🛢💸 The real deal about Carbon Pricing: Difference between revisions

🛢💸 The real deal about Carbon Pricing (view source)

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 Because carbon is the atmospheric greenhouse gas that has the overall biggest impact on global warming<ref>Atmospheric CO2 is not the most impactful gas per ton in the air: methane, among others, has a global warming potential 84 times greater than CO2 for 20 years, but methane lowest concentration in the Earth’s atmosphere makes it contribute less to global warming (4-9% contribution). “Greenhouse gas”, Wikipedia Page, 2020.
 source: https://en.wikipedia.org/wiki/Greenhouse_gas#Global_warming_potential</ref>, it has been considered as a good solution to tackle the emissions<ref>In 2013, industrial processes account for 6% of anthropogenic emissions, while manufacturing and construction account for 12,4% of emissions. As carbon market also applies to the energy sector in general, it could affect more than 80% of our emissions.
-source: <i>Climate Analysis Indicators Tool</i> from World Ressource Institute, 2017.
+source: <i>Climate Analysis Indicators Tool</i> from World Ressource Institute, 2017. source: https://www.c2es.org/content/international-emissions/</ref> of industries worldwide by giving a room and a price to carbon on public markets around the world. The economic theory behind this idea is that we should consider “externalities” in our economic system: the unexpected effects of any human activity should be taken into account in the value they create/destroy, despite the fact that it has no “direct” positive or negative impact on the activity: for example, an hotel or a coal-fired power plant opening next to a small town would have different effects on the baker’s like and business in this town; and this externality would be economically taken into account or not, depending on the political choices made in this town’s government. As carbon emissions would be considered as a negative externality that has a cost, in the long run to society, the emitter is levied from an amount of value that is indexed and proportionate to his emissions. To lower emissions with hope to mitigate global warming; carbon emissions cost never ceases to increase while permits to emit are gradually limited.
-https://www.c2es.org/content/international-emissions/</ref> of industries worldwide by giving a room and a price to carbon on public markets around the world. The economic theory behind this idea is that we should consider “externalities” in our economic system: the unexpected effects of any human activity should be taken into account in the value they create/destroy, despite the fact that it has no “direct” positive or negative impact on the activity: for example, an hotel or a coal-fired power plant opening next to a small town would have different effects on the baker’s like and business in this town; and this externality would be economically taken into account or not, depending on the political choices made in this town’s government. As carbon emissions would be considered as a negative externality that has a cost, in the long run to society, the emitter is levied from an amount of value that is indexed and proportionate to his emissions. To lower emissions with hope to mitigate global warming; carbon emissions cost never ceases to increase while permits to emit are gradually limited.
 You can get from the last sentence that there are 2 ways to monetize carbon: the <u>carbon tax system</u> and the <u>carbon trading system</u>.
 #<u>The carbon tax</u> is as simple as it gets: you usually levy this tax on the carbon content of fuels<ref>In 2019, carbon taxes on fuel were of the following amount for those countries:
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 *51$/tCO2 in France.
 *2,6$/tCO2 in Japan.
-source: <i>Global Carbon Account 2019</i>,Institute for Climate Economics (I4CE), 2019.
+source: <i>Global Carbon Account 2019</i>,Institute for Climate Economics (I4CE), 2019. source: https://www.i4ce.org/wp-core/wp-content/uploads/2019/05/i4ce-PrixCarbon-VA.pdf</ref>, meaning that citizens and companies running cars, trucks, machines, etc. on fossil fuels would get it at an increasing price<ref>Only if the ressource price of extraction from the soil doesn’t drop for some reason: the price could stagnate or even decrease, regardless of taxes.</ref> — the same way it was done for tobacco in numerous countries. It will discourage fossil fuel use in favour of less emitting energy sources such as wind, solar, geothermal or nuclear fission; by making them more competitive.
-https://www.i4ce.org/wp-core/wp-content/uploads/2019/05/i4ce-PrixCarbon-VA.pdf</ref>, meaning that citizens and companies running cars, trucks, machines, etc. on fossil fuels would get it at an increasing price<ref>Only if the ressource price of extraction from the soil doesn’t drop for some reason: the price could stagnate or even decrease, regardless of taxes.</ref> — the same way it was done for tobacco in numerous countries. It will discourage fossil fuel use in favour of less emitting energy sources such as wind, solar, geothermal or nuclear fission; by making them more competitive.
 #<u>The carbon emission trading system</u>, on the other hand, is trickier to get: a given government will first estimate the carbon emissions (in tons) of the whole emitting industries active in its territory during a given time (a year). Based on those datas, the government can create an Emissions Trading Scheme (ETS) by 2 ways:
 :: - The government allocates each company with an annual emissions permit, where the sum of all permits account for less carbon emissions than the previous year, in order to reach their decreasing goals, year after year. In that case, what is call an allowance (permit to emit) would be freely distributed to companies, depending on their previous year emissions. If they decide to emit more that they were allowed to, they can buy allowances on the carbon market. Those allowances will be traded with companies who managed to lower emissions even more than the government expected.<ref>But not only: the offset system makes it possible to create allowances that were not distributed by the government. We will come back to it later.</ref>
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 *8,9$/tCO2 for Beijing pilot ETS.
