Global carbon pricing: An ecological game changer?

Imagine a world where our planet is barely habitable.

A world in which thousands of ecosystems have been wiped out, along with hundreds of species. High sea levels have swallowed parts of entire countries such as the unfortunate Maldives. Other low level countries like Bangladesh have been inundated by surging sea water levels, their coastal plains rendered infertile by salination and cities overwhelmed by displaced climate refugees. .  The loss of mountain glaciers has disrupted the food systems upon which billions rely, with the resulting food shortages impacting poor people the hardest.

Such a nightmarish scenario is not the stuff of science fiction. It is based on actual predictions made by scientists today about what will happen if we human beings do not look after our planet properly.

Global warming, an established phenomenon widely blamed on human activity by much of the scientific community, is a metaphorical dagger hanging over our future generations. The prime danger is posed by emissions of carbon dioxide and methane, frequently known as ‘Greenhouse Gas Emissions’ which heat the Earth as their global emissions increase.

Our children and grandchildren will bear the brunt of the consequences of our inaction in failing to reduce the global carbon footprint – the amount of carbon expelled into the atmosphere as a by-product of industry and transportation. Today large businesses have continued to monetise fossil fuels (valued at around £30 trillion) with scant regard for the consequences these will have on the global environment and ecosystems.

How can business and government be better incentivised to adopt a more climate friendly business regime, which cuts down on carbon emissions without harming economic activity? Energy sources such as wind and solar power are intermittent, and unfortunately the technology for storing renewable electricity is still considered to be immature and too costly . .

Not having lights on if there is no wind or sunshine is hardly going to be considered attractive by consumers, let alone governments, going forward unless better and cheaper means of storing the energy they create emerge.

On a more specific, detailed level how can countries be incentivised to help reduce global carbon emissions? Part of the answer to that question lies in understanding their behaviour. There is a concept which economists term the ‘free-rider’ problem. This is when people – or countries- partake in public goods without paying for it. A country that adopts carbon emission controls knows that it risks losing jobs and investment to outside economic rivals. Therefore they have no incentive to consider paying for their carbon use. As a result they have little motivation to take stringent measures to reduce their overall carbon emissions.

Possibly the best way forward in reducing emissions of carbon gas could be to increase the price of fossil fuels. There is historical precedence for this. In the aftermath of the 1973 Yom Kippur War in the Middle East, the Arab powers imposed an oil embargo on the West. The drastic increase in oil prices made modern energy saving techniques feasible. Putting a price on carbon today means putting a price on fossil fuels. This will decrease the need for expensive and environmentally devastating fossil fuels, while simultaneously increasing the demand for renewable energy systems. That could make renewables competitive, even desirable compared to fossil fuels in the future.

That is a doubly positive outcome because the really smart investors may then start looking for avenues to invest in renewable energy systems. Which would be a great boost to humanity.

The most efficient strategic approach going forward then is to put a price on carbon. Proposals to limit the quantity of carbon emissions irk developing countries like India, which fear that carbon caps will hurt their own development going forward. This is the main reason why the failed Kyoto Protocol was rejected by most global governments. By contrast, a globally mandated carbon price which can be wilfully adhered to by sovereign governments is the best way to encourage more co-operative behaviour between nations.

The air quality of our world is dictated by the behaviour of all nations. The historical trend on such vital issues is one of co-operation rather than conflict. Small villages and states have co-operated to ensure equitable access to rivers for irrigation, in one historical example. A globally mandated price with a ‘light-touch’ framework for enforcement can allow countries to join the scheme of their own volition.

A group of global economists including famous Nobel Prize winners such as Joseph Stiglitz and Jean Tirole have proposed a new model. They published in 2017 their recommendation for a Common Carbon Price Commitment whereby the three main carbon emitters – the US, China and the EU sit down together to hammer out a deal. This is more functional and efficient than the cumbersome process of trying to get over 200 nations to come to an agreement, which public goods economists agree is unlikely.

This ‘Big Three’ could agree to a global Common Carbon Price treaty, which would in turn lead to downward shifting consensus on global carbon consumption from smaller powers. It would also generate additional benefits such as lower oil prices as the consumption of destructive fossil fuels across the board is reduced. That would be beneficial for developing countries struggling with oil import bills.

A Global Carbon Price Commitment treaty would be hugely beneficial to all countries in the fight to prevent climate change, to preserve a viable heritage for future generations. We owe it to our children and grandchildren to walk down this better, more considerate path rather than continuing to damage our planet with the profligate use of harmful fossil fuels. It will not be easy, but forging a path to global consensus can be done if nations feel their interests are protected.

The clock is ticking. It is time for the politicians, already under public pressure over global issues, to act. History will not judge them kindly if they don’t. Global carbon pricing is an idea for which the time has now come.

To find out more about global carbon pricing and international co-operation on climate change, do visit this site.

About the Author
Jeevan graduated from the London School of Economics with a Masters in Comparative Politics: Conflict Studies, specialising in counter-terrorism and political violence. Regular tweets can be found @jeevanvc.