4️⃣Why we need a price for carbon

The United Nation has set Climate Goals to “ensure a safe climate for humanity”. To prevent the worst effects of global warming, carbon emissions need to fall to net-zero by 2050, meaning that humanity takes as much carbon out of the atmosphere as we put into it. 2050 still seems like a long time into the future. Looked at the problem differently, at the current rate of CO2 emissions at 1337 tonnes per second, we have only 7 years of “carbon budget” left until the chance of limiting global warming to within 1.5 degrees above pre- industrial levels drops to below 50%. Even this way of looking at the problem creates more questions than it answers. Is a 50% risk of an “unsafe climate” even acceptable? And how bad would 2 degrees warming look like in terms of our own quality of life? These questions clearly depend on your own circumstances, like where you live, how old you are and so on. What is quite clear to most people by now is that we need to act fast and incremental change is not going to be enough to avoid climate distaster. We need drastic changes in lifestyle, global cooperation and green innovation – ideally all at the same time and starting immediately.

This is where a price on “carbon” enters the picture. If everyone emitting carbon into the atmosphere had to pay, and everyone taking carbon out would receive, some amount of money, the necessary economic changes could happen without arbitrary laws. However, there are counterarguments and pitfalls associated with carbon pricing that need to be considered:

1. Equity and social impacts: Carbon pricing can have distributional impacts, as it may disproportionately affect low-income households and vulnerable communities who may struggle with increased energy costs or face job losses in carbon-intensive industries. Care must be taken to design carbon pricing mechanisms that are fair, equitable, and considerate of social impacts, such as through measures like revenue recycling or targeted support for affected communities.

2. Competitiveness and leakage concerns: In some cases, carbon pricing may lead to concerns about competitiveness and carbon leakage, where businesses may relocate to regions with lower or no carbon pricing, potentially resulting in emissions "leaking" to other jurisdictions. This underscores the importance of coordinating carbon pricing policies globally and addressing competitiveness concerns through appropriate measures such as border carbon adjustments.

3. Implementation challenges: Implementing carbon pricing mechanisms can be complex and challenging. It requires robust monitoring, reporting, and verification systems to accurately measure and track emissions, as well as mechanisms for compliance and enforcement. It also requires coordination and cooperation among different stakeholders, including governments, businesses, and international bodies, which can pose implementation challenges.