A high tax on carbon emissions is strictly necessary to halt climate change, according to Gaël Giraud, chief economist in the French development agency AFD. EURACTIV’s partner Journal de l’Environnement reports.
Some weeks ahead of the next climate negotiation round that will take place in Bonn, Germany, optimism is in short supply. Only two years after the landmark Paris Agreement, the international community is struggling to maintain the positive dynamic started in COP21.
Four months ago US President Trump announced the US would withdraw from the Paris Agreement – an announcement which has yet to take effect.
We can add to that the EU’s inability to agree on its mid-term climate strategy or to successfully enforce policies that have already been agreed, like the EU’s Court of Auditors announced last week.
In France, climatologists are having a hard time trying to understand a government that announces a grand Climate plan but keeps subsidising fossil fuels and leaves the back door open to oil exploitation.
And this might not be the worst. Slightly ahead of the UN’s calendar, the French Development Agency AFD carried out the first assessment of the intended nationally determined contributions (INDCs), member states’ promises during COP21. The result is alarming.
“If we pursue the efforts established by INDCs until 2050 [actual INDCs have a 2030 deadline], we will have a rise of +3,5°C”, says Gaël Giraud, chief economist at AFD.
How to avoid this slippage? First of all, by managing our common carbon budget.
“From now until 2060, we can still release 1,200 gigatonnes of CO2. After that, we will need to attain carbon neutrality by 2070”, according to Giraud.
But how to share the common carbon budget amongst nations? A subject that keeps French development bank researchers busy. A political bombshell, considering that 80% of global energy consumption is produced via state-subsidised fossil fuels.
AFD modelled the climate consequences of an economy without carbon limits and found that the average global temperature would rise by 4°C by the end of the century and would, in turn, cause a global recession (a negative GNI from 2080).
In order to salvage profits from climate change, the private sector would keep borrowing, raising debt to unprecedented levels.
It is therefore strictly necessary to increase INDCs, which is not an easy task. The majority of countries, especially in the developing world, can’t afford to develop according to a +2°C- compatible trajectory.
Others imagine surrealist solutions:”China has modelled its development model without taking into account either unemployment or public debt”, said Gaël Giraud.
Mitigating climate change will come at a high cost. “According to research, the bill for the next 15 to 20 years is between $50 to 90 trillion (€42 to 76 trillion)”, said the economist.
Beyond our capabilities? Not necessarily. Today, global GNI is $75 trillion (€73 trillion).
If Nicholas Stern is right, we need to invest $90 trillion in the coming 15 years to adapt our infrastructure to climate change. Which would force us to double our green infrastructure investments.
But money is not the problem. Banks have been printing cash non-stop for the past 20 years. “We’ve never had so much money on the planet”, confirmed Giraud. But we need to channel this to low carbon and low profits projects.
Economists are unable to monetise the construction of a dam for an institutional investor, the solution is to make greenhouse gas emissions more expensive, to incentivise economic actors to abandon oil and coal and move towards carbon-neutral investments.
Finance ministers have two options: a global carbon quota market, like in Europe, China or the US, or a carbon tax, like the Swedish one.
Given the “calamitous assessment” of the European carbon market, Giraud opts for the second system – falling in line with the Stern-Stiglitz report, or the Canfin-Grandjean-Mestrallet report on carbon pricing
A global carbon price has been declared impossible but the experts lobby for a carbon price “passageway”: a tax that would range from a ceiling and a floor price (between for instance $80 and $40/tonne).Every region in the world could decide its taxation level independently.
A message that economists will keep rehashing during the next climate conference in Bonn on 6 November, and during the climate summit in Paris on 12 December.