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Polluting is Still Very Cheap

The polluter pays. That is the principle that was agreed upon 20 years ago at the Environment Conference in Rio de Janeiro as the basis of the International Environmental policy. At the Climate Conference in Paris, this is again an important topic. How do you make sure that those who pollute the atmosphere with greenhouse gases pay the costs of the climate change that results? And preferably, pay so much that the climate change caused by those emissions grinds to a halt.

In reality, the polluter very often doesn’t have to pay at all. The result is that the pollution simply continues and the damage caused is paid for by everyone else. Health problems caused by air pollution and heat waves, damage to infrastructure caused by flooding, failed harvests and wildfires caused by drought – all these things are partially, if not completely, caused by climate change. But their economic costs are paid by the society as a whole and not by the polluters.

Could the answer be a carbon tax? Studies done by the World Bank and Ecofys (a consultancy company for sustainable energy) reveal that more than 40 counties now have some kind of carbon price or tax. Most of the countries impose a tax on carbon emissions or sell “emission rights” to polluting companies. While imposing a tax is straight forward enough, how do you determine the price? Selling emission rights is more complicated to do well; if emission rights are auctioned and companies are allowed to trade with them, a “market price” will be created, which may be unrelated to the actual purpose of paying for damages caused.

Last Monday at the Climate Conference in Paris, The Netherlands came forward as an advocate for a worldwide carbon price/tax. The Dutch government has made 2 million Euros available to help in the creation of such a carbon tax and offered to hold a conference on this subject in the Netherlands in 2016. Sharon Dijksma, the Dutch Environmental Secretary said, “Once we have a worldwide price for carbon, it will be impossible for polluters to hide.”  The key word here is “worldwide”. If all countries don’t participate, the danger exists that companies will move operations to non-carbon tax areas. That would not help the climate and, according to Tata Steel (a major polluter), would create a situation in which you, “export jobs and import CO₂”. Tata Steel is not the only company that shares this opinion.  A “fair playing field” and sustainable competition are necessary conditions for companies to create powerful climate policy.  If this is in order, companies are certainly willing to accept a substantial carbon price/tax. More than 1000 large companies have already joined the Carbon Leadership Coalition. With a set carbon price/tax, companies know what they’ll have to pay; they know which investments will be profitable.

What the carbon price should be is the difficult question that remains. While there are countries and companies that already calculate a carbon price, there is a wide range of prices used. In Mexico $1 per ton is calculated, the European Union sets the price per ton at around 8 Euros, while Sweden calculates $130 per ton of carbon.  It’s hard to comprehend a link between the carbon price and its desired effect with this large a price range. Shell (oil and gas company) calculates a price of $40 per ton, since with that added price, oil and gas can still compete with the cheaper (and much more polluting!) coal. While that price is attractive for Shell, it’s too low to support the more expensive technologies needed to make the underground storage of CO₂ profitable. Environmental organizations suggest that a price of $100/ton is necessary to insure that all energy will be obtained in a sustainable manner by the second half of this century. There are many who feel that governmental intervention is the only way to achieve an accurate and mandatory carbon price. There will certainly be a lot more conversation about this topic at the Climate Conference.  

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