A “global uniform carbon price” was needed to ensure that adequate greenhouse gas emission mitigation took place to stop temperatures from rising to levels where dangerous climate changes would take place, Organisation for Economic Co-operation and Development (OECD) structural policy analysis senior economist Alain de Serreshas argued.
Delivering a lecture at Wits Business School recently, De Serres acknowledged that the world was “quite far” from global carbon pricing, while the journey to attaining that goal would be a fraught one.
Currently, the cost of emission reduction was unevenly distributed among countries, while the incentives to ‘free-ride’ on the action of others remained strong for some countries. Thirdly, the non-co-ordinated nature of actions raised concerns about carbon leakage and competitiveness losses.
He said that a policy mix and course of action should be designed to minimise the costs for all, and emphasised that developed and developing countries should act together to mitigate emissions.
There were a number of carbon trading schemes in existence already, but De Serres said that it was necessary to move away from these scattered price instruments to a global carbon market.
This would require: removing fossil fuel subsidies; expanding and linking emissions trading systems in existence; scaling up crediting mechanisms such as the Clean Development Mechanism; and implementing sectoral emission reduction targets.
De Serres also stressed that the window of opportunity to take low-cost mitigation action would close within the next ten to 15 years.
If emission mitigation was done efficiently, he added, the economic impacts would not be far lower than anticipated. In fact, it was estimated that efficient and rapid action for emission mitigation would cost one tenth of a percentage point of growth.
But those countries that were carbon intensive, as well as those with large fossil-fuel producing industries, would find the transition difficult and could face the largest losses.
Speaking from the same platform, OECD climate change, biodiversity and development division senior economist Shardul Agrawala argued that, while reducing emissions was important, it was not enough, and countries and companies also needed to adapt to the impacts of climate change.
Adaptation to the effects of climate change was a relatively new concept in the business area, which has to date been focused on policy risks and the need to cut greenhouse gas emissions and avoid taxes, rather than on the physical risks posed by a changing climate.
Agrawala stated that business was becoming more familiar with the physical risks, however, few companies have done an in depth risk assessment, and if they had, even fewer had actually implemented actions to lower the risks.
He added that this “gulf between awareness and action” stemmed from a reluctance to make investments in this regard, as decisions on upfront investments were usually dictated by developments on shorter time scales.
Spatial mobility in a globalised environment also reduced the incentive for expensive location specific adaptation, as resources could be procured from many different places.
It was also noted that climatic variables, and scientific scandals and uncertainty also made a difference when it came to justifying upfront investments.
Agrawala said that public policy could play a role in adaptation by providing reliable climate information through real-time monitoring. It could also provide regulatory and research and development incentives, create markets for efficient allocation of climate sensitive resources such as water, and correct market imperfections in the insurance market.
There was said to be a role for public-private partnerships in the provision of adaptation infrastructure, as this was likely to cost billions.