Global CO2 pricing scheme surfaces ahead of 2015 climate summit

[DFID - UK Department for International Development/Flickr]

Bangladesh is one of the lowest emitters of CO2, but one of the countries worst affected by climate change. [DFID - UK Department for International Development/Flickr]

A team of scholars at Paris Dauphine University has proposed an international carbon trading system, whereby countries with the highest average CO2 emissions pay the most. A simple, yet ambitious scheme that hinges upon cooperation from the world’s largest emitter, China. EURACTIV France reports

With the Paris climate conference just over a year away, there is broad agreement on the need for a credible, ambitious climate agreement, but big questions remain over what such an agreement should entail.

With this in mind, the Climate Economics Chair (CEC) of Paris Dauphine University, has put a concrete proposal on the table: an international bonus-malus carbon pricing mechanism.

The simple idea behind the scheme is that countries with higher than average CO2 emissions should be charged for every ton of CO2 they produce above the global average.

Worldwide, the annual quantity of CO2 emitted per person is 6.3 tons, but the data varies enormously from country to country: 0.8 tons per inhabitant in Bangladesh compared with 21 tons in the USA.

“Common but differentiated responsibilities”

“The principle of ‘common but differentiated responsibilities’ remains the indispensable basis for any multilateral agreement. In the Kyoto agreement, this principle was interpreted in a binary way, exempting emerging countries from any effort,” the CEC wrote in its proposal, but “this binary representation of the world has since become totally inappropriate”.

In the Kyoto protocol, certain countries with a history of high emissions, like Europe, the United States and Japan, were classed in Annex 1, while emerging countries were classed in Annex 2.

The undesired effect of this distinction was to single out the biggest emitters from the past, while leaving emerging countries relatively unregulated. This problem has grown in recent years, as the situation has changed in developing countries. China, for example, has now overtaken the EU in its emissions of CO2 per person.

>> Read: China emits more CO2 per person than the EU

Net transfer of 100 billion dollars from North to South

The proposed new system would involve large financial transfers from North to South. By comparison, the Clean Development Mechanism, within the framework of the Kyoto protocol, calls for the modest transfer of 300 million euros from North to South, and is yet to get off the ground.

The initial carbon price would be intentionally low in order to ensure the system’s acceptance. The proposed starting price of CO2 is 7.5 dollars per ton, roughly equivalent to the price of carbon in the European trading system, currently at 6 euro per ton.

At this price, the USA’s carbon bill would amount to 34 billion euros per year; China would be forced to pay €15 billion and the EU, 10 billion. At the other end of the scale, India would receive a cheque for 38 billion euros.

The CEC identifies two key contributors to the mechanism: oil producers, and China.

“If China supports the project, it will be difficult for the other blocs, particularly the United States, to refuse,” said the founder of the CEC, Christian de Perthuis. He added that “the keys to a climate agreement are in China’s hands”.

For now, the international bonus-malus project is yet to gain the official support of any state, but its authors believe it has one important asset.

“The great thing about this system is that it is simple: any politician can understand it. This is not the case with the current mechanisms, and especially not the European carbon trading system!” Mr de Perthuis pointed out.

Saving the European carbon market

The system could also breathe new life into the struggling European carbon trading system.

The CEC’s scientific director Pierre-André Jouvet said that “Europe has always driven progress, but when we look at what is happening in China, where carbon trading experiments are already being carried out on regions of 300 million inhabitants, it is clear that Europe will soon be left behind in this domain.”

The creation of an international carbon trading mechanism would give the European scheme the boost it needs. Despite its many setbacks, the European emissions trading scheme has been emulated across the world, notably in China and the United States. Uniting these schemes would fulfill one of the main goals of environmentalists and climate experts worldwide: to put a price on carbon.

Problems of governance

Today, in most countries in the world, carbon dioxide emissions remain untaxed. This has allowed the use of fossil fuels to grow unchecked, leading in turn to the highest ever increase in CO2 emissions between 2000 and 2010.

“In order to drastically curb emission trajectories, global carbon pricing should be rapidly introduced, so as to put pressure on governments to act cooperatively,” the authors of the proposal explained.

In establishing a carbon trading mechanism, this bonus-malus system would also introduce a system of global governance over carbon.

“All carbon trading markets have suffered from poor governance. We must create a common MRV (monitoring, reporting, verification) system,” the project’s authors write. The UN’s climate branch, UNFCCC, would be charged with organising the system, while the World Bank and the International Monetary Fund raised the finance.

Negotiations on climate change began in 1992, and the UN organises an annual international climate change conference called the Conference of the Parties, or COP.

The 20th COP is due to take place in Lima, Peru, in December 2014, and COP 21 will take place in Paris in December 2015.

  • December 2015: COP 21 in Paris

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