Tuesday in an interview at the Oil & Money conference in London.

“There’s a clash -- a gap -- between what the scientists and governments target and what’s happening in the real markets. This is my main worry,” he said.

The report ramps up the pressure on UN envoys to agree the rules this December for the international carbon markets, which will cut the cost of climate protection and make the 1.5 degree goal “more feasible,” said Dirk Forrister, president of the International Emissions Trading Association.

Burying carbon emissions could be critical to stave off catastrophic climate change, but don’t count on politicians making it happen because carbon prices need to at least triple to $75 a ton, Royal Dutch Shell Plc Chief Executive Officer Ben van Beurden said Tuesday.

“The carbon price that we would be looking at with today’s state of technology and commercialization and everything else, would probably be out of reach from a political perspective,” Van Beurden said.

(Updates with comment from IEA in 15th paragraph.)

To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Lars Paulsson

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©2018 Bloomberg L.P.

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