Can economic incentives evolve to combat climate change?
Oct 6, 2014 |By David Biello
CARBON PRICE: A tax on carbon is popular among some as a solution to global warming.
© David Biello Good Chinese communists now trade a commodity that can neither be seen nor felt, yet is responsible for changing the climate. The country has set up seven markets for trading carbon dioxide to test whether such a market can help restrain China’s growing pollution problem. Taken together, the markets are the second largest in the world—after the European Union Emissions Trading Scheme. Early results from one of the markets, in the burgeoning city of Shenzhen, are promising, including reductions of 2.5 million metric tons of pollution, according to Vice Mayor Tang Jie. That’s in contrast to China as a country’s failure thus far to cut carbon intensity—the amount of pollution emitted as industry works—as promised in its 12th Five Year Plan, which ends next year.
“We desperately need speed and scale and action on climate change,” says Rachel Kyte, the World Bank’s special envoy for climate change. “Carbon pricing is a necessary if insufficient first step in [a
country’s] transformation toward an economy that is competitive and creating jobs, but is decarbonizing and on track for zero net emissions by the second half of the century.”
In other words, the World Bank wants a price on carbon, like that occurring in these seven regions of China, because its team of economists and financiers thinks that climate change is an outcome of getting the prices of different sources of energy wrong. Fossil fuels are too cheap, and various alternatives—whether nuclear or solar—are too expensive. As Kyte notes, it’s all about “getting prices right.”
That phrase really means raising the price of fossil fuels. If coal, gas and oil are more expensive, then geothermal, hydropower, nuclear, solar and wind power become relatively cheap. “You clearly have to put a price on carbon so there is a level playing field and the cost of renewable energy is actually less than fossil-fuel generated electricity,” says Ted Roosevelt, a managing director at global bank Barclays. That is the only way to encourage the massive investment in deploying the clean energy technology that is necessary to combat climate change. The “price” can be a direct tax, an allowance in a cap-and-trade scheme, or some other financial mechanism.