OPINION: Slicing and Dicing the Climate; Carbon Pricing Would Help U.S. Undertake its Own Belt and Road Initiative (7)

–This is what success at saving the climate might look like in 2030; these are not answers, but requests for collaboration and better ideas
–U.S. plan gets air*
–Former Obama-administration official and I collaborate on alternative slices and dices (see notes)

By Mathew Carr (and friends) — corrects charts, text**

April 6-23, 2021 — LONDON: The United States should undertake its own “belt and road initiative” to help solve the climate crisis, if it’s genuinely concerned about China’s expansion program.

China’s belt and road initiative is a global infrastructure development strategy adopted by the government in 2013 to invest in nearly 70 countries and international organizations. China’s already starting a domestic carbon market and is helping fund several development banks. The EU has the world’s biggest carbon market, which has given it about 60 billion euros of revenue.

The U.S., which has the world’s biggest economy, could help pay for its version by imposing a carbon price at home and by encouraging the same globally. This boosts government revenue as governments sell the remaining space in the atmosphere for fossil-fuel-emissions instead of giving it away for free. It could also implement corporate tax increases and a wealth tax, enhancing social and climate justice simultaneously in the wake of the global coronavirus pandemic.

Some are suggesting a temporary wealth tax, which might be more difficult for the rich to avoid.

U.S. Treasury Secretary Janet Yellen and Germany are already backing part of this plan. See below and this Tweet chain:

The good news is that with the right policy, the technology is now ready to be deployed, across the globe to meet the goal of cutting emissions aggressively during the next 10 years. Of course, it’s not going to be easy, but there’s been some work the past few years creating ways to cut the risk of climate investment.

Here is a potential breakdown of spending that could encourage a solution — emission cuts of about 3 billion tons a year during the next 10 years to about 30 billion tons globally in 2030 — based on science.

The revenue from carbon pricing can protect poorer people from costs caused by richer people, who are most responsible for the climate crisis.

Corrected Carrzee & friends chart, to show investment through 2030 for CO2e mitigation, not per year

The first column represents a pro-rata estimation of payments needed by each country or region based on 2019 emissions.

Under this scenario, the U.S. would pay for $222 billion of cuts (not necessarily just in the U.S.) through 2030 at $51 a ton for the mitigation. (The EU carbon price is already at this level, btw.)

Democratic lawmakers in America have already reintroduced a carbon pricing bill — in recent weeks — which would quickly get prices to the needed level (see below). The U.S. is hosting a climate summit on April 22-23 and it’s invited 40 world leaders.

But, there are several apparent problems with this scenario, according to one emerging-nation climate negotiator, who calls them “lethal flaws”:

(1) You must prorate based on responsibility for warming not on the basis of current share of emissions.
(2) Responsibility must be calculated on consumption-based emissions and not on the basis of production-based emissions within the country borders.
(3) Similarly current emissions must be based on consumption and not production to estimate the reduction needed.
(4) Carbon is taxed differently in different countries.  In some poor countries over 50% of the price the consumer pays for energy is taxes.  You must normalize these differences across countries.
(5) It is not clear to me who pays the fee to generate carbon revenue.  Will the developed countries pay it as required under the convention?
(6) Countries below an agreed level of per capita GDP/Income should be excluded as they need to develop and deliver a basic threshold level of prosperity.  They can follow the low emission path only to the extent that it’s paid for by the developed world inclusive of cost of technology procurement and capacity building — again as provided in the convention.

(Note, the convention referred to here is the UN Framework Convention on Climate Change; consumption emissions take into account that some developed country emissions are produced making energy intensive goods for rich-country consumers — the reverse also happens to a lesser extent.)

So, the second column of numbers seeks to overcome some of this feedback.

Under that alternative scenario, the U.S. contribution surges to $444 billion through 2030 (only for mitigation) versus the $222 billion under the opening-gambit-pro-rata scenario. It would mean the U.S. funds about 8.7 billion tons of the 30 billion tons of cuts in 2030.

One rich-country source says such a cost would be “dead on arrival” politically in the U.S. But, let’s just consider it for a moment.

The Green Climate Fund is already funding such programs, with private sector money — including from the U.S. (see below).

Carbon pricing is becoming a desirable thing because it attracts capital and gives governments a way to tax the rich with less criticism than increasing income, payroll or sales taxes. Funding emission-reduction projects (wind, solar, batteries, EVs, green hydrogen) may turn out to be lucrative, so paying up in the next 10 years might be a seriously wise move.

The new U.S. administration has already flagged that development finance is a powerful tool for addressing the climate crisis, Antony Blinken, secretary of state, said last month.

“Secretary (John Kerry) – the Special Presidential Envoy for Climate – and I are very interested in how the Development Finance Corporation can help drive investment toward climate solutions, innovation in climate resilience, renewable energy, and decarbonization technologies. This part of the DFC’s work will be front and center at the climate summit on April 22.”

Blinken said April 19 the U.S. was interested in helping other nations curb emissions, especially if it could help supply the equipment.

Kerry headed to China and South Korea through April 17 as he sought to drum up ambition (or as he sought inspiration, let’s say, to help drum up U.S. ambition — see story link below on the U.S. 2030 target).

