The first or best global climate action is a worldwide carbon price, but that’s not likely because countries like the US are lagging, according to Mark Carney, UN envoy on climate, speaking at a UK parliamentary investigation of GFANZ.
- Subject: The financial sector and the UK’s net zero transition
- Witness(es): Mark Carney, Special Envoy for Climate Action and Finance, United Nations, Co-Chair, Glasgow Financial Alliance for Net Zero (GFANZ)
The second best option is an adjustment of trade rules, spurred by the EU’s carbon border adjustment: Carney.
Here is the relevant section – edited for clarity:
Carney: “If it’s carbon price to carbon price, … it’s pretty clear you can do it.
“If you’re comparing apples and oranges and trying to adjust it, it’s much less clear … The type of solution which is effectively embedded carbon in a specific product, green steel, for example, cement and limiting that to the highest-emitting traded products and developing that trade architecture I think is … well …
“In the second best world (the first best is everyone has a carbon pricing) … is the most likely way forward. And I would suggest that given the differential efforts, the US catching up now but in general, that it is the most likely solution. Yeah.”
Listen to the whole thing – it’s worth it. Esp the section from 15:08 (3.08pm) from Oct. 24, 2022, here.
Unedited section of audit committee transcript below using AI (there are mistakes — audio in link above …Im including this below because this bad transcript is better than nothing and I’m travelling, as well as trying to look after a sick relative. I’ll edit it as my time permits):
Carney: “If there were a price for carbon globally, that price for carbon should reach about 75 to $90 a tonne by the end of this decade. Next point that one of the lessons and I’ll say this from a Canadian perspective, where there is a legislated price for carbon is currently $50 a tonne it’s legislated Canadian is legislated to rise to $170 a tonne by the end of this decade. So it steps up. What’s relevant for investment in Canada is the 170 not the 50 Right. So if you have a credible price of carbon and a credible pathway, and in many respects as you can appreciate, Mr. Mayhew that, that that level in that credibility means that by the time we get to 2030, the economy has adjusted and there’s much less that’s actually priced at 100 in the Canadian example 170 a tonne because carbon is expensive and people have adjusted so it’s it’s highly desirable. There are more complicated ways of doing it, that have an element of global carbon justice if I can say that, which and I’ll refer and again I can provide rather than read out the speak of your time, word by Professor Raghu Rajan and University Chicago has proposed a global average price and if you if you produce below your quantum you get if you If in effect if a country produces below the per capita level, it gets the rebate what others would pay above now.
posed a global average price and if you if you produce below your quantum you get if you effect if a country produces below the per capita level it gets the rebate with others would pay above now I’m not I’m giving that for completeness. I’m not I’ll make two other points. I’d be free just before we go into great if he could. I will. I will. Yeah. I will provide the I don’t think that a global carbon prices in prospect given the various describing would be pleased if there were but I don’t think there’s an prospect and so what becomes the important point I will stop here is potentially in trade. Policy is what is the effective carbon price that countries have when you combine all the policies that countries have? Yeah, there’s the ETF. Exactly well, but also regulatory or moratorium in the language of economics, the shadow carbon price.
So, I mean, you’ve already answered my question that seems to be a lot of barriers to stop us achieving what most people would consider to be a good outcome, which is a global price for carbon. What are the key ones? Just briefly a few. What’s stopping us?
Well, it’s, I mean, the biggest issue in climate is it’s an externality and free riding and lagging. That’s the first thing. The second is the carbon price design, and the political economy of the carbon price. There was some and partly it goes to if I can put it this way. Again, I’m going to use a Canadian example where the carbon price is rebated to individuals. And so about 70% of Canadians come out ahead because their carbon footprint is lower than the the median is above the mean, if you will, in terms of carbon. So they come ahead. It’s not clear I haven’t seen the exact polling of this that everybody recognises that’s the case because while they see a price at the pump, they get a check over here from the government and you know, they don’t necessarily have to to across but so one of the things is is the political economy, your constituents are paying a carbon price and multiply that by 190 countries that issue.
Um, so motherhood and apple pie isn’t going to be adopted around the world is I have to recognise and agree that it’s everything and in our approach to this, but is there progress to be made on an inter governmental level, for example, you have within the European Union? I know was stepped on a little bit but Fourth of July last year, they published a draft called border adjustment mechanism. Yes, yeah. There’s also just trying to remember the name of it the US EU green steel deal of a few months ago, you can see that being the sort of inter governmental agreement that might be able to blossom into something a bit more. Do you see that as a credible?
I agree with the line of your questioning? I think that you know, on the surface, the seabed and the court carbon border adjustment, and they’re you you will have testimony, and you will have expertise better than mine in terms of trade law, but or WTO rules. But if you if it’s carbon price to carbon price, you it’s pretty clear you can do it. If it’s if you’re comparing apples and oranges and trying to adjust it, it’s much less clear, it’s less clear but the type exactly what you’re saying. The type of solution which is effectively embedded carbon in a specific product, green steel for example, cement and limiting that to the highest emitting traded products and developing that trade architecture I think is I think is, is well it’s it’s the most in the in the second best world the first best is everyone has a carbon pricing, do it in the second best world is the most likely way forward. And I would suggest that given the differential efforts, us catching up now but in general, that it is the most likely solution. Yeah.
[Q: Where do you see I mean, we’ve got what’s happening in the European Union, you’ve got as you say, the US is catching up a little bit, I think on this, where do you see the UK fitting into that, that glue that triumvirate of negotiations?]
“Given the the breadth and look it’s not perfect, you know, again, this committee knows far better and on but given the breadth of climate policy here, given the general orientation towards openness, I think the UK I mean, this is a G’s properly. This is a g7 conversation first. And the UK should and I think is happening in the g7 is effectively happening now. And it’s one of those things which is a bit like mercury that there’s a thing called a carbon club which the German g7 presidency had and when you try to pin down exactly what that means different people will tell you, but in essence, one of the pillars there’s three pillars that make sense to that when you bring it together. One is financial regulation, what we’re talking about secondly, is something around carbon border adjustment mechanisms, your line, your line of inquiry, and the third, which is even more difficult than the second is scale financing for the emerging and developing world and how to use the balance sheets of the world banks and others.”
[Q?: Gotta move on to cop 27. Now, that progress on the inter governmental negotiation, so yeah, are we getting further down this line as part of cop 27? Or do you see this as a wholly separate line? of negotiation?]
“What you’re what you’ve just been asking me about is not to my knowledge central to the comp negotiations, nor was it central to the club 26 negotiations to the extent to which it is I don’t think that’s problematic to extend to which is within the g7 for the g7. First, it becomes if it if there’s not full engagement with major emerging economies, so perhaps
it’s better in the form of something like the United Nations
[Q?: I know the United Nations has been asked us to undertake work to agree a common formula for the pricing of carbon. Is that something you’re familiar with?]
“What I’m familiar with, I think the UN body I mean, no disrespect to the UNF Triple C or the UN, the broader UN body that is probably most expert in this and has done work and is worth consulting is the IMF, the IMF has done a fair bit of work on a global carbon price. The macroeconomy because one of the things there’s the local, if I can put it that way, you know, reality of the UK household paid and carbon price and do they get money back and how does that how does it worked? But there’s also real macro economic considerations in general, what they’re finding so they have done work on on design of the carbon price, but also the phasing in and how that would interact with monetary and fiscal policy. So I would, I would point to the IMF.”