Op-ed articles

Expert Opinions on the Carbon Tax

Alain Grandjean
Alain GrandjeanFounding partner of the consulting firm Carbone 4

"The objective is to encourage operations that emit less carbon dioxide, such as power plants that run on natural gas rather than coal."

Carbon Markets: A Global Movement That Needs To Be Interconnected

The carbon market concept emerged when international climate negotiations began. Its first applications date back to the Kyoto Protocol in 1997. The European Union, followed by other countries and regions around the world, started implementing carbon trading systems in 2005. Alain Grandjean, founding partner of Carbone4, explains the related challenges.

In 2005, the European Union set up the most integrated, if not the most efficient, carbon market known as the Emissions Trading Scheme, or ETS.  Many other such systems sprang up in the following decade, notably in California, New Zealand, Switzerland, Quebec (now linked to the Californian market), nine states in the eastern U.S., two regions in Japan and, importantly, in several of China's economic zones. These last schemes are slated to merge into a national market in 2017.

The mechanism is simple: companies that emit CO2 are granted credits that they can trade, and a price emerges based on the law of supply and demand. If the company emits more than its credits allow, it can buy more, thereby incurring a cost. The objective is to encourage operations that emit less carbon dioxide, such as power plants that run on natural gas rather than coal.

In Europe, the market concerns sectors with significant emissions such as the electric power, chemicals, steel, cement and paper industries. It does not include households, small businesses or large companies with low emissions. As a result, the market covers half of Europe's CO2 emissions, and electric power generation accounts for 50% of this half.

Of course, a scheme like this can only work if the price is high enough. In 2016, the carbon price in Europe hovered at around €5 per metric ton, which is much too low. It would have to rise to at least €30 to make coal sufficiently unattractive in relation to gas and encourage a switch from one energy source to the other.

The first explanation for the low price of carbon in Europe lies in the large number of credits allocated. To be fair, it was difficult to anticipate the global economic crisis that sent growth plummeting. The governance system is less than satisfactory as well, as the market is not regulated by an independent agency or "central bank". There are ways, however, to lift the price to more acceptable levels by introducing a floor to make the system more efficient and a cap to reassure the market's participants.

Distorted Competition

The issue of fair competition among global companies cannot be overlooked. Industries like steel and cement compete with players in other parts of the world, notably China. Absent a carbon tax at the border, which would be impossible to implement today, the different markets need to be interconnected if we don't want carbon pricing to penalize European industry. If China unifies its national carbon market and Chinese steel makers pay the same price per metric ton of carbon as their European counterparts, carbon pricing will no longer distort competition. Of course, we don't want to be naive: many other factors give China a competitive advantage, but at least there wouldn't be a penalty for Europe being more "virtuous" than China when it comes to climate.

The same problem exists with the United States. As 2016 draws to a close, no one can predict what Donald Trump's climate policy will be, but coal states and oil companies will clearly be reticent about extending carbon pricing measures. In addition, a switch from coal, which represents many jobs, will raise difficult labor-related issues in many countries including South Africa, India and, closer to home, Poland.

 

 

Alain Grandjean graduated from Ecole Polytechnique and received a PhD in Economics of the Environment. He is a founding partner of Carbone 4, the leading consulting firm specialized in low carbon strategy and adaptation to climate change since 2007. With Gérard Mestrallet and Pascal Canfin, he co-authored a report on ways to implement carbon pricing within the framework of the Paris Agreement1 that was submitted to the French government in July 2016. He has also written several books, including "Financer la transition énergétique" with Mireille Martini, published by Editions de l'Atelier in 2016. Since 2007, Alain Grandjean has been a lecturer and leader of training sessions on climate and energy issues, and on the energy transition.

 
 

Source :

(1) Read the report (in French only)

 

ValérieQuiniou
Valérie QuiniouVice-President for Climate & Energy, Total

"Putting a price on carbon is also a way to reduce coal's importance in the global energy mix. "

Oil & Gas Companies Are In Favor Of Putting A Price On Carbon

A few months before the COP21 climate talks, which resulted in the December 2015 Paris AgreementOil contract under which the oil that is produced is shared between the state and the oil company... , the world's oil and gas companies sent an open letter to the head of the U.N. Framework Convention on Climate Change and Governments calling for the creation of mechanisms to put a price on carbon. Valérie Quiniou, Vice President for Climate and Energy at Total, analyzes the advantages of carbon pricing.

The major oil and gas companies have on several occasions supported the idea of putting a price on greenhouse gas (ghg) Gas with physical properties that cause the Earth's atmosphere to warm up. There are a number of naturally occurring greenhouse gases... emissions, and primarily CO2See Carbon Dioxid , either through a tax or an emissions tradingThe buying and selling of products in financial markets... scheme. This position, which may seem paradoxical, can be explained by three key observations:

Carbon Leakage

Clearly, the idea isn't to apply a single carbon price worldwide, but some type of interconnection is indispensable to avoid what is known as "carbon leakage". This refers to a situation in which pricing systems in certain regions prompt the highest-emitting industries to relocate to countries with less stringent policies. Measures to create a relatively level playing field are therefore needed to ensure that companies in highly taxed areas are not penalized in relation to competitors who are not subject to regulations.

Another interesting question concerns how the funds generated by a carbon tax can be used. In the general interest, it would make sense to allocate the funds to emissions-reduction initiatives. Carbon capture and storage, for example, is a technique with indisputable benefits for the climate, but also a very high price tag. Providing financing through a carbon tax would have a major impact on its development. The revenue could also be used to improve energy efficiencyIn economic terms, energy efficiency refers to the efforts made to reduce the energy consumption of a system... in the industrial and residential sectors, or to support impoverished households and open up broader access to energy.

All of these initiatives are studied and encouraged by the Carbon Pricing Leadership Coalition (CPLC), formed by 74 countries and more than 1,000 companies during the COP21 talks in Paris.

 

 

Valérie Quiniou is a French engineer and naval architect with diplomas from Ecole Polytechnique and Ecole Nationale Supérieure des Techniques Avancées (ENSTA). She started her career at Bouygues OffshoreRefers to sea-based oil exploration and production operations, as in "offshore license" or "offshore drilling". (now Saipem) in 1996, then moved on to Noble Denton in London before joining Total in Paris in 2002 as Metocean Advisor. From 2010 to late 2015, she was Head of the Survey Technologies Department for geophysics, geotechnics, metocean, ice engineering and geomatics applied to development and operations. She also co-chaired the metocean committee of the IOGP over the past two years. In January 2016, she joined the Corporate Sustainable DevelopmentThis term was first defined in the Brundtland Report, published in 1987, as “development that meets the needs of the present without... and Environment Division, as Vice President for Climate and Energy. In September 2016, she was appointed Vice President, Climate within the new Strategy-Climate unit.  

 

Was this op-ed interesting?

4 0