The DFC, created and expanded from other institutions in 2019, is the U.S.’s development bank.

Here’s another way to slice and dice, controversially adding a global or near-global cap for 2031 for a club of volunteering countries, which would be the first year of the second 10-year phase of the Paris deal:

Corrected Carrzee & friends chart; earlier version confused yearly vs 10-year cost in third column of numbers

Again – I’m not suggesting anything like this would work because I just don’t know. I’m trying to improve the quality of the public debate, as envoys do their stuff behind the scenes.

By 2031, carbon prices may need to be somewhere around $200 a ton. So a 22 billion ton cap then would be worth $4.4 trillion. That’s not a small asset, so who gets the right to sell emission rights will be tricky to determine.

I’m not saying UN envoys need to decide now, but it might help get a deal and finish a 30-year climate blame game.

The far-right column above starts by allocating a cap on the basis of 2019 emissions, which would be better for at least some developing nations because that’s probably their record-high level. China’s apparently were even higher in 2020, despite the pandemic.

Giving China, the U.S. and the EU a high allocation of the cap in 2031 probably won’t wash with India and Brazil, who’ve always had lowish per-capita emissions. So a discount of 50% (or more or less) could be applied to rich countries and to those who have made a lot of money selling fossil fuels — the idea being that if your country got wealthy selling or using fossil fuels it should not also be able to get rich selling carbon credits needed to fix the mess created by the sale and use of fossil fuels).

That 50% could be allocated into a reserve to be somehow distributed to others, who have used up a smaller portion of the global carbon budget over time on a per capita basis. Or, it could be sold in auctions to the highest bidders.

What would you suggest (see my email below)?

Another way to slice and dice the 30 billion tons or so of emission reductions needed in 2030 is via some of the structures allowed for under the Paris climate deal, or that stem from its structure. See this:

CarrZee and friends

Here, the required reductions in the opening gambit scenario are mainly filled by country and regional carbon markets and other climate policies. There could be new regional linkages between Europe, North America and Asia.

This scenario includes a new UN-overseen market under article 6.4 of Paris, so assumes envoys can reach agreement on rules over the next year or two.

The alternative scenario assumes 6.4 negotiations don’t create a new UN-overseen market. Instead, developing and least-developed nations opt to keep much of their economies outside the nationally determined contributions and seek to win capital from the voluntary markets.

I’ve put 6 billion tons as the voluntary market’s contribution to the 30 billion tons of needed reductions, because the voluntary markets already have a head start on whatever the UN can create under article 6.4 (see story link in notes below).

Having said all that, it’s possible envoys could create a better UN market than those currently serving the voluntary markets. Or they could choose to merge 6.4 with the voluntary market — or even merge 6.2, 6.4 AND the voluntary markets.

Under the alternative scenario, aviation and shipping cut or offset all their industry emissions in 2030 (at approximate 2019 levels), versus half under the opening gambit. I’m assuming this because supply may be higher and prices lower under the alternative scenario.

A key element of the third chart above is the -1 billion ton for Kyoto credits in 2030.

Allowing carbon credits from the Kyoto Protocol into the Paris era in a clever way might also help secure a deal. These credits have the potential to damp prices if they are allowed for use immediately. If their use for compliance under Paris is rationed out over 10 years, their impact can be softened.

Developing nations have argued for the transfer of Kyoto credits because they were created by developing nations (or those in transition) but their value has plunged because of apparent oversupply.

The countries, including China, India, Russia and Brazil (but also smaller ones), know there is in fact no oversupply, but a massive shortage of emission reductions.

Overall, the best-case scenario would be for UN envoys to create a global voluntary market that creates a huge supply of emission reductions for a low price, blasting away my assumption that existing voluntary markets might have advantages.

(Updates with Blinken from April 19; **Corrects earlier version to show 10-year mitigation cost instead of per year; apologies for confusion; I smoothed this night of April 14 and tried to make it clearer; earlier I updated with 2031 cap chart, Kerry’s movement, importance of Kyoto credits. Before that I added market-split chart and notes; more Yellen, development banks;

Feedback sought: I plan to better explain and update this with more of your ideas over the next few days. Russia and Saudi Arabia may not like elements of my first alternative scenario, for instance; My email is mathewncarr@gmail.com)


Disclosure: I don’t own carbon credits.

*U.S. plan—the first of its kind in the U.S. government—focuses specifically on international climate finance:

Former Obama administration official and I collaborate on this:

Janet Yellen’s corporate tax plan: https://uk.news.yahoo.com/germany-backed-janet-yellens-call-120426178.html (Yellen also favors carbon pricing, btw.)

Democratic lawmaker carbon proposal: https://thehill.com/policy/energy-environment/545988-house-democrats-introduce-carbon-pricing-measure

Green Climate Fund example: http://carrzee.org/2021/01/26/its-private-equity-but-not-as-you-know-it-gold-standard-arnie-dicaprio-watch-on/

Paris climate markets are not the only option; don’t forget the voluntary markets because Paris Article 6 is voluntary: http://carrzee.org/2021/03/29/the-voluntary-carbon-market-is-putting-pressure-on-un-climate-envoys/

Story on the U.S.’s 2030 target:

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