A carbon price is a cost applied to carbon emissions to motivate polluters to reduce the quantity of carbon and greenhouse gases emitted into the atmosphere.
Those emissions have been accumulating since the advent of the Industrial Revolution and are considered the most significant contributor towards climate change. The associated cost of current and future damage to the environment is huge and will be a burden for future generations, more so if left unchecked without a sustainable carbon price.
A carbon price has historically been approached in two ways: as a carbon tax imposed by government on the use of fossil or carbon based fuels, or secondly as a ‘cap-and-trade’ system whereby total allowable emissions are capped in advance by the government, and ‘permits to pollute’ are then auctioned to companies to use. (Companies can then buy or sell these permits according to emissions being more or less than their permitted quota).
Currently, many UK companies pay a price on carbon though the EU’s Emissions Trading System (ETS, or Emission Trading Scheme), however it is not clear that the carbon price is high enough to ensure the UK meets its emission reduction targets. Here, the price of carbon is around $10 per tonne of carbon dioxide. Compare this to Sweden, which has its own carbon tax at a price of over $160 per tonne.
Ideally there should be a global carbon price as climate change is a global problem. One tonne of carbon dioxide results in the same amount of damage over time, regardless of where in the world the carbon dioxide is emitted.
Reaching a globally binding and sustainable agreement on a carbon price is high on the agenda for COP 21 being held in Paris this December. The stakes are high.
The costs arising from natural disasters that are attributable to climate change may well be in excess of $20 billion, and staggeringly, that amount is just for this year alone.
Find out how PAL’s carbon pricing solution could be just the enabler needed for the UN to finally agree a deal on a global carbon price.
Related – The many calls for a global carbon price
- French President Hollande joins with businesses in call for global carbon price
- Norwegian PM demands global carbon price
- Stiglitz Calls Climate Talks a ‘Charade,’ Pushes Plan C
- Prince Charles pushes for a carbon price
- Price carbon — I will if you will
- Leaders Unite in Calling for a Price on Carbon Ahead of Paris Climate Talks
Author: Edward Coe
Edward Coe is Managing Director and co-founder of PAL. He has extensive experience of systems development and implementation for advanced derivative trading systems utilising a broad range of technologies supporting in house, bespoke and third party software. Edward developed the software behind PAL Carbon.