Analysis/Proposal Summary by Mathew Carr
June 18-21, 2021 — (LONDON): A G20-based carbon price floor could be designed to help alleviate poverty as it saves the climate, according to a proposal published by the IMF.
Installing a minimum carbon price, or prices, across the G20 might be easier than negotiating much stricter climate pledges from nations (known as nationally determined contributions – NDCs) under the Paris climate deal.
The floor price could be $50 per ton of carbon dioxide equivalent, or could vary according to a nation’s wealth and/or its historic contribution to climate change. Under Paris, countries have “common but differentiated responsibilities” to save the climate.
For instance the EU and U.S. could face a $75 price, China $50 and India $25 — see snip below. Even if only the six-biggest countries participate, the chance of meeting the 2C target in Paris would be greatly enhanced.
“The arrangement can be pragmatically designed to accommodate equity considerations
and emissions-equivalent alternatives to carbon pricing,” the proposal argues.
The world’s rich people have caused the global climate crisis — particularly those in the U.S. (see chart at bottom) — and the poor are suffering most because they are least able to deal with it.
The USA seems years away from introducing a carbon market, because its newly minted climate pledge does not even include the “carbon budgets” needed to create price tension in an emissions trading program. The theory of emissions trading is that supply comes down over time, forcing the production of greenhouse gas (demand) down in the process.
The U.S. pledge (NDC) is a single-year pledge for 2030. See this for why it’s actually a weak pledge: https://carrzee.org/2021/06/01/u-s-s-weak-new-2030-emissions-target-shows-americans-have-nothing-to-fear-from-the-paris-climate-deal/ (related chart below)
Possible U.S. Paris Compliance Scenario
Given President Biden’s slim political majority, even a carbon tax would be difficult for him to deploy during the next two years – Americans hate taxes.
But the U.S. political system is near broken. It’s unclear whether Republicans would support even a market-based climate-protection system (even though traditional Republican values would favor that outcome). See this: https://carrzee.org/2021/02/18/the-needed-co2-price-has-doubled-to-100-ten-republican-senators-will-be-convinced-to-meet-that-level-in-the-u-s/
The reluctance seems to stem from the Republican’s main political objective — which appears to be to prevent the Biden-Harris administration from having any legislative wins at all (some people allege), no matter how sorely the world needs better climate/energy policy.
California already has carbon pricing and even a floor price. It’s raised almost $16 billion from selling carbon allowances. That revenue can be used to help protect the poor from any climate policy that boosts economic costs (and carbon pricing does that deliberately to change behavior — change the choices people make to cleaner ones). But that’s just one state.
EU nations and the U.K. have collected about 100 billion euros from sales of carbon allowances. Still, it’s not certain the money is headed toward poor people to soften the blow of higher costs, either within Europe or outside it.
The pandemic has heaped financial pressure on governments.
“The U.S. government and all other western ones now have massive deficits,” said Ken Schneider, president of Grey Epoch LLC, an environmental markets options outfit near Chicago and key participant in the EU carbon market. “I would caution everyone who thinks that the governments will now take the revenues from carbon sales and give them away to poorer nations. I am not trying to poo poo all suggestions and plans, but so far most proposals are flawed.”
China, currently the world’s biggest emitter, is another apparent stick in the mud — it’s understandable that it’s waiting for the U.S. to become more ambitious since the United States is most to blame for the climate crisis and it only has 4% of the world population (China has 18%).
Incumbent U.S. political party the Democrats presumably believe in democracy, even in a global frame — so you’d think there would be some respect for the China viewpoint.
China’s indicating it might cap emissions before 2030, but it’s not doing so really transparently, at least not yet — even though its national carbon market has been repeatedly delayed. See this: https://carrzee.org/2021/04/15/chinas-carbon-market-seems-set-up-to-fail-yet-it-could-quickly-get-strict-analysis/
The UNFCCC has called on all nations to update their NDCs by the end of next month, ahead of climate talks in Glasgow in November. It’ll be interesting to see if the USA and China do so.
Snips here – see links below:
The World Trade Organization is also supporting global carbon pricing. See this link: https://carrzee.org/2021/05/25/wto-calls-for-better-more-global-carbon-pricing/
Here is a chart that starkly shows who’s most responsible for the climate crisis:
(Adds Schneider, previously adds U.S. does not appear ready for carbon pricing, China, charts, context)
Link — see here, which shows link to IMF source doc: https://www.brookings.edu/events/building-climate-cooperation-the-critical-role-for-international-carbon-price-floors/
Also directly here for IMF download: https://www.imf.org/-/media/Files/Publications/Staff-Climate-Notes/2021/English/CLNEA2021001.ashx