 *4$/tCO2 for the North-East states of USA (RGGI ETS).
-source: <i>Global Carbon Account 2019</i>, Institute for Climate Economics (I4CE), 2019.
+source: <i>Global Carbon Account 2019</i>, Institute for Climate Economics (I4CE), 2019. source: https://www.i4ce.org/wp-core/wp-content/uploads/2019/05/i4ce-PrixCarbon-VA.pdf</ref>, but no extra permit to emit is given for free. This method gains more trust than free allowances, as it “puts into practice the principle that the polluter should pay”<ref>Quote from EU ETS web page. It states the shifting for a bigger share of auctioned allowances, following scandals and market stabilisation.
-https://www.i4ce.org/wp-core/wp-content/uploads/2019/05/i4ce-PrixCarbon-VA.pdf</ref>, but no extra permit to emit is given for free. This method gains more trust than free allowances, as it “puts into practice the principle that the polluter should pay”<ref>Quote from EU ETS web page. It states the shifting for a bigger share of auctioned allowances, following scandals and market stabilisation.
 source: https://ec.europa.eu/clima/policies/ets/auctioning_en</ref> Both options are now used by some governments, as free allowance is now seen by newcomers as a soft transition towards auctioned allowances.
 [[File:Article-02-c-2015_Adoption-ParisAgreements_UN.jpg|thumb|Thumbnailed image|Adoption of the Paris Agreement, Article 02, (c), UNFCC, 2015, p.22.]]
-Carbon pricing continues to grow with new countries joining: as of 2019, 25 carbon taxes and 26 Emissions Trading Schemes were operating worldwide, generating $45B in revenues with respectively 52% from carbon taxes and 48% from ETS.<ref>source: <i>Global Carbon Account 2019</i>, Institute for Climate Economics (I4CE), 2019.
+Carbon pricing continues to grow with new countries joining: as of 2019, 25 carbon taxes and 26 Emissions Trading Schemes were operating worldwide, generating $45B in revenues with respectively 52% from carbon taxes and 48% from ETS.<ref>source: <i>Global Carbon Account 2019</i>, Institute for Climate Economics (I4CE), 2019. soource: https://www.i4ce.org/wp-core/wp-content/uploads/2019/05/i4ce-PrixCarbon-VA.pdf</ref> It is still considered today that one of the main efforts to mitigate climate change would come from finance mechanisms. “Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”<ref>Adoption of the Paris Agreement, Article 02, (c), UNFCC, 2015.
-https://www.i4ce.org/wp-core/wp-content/uploads/2019/05/i4ce-PrixCarbon-VA.pdf</ref> It is still considered today that one of the main efforts to mitigate climate change would come from finance mechanisms. “Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”<ref>Adoption of the Paris Agreement, Article 02, (c), UNFCC, 2015.
 source: https://unfccc.int/resource/docs/2015/cop21/eng/l09r01.pdf</ref> was one of the objectives of the 2015 Paris Agreement, following Kyoto Protocol.
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 To make it even harder to foresee, the carbon market is not only composed by allowances provided and auctioned by governments, but also allowances “created” by so-called “offsets”. An offset is basically a reduction of emissions made in order to compensate emissions made elsewhere. A polluting company would typically invest in a renewable energy project, reforestation or even de-pollution of environments, to get allowances in exchange, and emit more CO2 than they were “allowed” to. At least, The Kyoto Protocol (2007) has sanctioned offsets as a way to earn carbon credits that can be traded with other companies.<ref>Thanks to this measure, offsets cannot be a direct source of profit. “Carbon Offset” on Wikipedia, introduction, 2020.
-source:  https://en.wikipedia.org/wiki/Carbon_offset</ref> They also created an organisation for approval of offsets<ref>It is the role of the Clean Development Mechanism, one of the Flexible Mechanism established by Kyoto Protocol. It provides help to offsets projects which generate Certified Emission Reduction units (CER).
+source: https://en.wikipedia.org/wiki/Carbon_offset</ref> They also created an organisation for approval of offsets<ref>It is the role of the Clean Development Mechanism, one of the Flexible Mechanism established by Kyoto Protocol. It provides help to offsets projects which generate Certified Emission Reduction units (CER).
 “Clean Development Mechanism” on Wikipedia, introduction, 2020.
 source: https://en.wikipedia.org/wiki/Clean_Development_Mechanism</ref>, which are very tricky to evaluate on the long run (a solar energy project or the renewal of a facility to emit less may not always be successful) and may benefit to developed countries getting “cheap” offsets from low-cost projects abroad. Moreover, the risk of fraud is high, in the form of “non-additional” credits: it means that the offset project will have taken place anyway, without the help from an interested carbon emitter. In this case, money is only going from hands to hands without financing anything else than pollution. This would even suggest that a wide part of carbon offsets do not represent actual emissions cuts, allowing companies to skew their emissions reduction easily.