IPS News
KUALA LUMPUR, Malaysia, Apr 9 2024 (IPS) -
Carbon dioxide emission taxes, prices and markets have been touted as
key to stopping global heating. However, carbon markets have failed
mainly because they favour the rich and powerful.
Market solutions better?
Mainstream economists believe the best way to check global heating is to
tax greenhouse gas (GHG) emissions. Equivalent ‘carbon prices’ have
been set for the other significant GHGs. But many have been revised due
to their moot, varied and unstable, arguably incomparable nature.
High
carbon prices for GHG emissions are expected to persuade emitters to
switch to ‘cleaner’ energy sources. Higher prices for energy-intensive
goods and services are supposed to get consumers to buy less
energy-intensive alternatives.
Positive carbon prices tax fossil fuels, GHG emissions, and products
according to their energy intensity. Hence, when carbon prices fall,
they deter fossil fuel use less effectively.
Developed countries have set up ‘carbon trading’ systems ostensibly
to deter GHG emissions. Firms wanting to emit more than their assigned
quotas must buy emission permits from others who commit to emit under
quota.
Getting prices right?
Conventional economists believe carbon prices should cover the ‘social
costs’ of GHG emissions, but disagree on how to estimate them. But
policymakers believe it necessary to discount these prices to gain broad
acceptance for carbon markets.
A recent International Monetary Fund paper acknowledged,
“Differences between efficient prices and retail fuel prices are large
and pervasive”. But such distortions undermine the very purpose of
carbon pricing.
Gro Intelligence estimated the social cost of carbon emissions at
$4.08 per metric tonne in 2022, which is used by the influential
Gro-Kepos Carbon Barometer. But Resources for the Future estimated it at $185/tonne, over forty times higher!
While carbon prices are meant to tax fossil fuels, low prices reduce
their deterrent effect. Fossil fuel subsidies lower carbon prices, which
can even become negative. Such price subsidies undermine carbon
markets’ intended effects.
Whenever carbon prices are discounted or deliberately kept low, they
are much less effective in deterring GHG emissions. They also distort
the price system with many other unintended, but perverse consequences.
Writing in the New York Times, Peter Coy
noted the carbon price rose from under $4 per metric tonne in 2012 to
almost $20/tonne in 2020 before dropping sharply to around $4/tonne in
2022!
Incredibly, he still concluded carbon prices were “headed in the
right direction” since 2012. How low and volatile carbon prices are
supposed to discourage fossil fuel use and accelerate renewable energy
investments must be self-evident to him alone?
Western fossil fuel subsidies
Carbon prices shot up when fossil fuel energy prices spiked after the
Russian invasion of Ukraine in February 2022. But they soon collapsed as
European governments intervened to subsidise energy prices.
As the rich nations’ Organization for Economic Cooperation and Development noted, “government support for fossil fuels almost doubled in 2022” to over $1.4 trillion!
State subsidies rise with prices when governments try to mitigate
rising fossil fuel prices. Such subsidies negate the purpose of carbon
pricing, and can lower them so much as to become negative!
Such subsidies were deemed necessary to retain public support for NATO’s
Ukraine war effort and to drive down Russian fossil fuel export prices.
Thus, such ‘geopolitical’ interventions have undermined carbon taxes,
prices and markets.
Carbon prices dropped sharply worldwide, from $18.97/tonne in 2021 to
$4.08 in 2022. In 2022, nine of the 26 countries in the Barometer had
negative prices, with only six – not the US – above $25.
Oil and natural gas prices have since fallen from their 2022 peaks,
with consumer subsidies declining correspondingly. Hence, carbon prices
for GHG emissions have recovered.
Such price subsidies and volatility do not help enterprises plan and
invest their energy use – crucial to accelerate needed ‘carbon
transitions’.
Unsurprisingly, after over a decade, there is little evidence that
carbon markets have effectively cut GHG emissions to avert climate
catastrophe. Clearly, they cannot be counted upon to cut them
sufficiently.
