Leading Economists Conclude A Strong Carbon Price Is Vital To Meeting Global Climate Goals

Leading economists have concluded that in an effort to meet the world’s agreed-upon climate goals in the most cost-effective way possible while still fostering growth, countries must set a strong carbon price, with an aim to reach $40 to $80 per tonne of CO2 by 2020 and $50 to $100 per tonne by 2030.

A group of 13 of the world’s leading economists from nine developing and developed countries were convened as part of a High-Level Commission on Carbon Prices by the Carbon Pricing Leadership Coalition at Marrakesh in 2016, and their work was supported by the Government of France and the World Bank Group. The results of their work was published this week and concluded that countries must work towards the goal of implementing a strong carbon price in the range of $40 to $80 per tonne of CO2 by 2020, and $50 to $100 per tonne by 2030, with the authors of the report explaining that “A well-designed carbon price is an indispensable part of a strategy for reducing emissions in an efficient way.”

“The world’s transition to a low-carbon and climate-resilient economy is the story of growth for this century,” said Commission co-chairs Joseph Stiglitz and Nicholas Stern. “We’re already seeing the potential that this transformation represents in terms of more innovation, greater resilience, more livable cities, improved air quality and better health. Our report builds on the growing understanding of the opportunities for carbon pricing, together with other policies, to drive the sustainable growth and poverty reduction which can deliver on the Paris Agreement and the Sustainable Development Goals.”

All countries will need to implement climate policy packages if the world is to meet the objectives set out in the Paris Agreement. The report explains such packages can and should contain a variety of policies that complement carbon pricing and “tackle market failures other than the [greenhouse gas (GHG)] externality.” The economists also highlighted the importance of international cooperation:

“International cooperation — including international support and financial transfers, carbon-price-based agreements, and public guarantees for low-carbon investments — to promote consistency of action across countries can help lower costs, prevent distortions in trade and capital flows, and facilitate the efficient reduction of emissions (as well as the achievement of other Paris Agreement objectives, such as those related to the “financial flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”).”

The Commission spent five months deliberating the value of carbon prices, exploring various lines of evidence to reach the aforementioned conclusions. They found that explicit carbon-pricing instruments such as carbon taxes or cap-and-trade schemes are able to raise revenue for countries efficiently, and that these revenues can then be used to foster and increase green growth.

“Specific carbon price levels will need to be tailored to country conditions and policy choices,” added Commission member, Professor Harald Winkler of the University of Cape Town, South Africa. “Carbon pricing makes sense in all countries but low-income countries, which may be more challenged to protect the people vulnerable to the initial economic impacts, may decide to start pricing carbon at a lower level and gradually increase over time.”

The report also found that carbon pricing on its own may simply not be enough to ensure that the Paris Agreement targets are met, and “may need to be complemented by other well-designed policies tackling various market and government failures, as well as other imperfections.” This is unsurprising, and the natural outcome of such a conclusion is inherently more appealing to governments anyway. “A combination of policies is likely to be more dynamically efficient and attractive than a single policy,” the authors note, adding that possible policies could include,

“…investing in public transportation infrastructure and urban planning; laying the groundwork for renewable-based power generation; introducing or raising efficiency standards, adapting city design, and land and forest management; investing in relevant R&D initiatives; and developing financial devices to reduce the risk-weighted capital costs of low-carbon technologies and projects.”