‘There should be a price on carbon,’ says an expert pushing for policies to combat climate change

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  • A carbon price is a fee imposed by the government on carbon to reduce carbon emissions.
  • With a carbon pricing policy in place, countries have seen a 2% fall per year between 2007 and 2017.
  • “We got to use an intelligent mix of market mechanism and state regulation,” Lord Adair Turner, the chairperson of Energy Transitions Commission told Business Insider.
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A carbon price is a fee imposed by the government on carbon to reduce carbon emissions. The idea behind carbon pricing is to encourage lower-carbon behaviour and to attract investments into renewable energy by making polluting production processes more expensive.

With a carbon pricing policy in place, countries have seen a 2% fall per year between 2007 and 2017. Whereas, countries without carbon pricing have witnessed a 3% increase in carbon emissions, according to a latest study by the World Economic Forum.

“Carbon price is a public policy but it is a public policy that says all that the government does is set the carbon price,” Lord Adair Turner, who heads the Energy Transitions Commission told Business Insider. It can be either a tax on products and services based on their carbon intensity or a quota system setting a cap on permissible emissions in the country or region and allowing companies to trade the right to emit carbon.

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Is carbon pricing feasible?
Over 40 governments across the world have adopted, or are planning to adopt measure that impose price on carbon — either through direct taxes on fossil fuels or through cap-and trade programs. Some of these economies have seen a reduction in coal use.

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Britain, which introduced carbon tax legislation “Carbon Price Support” in 2013, have witnessed a 93% reduction in electricity generated by coal. However, according to experts, Britain or most of these countries may have kept carbon pricing low, which may not effectively reduce carbon emissions. Sweden, on the other hand, kept the carbon pricing at $127 per tonne and have seen 25% reduction in emissions since 1995.
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The average price on carbon was around $8 per ton in 2018, a ccording to Organisation for Economic Cooperation and Development report. Whereas, according to United Nations, a government would need to impose a carbon price between $135 to $5,000 per ton to keep overall global warming below 1.5 degree Celsius.

Moreover, according to New York Times, many of these governments say it is “politically difficult” to set price that may result in deep reductions of carbon emissions. For instance, in 2012, the Australian government introduced a cap-and-trade program which set the price of carbon at $23 per ton. Under the program, emissions fell significantly. But, the government faced severe criticism from industry voters.

Can India afford to tax carbon?

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When different countries have different tax on emissions, it may make companies in some countries less competitive than others. It is a significant challenge in a globalised economy. For example, if India charges more per unit of carbon emission compared to China, the cost of steel from India would be more, and therefore less attractive to international buyers.

However, Turner has a way around it⁠— border adjustments. “I am going to charge a tariff with the border to reflect the fact that there’s a carbon price. Now, that’s not the ideal way to go, that’s second best,” he said.

The devastating climate events of recent years— from the fires in the US, Brazil and Australia to heavy storms and floods in South Asia— have increased the awareness and the need for curbing pollution and global warming.

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A price on carbon is one of the solutions that is gaining popularity. “The ideal way — and I think there will be debates about this in the big conference next year in Glasgow — is if we can get some international agreements at least in these traded sectors of the economy to have a similar carbon price in different countries,” Lord Turner said.

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