Pricing harmful carbon through dedicated marketplaces is emerging as businesses’ preferred way of tackling climate change. It is also the cornerstone of EU policy, but critics say that alone won’t be enough.
“We know who the enemy is, it is carbon,” Angel Gurria, secretary general of the Organization for Economic Cooperation and Development (OECD) said at the recent Paris Business and Climate conference. “We should hit it on the head with a blunt instrument as hard as possible ... a big fat price,” DW reported.
Ahead of the Paris climate summit in the autumn, Europe’s big energy companies have chimed in, with the likes of BP, Royal Dutch Shell, Total and Statoil amongst others demanding a global price on carbon in a letter to the UN’s top climate official, Christiana Figueres.
While Greenpeace has dubbed the proposal a “smoke screen” Sandrine Dixson-Decleve from the University of Cambridge Institute for Sustainability Leadership told DW that it showed that energy firms were taking a pro-active approach and that the mindset was changing.
Changing Mindset
“Most of the business community, including the financial community, have declared that we need the right carbon pricing mechanisms”, adding that “it is one of the major pillars of being able to move fast towards a low-carbon economy.”
The price, she admits is far too low at present, around $7 (6.4 euros) on average globally. Experts say it should be at least $20, some say it should be between $50 and $100 to really further decarbonization, meaning the process of achieving a zero-emissions economy.
But what are the right pricing mechanisms? In their letter to the UN’s Figueres, the six energy giants say they favor having carbon markets across the globe, where emissions can be traded. It “allows countries that have emission units to spare - emissions permitted them but not “used” - to sell this excess capacity to countries that are over their targets,” according to the 1997 Kyoto protocol, where the concept first took shape.
Price Drop
The EU introduced the world’s first emissions trading scheme (ETS) in 2005, as one of the main pillars of its climate policy. But it has been under fire lately as the price of carbon has dropped due to an oversupply of allowances on the market. It means that burning fossil fuels like coal has become cheap, defeating the purpose of the ETS.
Last month, the EU reacted by agreeing to withdraw some of the surplus allowances from the market and putting them in reserve.
But “once these surplus allowances are brought back to the market again, it allows companies to pollute more in the future,” Femke de Jong, police officer at NGO Carbon Market Watch told DW.
“So, what we as NGOs are saying is to permanently remove surplus pollution rights. We currently have more than 2 billion, it’s expected to grow to 4 billion by 2020 - it’s two times the cap on the EU ETS.”
“It’s very strange to see that EU leaders have said the ETS is the cornerstone of our climate and energy policy even though it hasn’t worked so far,” she says, adding that there is a lot of funding, among others from the World Bank, going to places like China to set up similar schemes.
And indeed, the World Bank recently said that any agreement reached in Paris should send an “unequivocal signal” that markets would play a key role in tackling climate change.
