Creating a pathway to global carbon pricing would represent the largest success for the upcoming COP21 meeting.
Business wants it, governments want it. Society demands it. Now is the time. Templates exist.
The UN’s climate chief Ban Ki Moon has called for a 50-year plan to fix the climate change problem. The good news is that it shouldn’t take that long.
With proper global energy tax and subsidy reform, as well as five-yearly carbon emission reduction targets — it can be done much quicker than that.
The International Energy Agency’s plan should be the template.
The IEA proposes:
1. Peak in emissions – set the conditions to achieve an early peak in global energy-related emissions.
2. Five-year revision – review national climate targets regularly to test the scope to raise ambition.
3. Locked-in vision – translate the world’s climate goal into a collective long-term emissions goal.
4. Track the transition – establish a process for tracking achievements in the energy sector.
Each of the four is now falling into place.
A growing number of countries have committed to carbon reduction targets. In addition, rapidly-maturing carbon markets are set for liftoff after 2020. This will dramatically change the terms of investment in the global economy. Markets will do of the rest.
The next five year revision will take place in 2020. This can form the basis of binding agreements. By that time, reforms to carbon markets will create credible terms for new investment. That in turn should greater comfort to countries agreeing deeper cuts.
Already, the corporate sector is penciling in carbon prices. For the energy sector, these cluster around $30 and above. The impact this will have on energy market investment is hard to overstate.
As this occurs, a ‘locked in’ vision will emerge in which everyone will benefit. At that point, ‘tracking the transition’ will merely bring the date forward when the problem is solved.
For instance, this will encourage more rapid progress to meeting the IEA’s Bridge Scenario.
1. Increasing energy efficiency in industry, buildings and transport sectors.
2. Progressively reducing the use of the least-efficient coal-fired power plants and banning their construction.
3. Increasing investment in renewable energy technologies in the power sector from $270 billion in 2014 to $400 billion in 2030.
4. Gradual phasing out of fossil-fuel subsidies to end-users by 2030.
In the Bridge Scenario, coal use peaks before 2020 and then declines. Oil demand rises to 2020 and then plateaus. The result: total energy-related greenhouse gas emissions peak around 2020.
If that occurs, the energy intensity of the global economy and the carbon intensity of power generation should improve by 40% by 2030.
In 2014, carbon markets covered a mere 11% of global energy-related emissions. The average price was $7 per tonne of CO2. In 2014, roughly 13% of global CO2 emissions were supported by fossil-fuel subsidies equivalent to roughly US $115 per tonne.
If these subsidies are eliminated, and carbon prices rise to $40 per tonne, a virtuous circle will be created of greater energy efficiency, discouraged carbon emission, recycling of investment funds into infrastructure and clean energy creating long-lived future energy investment returns that can be used to offset the costs of supporting an aging global population.
In other words, a virtuous circle.