Correcting an old injustice: carbon pricing

When I was spending holidays in the Swiss Alps during the 60’s, all the residents of the village were taking their garbage in their car to dump them in a valley where a little river was flowing. The waste would burn day and night and produced smoke with a horrible smell. But all this was completely legal. Why don’t we do it anymore? Because today it’s prohibited.

Why is it then that companies can still dump as much carbon into the atmosphere as they wish? Why should it be treated differently? For the most part the fossil fuel industry pays nothing for its social impacts; these “externalities” don’t figure in the price. In fact, their cost - air pollution, increased healthcare costs, ocean acidification, to name but a few - are actually passed on to consumers, albeit indirectly. This seems like a pretty bad deal for us. The cost of dealing with CO2 should be included in its price, as with any other waste we produce. Putting a price on carbon is not adding a new tax, but merely correcting an old injustice.

In 2015, the IMF estimated that, if we include in the calculation the cost of externalities, fossil fuel industries were being subsidised to the tune of $5.3 trillion. This is the purpose behind carbon pricing mechanisms, to redress this market failure. It’s impressive that renewables are even as competitive as they are, given these circumstances. It’s important though that we frame carbon pricing correctly; it is not a subsidy for renewable energies, but rather a levelling of the playing field.

At this point, only 12% of Greenhouse Gas Emissions are subject to some form of carbon pricing, across 40 governments and 23 cities or local authorities. It has gained traction since it was effectively endorsed as a measure by the Paris climate agreement - though it was the very last element to be agreed upon, and some consider it a miracle that it ever was.

As such, it’s not a question of if or when for carbon pricing, but how much. Companies are already asking governments to hurry up and set a price, as uncertainty makes investing difficult. Some 500 companies have already set their own internal carbon prices so as to affect their investment decisions, and a further 700 companies are expected to join them by the end of 2018.

So, will retooling our global economy to become cleaner come at great expense? No, because it’s a fantastic opportunity for our economies. After all, the result of stopping people from throwing rubbish into the valley and paying for its disposal is the rise of a vibrant and profitable industry called recycling. I predict the same thing to happen when we put a price on carbon. It will provide incentives to capture, reduce or eliminate harmful emissions.

And what to do with the revenues generated? Personally, I would like to see a system where each person pays relative to the amount of carbon they put out, and then that amount is redistributed to everyone equally. This would incentivise others to reduce their carbon output as quickly as possible while the price of carbon remained high, with lower emitters receiving payments from those that pollute more. That means you might pay $70 for your 70 units of carbon, and your neighbour pays $30 for their 30 units. This is added together and then you each receive a payment of $50. You have obviously lost $20 and they have gained $20. Such a system would benefit those that pollute less, and reward those that take efforts to reduce their emissions quickly. Over time such a system would have diminishing returns, but such a system could serve as stimulation to companies and individuals looking to quickly reduce their carbon footprint.

In Ontario, Canada they are planning to use the revenue generated in a different manner, with all proceeds from their cap and trade programme deposited in a new Greenhouse Gas Reduction Account to finance emission-reducing programs, including efforts to help homeowners and businesses save energy such as public transit, clean-tech innovation for industry, electric vehicle incentives and social housing retrofits – measures that can also contribute to growing the economy and creating jobs.

It’s time we focus on the real cost of fossil fuels and the failure of the market to properly account for their impact. Carbon pricing is an attempt to redress this, and is a way for us to start paying off the credit we have been living on for too long, without leaving future generations to settle our whole bill. When we finally pay the right price for carbon, the impact will be for a cleaner economy that is logical rather than being merely ecological.

---

>>> Read this article in French | German

>>> Bertrand Piccard was a keynote speaker at the Innovate4Climate event in Barcelona, held from May 22-25, 2017.