COMMENTARY

How do we pay for climate change?

1

RISING seas. Stronger storms. Prolonged droughts. Species extinction.

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These are some of the impacts of climate change. Our response is adaptation and mitigation that have to be done together within the first half of the century. Otherwise, climate change becomes irreversible.

The Paris Agreement, although not legally binding, is compelling enough to make us act on our own to help protect our “common home,” to borrow Pope Francis’s words.

The key policy is to put a price on carbon and to tax it. With this policy we can hasten the transition from fossil fuels to clean, renewable energy and generate the additional revenue needed for adaptation measures.

We should not wait for other countries to help us adjust to the impacts of climate change.
In an article in the science journal Nature, “Energy Policy: Push renewables to spur carbon pricing” on September 2, 2015, Gernot Wagner, et al, said: “Putting a price on carbon dioxide and other greenhouses gases to curb emissions must be the centerpiece of any comprehensive climate change policy. We know it works: pricing carbon creates broad incentives to cut emissions. Yet the current price of carbon remains too low relative to the hidden environmental, health, and societal costs of burning a ton of coal or a barrel of oil. The global average price is zero, once half a trillion dollars of fossil fuel subsidies are factored in.”

The idea of carbon pricing and a carbon tax has caught on. At this moment, about twenty countries have begun different variations of a carbon tax.

Sweden has the highest price on its CO2 emissions at up to US$125 per ton. The European Union has priced 45% of its greenhouse gas emissions at US$8 per ton. In the US, carbnon pricing is a policy in California, Colorado and Maryland (at the level of a county and only one thermal power plant). In Canada, only Quenec has a carbon tax.

Of the countries that I have studied, I would suggest that we look at the systems in South Korea and Denmark.

South Korea began on August 22, 2008 by organizing a Low Carbon, Green Growth Movement that is financed by a tax on emissions for vehicles, and a tax on carbon for power plants.

In addition, the private sector is asked to contribute to a central fund operated by the Korea Finance Corporation to undertake R&D on climate change.

In the case of Denmark, the tax is levied on the carbon content of fossil fuels. For example, petroleum is taxed at DKK per metric ton while the levy on natural gas is DKK 5.6 per metric ton. The CO2 tax is applied to all energy users. But manufacturing can be taxed differently depending on a voluntary agreement on energy efficiency. A tax refund is given to efficient users. Most of the money collected goes to an R&D fund.

Our problem is the present low price of fossil fuels. There’s no incentive for efficiency or for investments in renewable energies.

Unfortunately, global warming, unless controlled, is inexorable and could become irreversible before an “appropriate” price of carbon is reached.

The market-based solution is through a carbon tax with incentives for private industry to make the switch to clean energy. It would also help if feed-in tariffs and access to the grid were introduced to make household generated electricity by rooftop solar panels, if not profitable, at least viable.

In terms of new technologies, more investments in storage batteries should be encouraged using some of the revenue from the carbon tax.

Finally, climate science requires the training of young people in the techniques and technologies of climate change adaptation and mitigation. This too can be financed also by a carbon tax.

I do not want to mislead my readers. These are rearguard actions. I don’t know if they will work. But what else can we do?

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1 Comment

  1. Great idea, favored by virtually all economists. The amount of per ton fee should be revisited and raised if emissions do not fall fast enough.

    Fees, if rebated to citizens, will protect them from higher costs and also create millions of jobs (REMI study)