How carbon pricing can be included in the Paris climate accord

By Steve Valk on Nov 08, 2015 02:11 pm

How carbon pricing can be included in the Paris climate accord

By Flannery Keck

“Price increases on cigarettes are highly effective in reducing demand.” That’s according to the World Health Organization and other groups, such as the Campaign for Tobacco-Free Kids, which calls tobacco taxes a “win-win-win solution for governments.” It’s intuitive, really—make a product more expensive, fewer people will be clamoring for it, and companies have less incentive to produce it.

Our legislators have the option to approach consumption of fossil fuels in a similar way. Putting a price on carbon would immediately discourage the companies responsible for these rampant emissions and steer the market toward more affordable and infinitely cleaner sources of energy. Indeed, a coalition of world leaders recently formed a Carbon Pricing Panel to call for this exact type of policy.

So why did UN climate chief Christiana Figueres just announce that the Paris agreement won’t include a global carbon price? Well, the key word is “global.” Because of the range of prices out there already and the rapidly escalating cost of burning fossil fuels, it would be nearly impossible for every country to come to an agreement on a single price for carbon. Instead, a better route is for the Paris agreement to outline principles for pricing carbon that nations can use as a framework. As long as a nation’s carbon pricing plan aligns with these broader principles, there’s really no need for one strict global price.

Recent research by the World Bank Group and the Organisation for Economic Co-operation and Development (OECD), with input from the International Monetary Fund, has laid out what those principles should be. They’re called the FASTER principles, and they call for things like fairness, transparency and cost-effectiveness in each country’s plan. The World Bank and others are convening a two-day conference as part of COP21 to promote inclusion of these principles in the final agreement. Joe Robertson, the global strategy director at Citizens’ Climate Lobby, adds that CCL’s Core Principles are very similar to the FASTER principles, and they focus on “a straightforward price, applied at the source.” Right now, Robertson says, there’s about a 50/50 chance that these principles will be included in the Paris agreement:

The FASTER Principles for Successful Carbon Pricing

Fairness: Successful carbon pricing policies reflect the “polluter pays” principle and contribute to distributing costs and benefits equitably, avoiding disproportionate burdens on vulnerable groups.

Alignment of Policies and Objectives: Successful carbon pricing policies are part of a suite of measures that facilitate competition and openness, ensure equal opportunities for low-carbon alternatives, and interact with a broader set of climate and non-climate policies.

Stability and Predictability: Successful carbon prices are part of a stable policy framework that gives a consistent, credible, and strong investment signal, the intensity of which should increase over time.

Transparency: Successful carbon pricing policies are clear in design and implementation.

Efficiency and Cost-Effectiveness: Successful carbon pricing improves economic efficiency and reduces the costs of emission reduction.

Reliability and Environmental Integrity: Successful carbon pricing schemes result in a measurable reduction in environmentally harmful behavior.

CCL believes a key way for the U.S. to align with those principles ourselves is through a Carbon Fee and Dividend program, which would “rapidly reduce emissions, grow the economy, accelerate job creation, raise incomes” and more. By placing a steadily rising fee on carbon, the Fee and Dividend plan has all the discouraging power of those successful tobacco taxes, but it goes a significant step further by returning the revenues directly to American households in the form of a monthly dividend check. This makes the fee and dividend plan revenue neutral, which is key. Robertson says, “Carbon pricing is not about adding cost.” Instead, Robertson continues, “We need to get the kind of plan in place that will motivate change—and not worry so much about the perfect price.”

Flannery Keck is a volunteer with CCL’s Atlanta chapter.