How To Put a Price on Carbon

All - Sep 06 2018

Summary map of regional, national and subnational carbon pricing initiatives implemented, scheduled for implementation and under consideration (ETS and carbon tax)

In a recent document, the World Bank has counted 47 carbon pricing initiatives that are already in place and four more to come by 2020. Regarding the current situation, two observations can be made. South-American countries are being relatively active on the carbon pricing front with new carbon taxes in Chile (2017), Colombia (2017) and soon Argentina (2019), while Singapore and South Africa are also scheduled to have a carbon tax in 2019. But the real game changer is the planned implementation of a Chinese ETS in 2020 even though Chinese authorities are yet to disclose the specifics of this project. It appears that there is momentum is gaining towards putting a price on carbon, nevertheless these initiatives are generally taken locally and may lack consistency. This is true not only because carbon prices greatly differ from one country to the other (1USD/tCO2 in Ukraine vs 139 USD/tCO2 in Sweden) but also because countries, supranational and sub-national authorities have chosen different mechanisms to put a price on carbon (be it an ETS or some form of carbon tax). Some companies might seize these market distortions to adapt their strategy, relocate their activities and minimize their losses on carbon emissions.

Overall, this situation gives credit to the argument advocating a single global carbon price as the only effective way to tackle climate change globally and get rid of free-riders who benefit from the resources without paying their fair share. This graph is striking in that it displays not only the extent of the emission coverage but also how fragmented and uncertain the current momentum is. It will be interesting to follow the roll-out of the Chinese ETS and to see if the concept of a global (or at least regional) carbon price is increasingly debated as a result of these initiatives.

 

Nathan Breen, Climate Analyst Intern – Sources: Beyond Ratings, World Bank Group, TSE/IAST

 

 

 

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