Assessing the cost of climate change

International momentum is building in the fight against global warming but a French climate economist argues we will see real advances only if a universal global price is set on the social cost of carbon.

All 195 nations in the UN General Assembly agreed to 17 sustainable development goals, described as a ‘defining moment in human history’ by UN secretary general Ban Ki-moon, left. John Moore / Getty Images
Powered by automated translation

International momentum is building in the fight against global warming but a French climate economist argues we will see real advances only if a universal global price is set on the social cost of carbon.

Will this year be remembered as the moment when the international community found the resolve to respond decisively to climate change?

After the momentous events in New York and Washington DC last week, it is tempting to think so.

The tone of the week was established by Pope Francis who spoke of the “right of the environment” in human rights terms, and described climate change as a moral issue for “all men and women of goodwill” in a series of public addresses that held audiences in the United States rapt.

“Climate change is a problem which can no longer be left to a future generation,” said the Argentinian pontiff.

His speech was widely regarded as an endorsement of US president Barack Obama’s controversial clean power plan, launched in August, which seeks to reduce carbon emissions in the American energy sector.

More detail came with two landmark agreements announced on Friday.

The first was at the United Nations Sustainable Development Summit in New York when all 195 nations of the UN General Assembly agreed to 17 sustainable development goals, including a commitment to fight climate change and its impacts.

For the UN secretary general Ban Ki-moon, the agreement represented a “defining moment in human history”.

“We are the first generation that can end extreme poverty, inequality and injustice, and we can be the last generation threatened by climate change,” said Mr Ban.

“Thus, we are the last generation who can act to deal with this climate change phenomenon.”

It was followed by an announcement by Mr Obama and Chinese leader Xi Jinping that they had signed an extraordinary “joint vision” on climate change.

And China pledged to implement a nationwide cap-and-trade system to curb carbon and greenhouse gas emissions, and provide US$3.1 billion (Dh11.38bn) in aid to support developing nations in the fight against climate change.

“If the world’s two largest economies, energy consumers and carbon emitters come together like this, then there is no reason other countries, whether developed or developing, cannot do so as well,” said Mr Obama.

For Li Shuo, a senior climate analyst with Greenpeace, Friday’s announcement represented a “paradigm shift” in China’s stance on the environment.

“With this deal, it’s clear China is ready to lead on climate,” said Mr Li. “On the wave of moral inspiration after the Pope’s visit, US politicians should raise the level of their ambition.”

But as events of the past few months have shown, when it comes to an agreement that will decide whether this year is the pivotal moment in climate activism – at the UN Climate Change Conference (Cop21) – time is running out.

In June, with only 10 official negotiating days to go before the opening of Cop21 on November 30 in Paris, Mr Ban was pessimistic about the prospect of achieving the conference’s main aim – a universal and legally binding agreement on climate change that will help to keep warming at 2°C, the internationally-agreed limit to avoid overheating.

“The negotiation pace is too slow, far too slow,” said Mr Ban after a meeting of the General Assembly. “It is moving at a snail’s pace.”

At the meeting, representatives from Brazil, China, India and South Africa also expressed their disappointment at the failure of rich countries to deliver on a promise made six years ago at the UN climate negotiations in Copenhagen.

That pledge was to raise $100bn a year by 2020 to help developing countries reduce their emissions and prepare for sea level rises, extreme weather and other consequences of climate change.

For the French climate economist Christian de Perthuis, reaching an agreement on this and the mechanisms and redistribution of climate-related funds is one of the main obstacles to an agreement in Paris.

“How we can imagine a new way of organising economic growth and the development of low-carbon economies?” said Mr de Perthuis, who holds the chair of climate economics at Paris-Dauphine University.

“The main challenge is how can we assess the value of carbon dioxide, greenhouse gas emissions and the cost of the damage associated with global warming. Economists call this the social cost of carbon.”

In early June, before the meeting at which Mr Ban and representatives from emerging economies expressed their concerns, Mr de Perthuis and colleagues from the Toulouse School of Economics called for an approach to the negotiations based on three principles.

They were that all nations should ultimately face the same emissions price, that carbon pricing should be an incentive for universal participation, and that there should be an end to “free rider” behaviour.

So far that call has been signed by more than 30 international economists, including the French economic Nobel laureate Jean Tirole, in advance of a conference leading to an ambitious and credible climate agreement in Paris that will take place on October 14.

“What is at stake at Cop21 is carbon pricing and how this can work at an international level,” said Mr de Perthuis, author of books such as The Climate At Which Price? and Green Capital: A New Perspective on Growth.

“If we can develop a price for carbon in the economy, then we will have a change in the prices we give to energy sources and this will lead to new investments and new ways to produce and consume energy.

“At the national level the most difficult issue is not which carbon tax but what you do with the revenue from that tax. Do you use it to reduce other taxes, do you use it to implement new low carbon investment?

“But at the international level the main problem linked to carbon pricing is one of distribution.”

Rather than a tax or a cap-and-trade scheme like the one announced by China last week, Mr de Perthuis, who advised the French government on its carbon tax, prefers a simple and transparent “cap-and-rebate” system for generating and redistributing emission-related revenues.

“Price and rebate is not exactly a carbon tax, it’s a new kind of hybrid instrument that involves a very low level of carbon price that is just high enough to transmit money from high to low-emitting countries,” said Mr de Perthuis.

The initial price of carbon should be determined as much by political and practical considerations as by its effect, he said.

“I would always advise that you start with a low rate and then, once the scheme is in place, the rate can be increased later on.

“When I was chairing the committee that advised the French government on the introduction of its carbon tax, all of the economists thought that the right level was probably a little more than €35-a-tonne of carbon dioxide, but my advice was to introduce the tax at only €7 per tonne.

“The choice was not between €7 and €35, the choice was between seven and zero. It’s a political issue.”

Mr de Perthuis’ “cap-and-rebate” system would work by establishing a global average for emissions per capita and then either charging countries or rewarding them according to their performance.

“Globally the average emissions is a little over 6 tonnes of carbon dioxide per capita. If a country emits more than this average, say rather than emitting 6 tonnes of carbon dioxide per capita it emits 10 tonnes, then it would be in debt to the international community,” he said.

“But if a country only emits 2 tonnes of carbon dioxide per capita rather than 6, then it would have the right to a rebate as long as it agreed to join a global and independent certifying and measuring scheme in the United Nations.

“It’s a very simple rule that is based on the equality of all the citizens of the world to emit the same amount of carbon dioxide. It’s a kind of carbon justice.”

For Mr de Perthuis, the appeal of his system lies in its simplicity and its efficiency.

“If a country with lower emissions uses its rebate to develop energy schemes that use a lot of fossil fuels, it will increase emissions very fast and will immediately see a reduction in the amount of money it receives.”

Above all, Mr de Perthuis said, the process required optimism.

“If we continue to prepare international climate agreements without ambition we will go on reproducing the existing system indefinitely, but if we have any hope that this Cop21 will change the rules, we have to some utopianism in our vision.”

nleech@thenational.ae

Christian de Perthuis will discuss his ideas tonight at 8pm in the Alliance Francaise Dubai auditorium in Oud Metha. Entry is free and the event will be in French.