Carbon Pricing Now
As the world marks both the fifth anniversary of the Paris climate agreement and the arrival of a more climate-aware US administration, the time has come to get serious about taxing or otherwise imposing a price on carbon. Without this critical policy measure, all of the recent carbon-neutrality pledges will amount to hot air.
PARIS – US President-elect Joe Biden’s inauguration comes just a month after the fifth anniversary of the Paris climate agreement, auguring long-overdue progress in the global fight against climate change. Despite recent political commitments by major emitters to achieve carbon neutrality by mid-century, the world still is not yet on track to prevent global warming from exceeding 2° Celsius – a target that must be reached to avert massive disruptions to human societies.
Fortunately, we can at least quantify the challenge at hand. According to the International Energy Agency, global energy-related carbon-dioxide emissions in 2019 totaled roughly 33 billion tons – a figure that ultimately must be reduced to net zero.
Carbon capture and storage (CCS) can remove carbon from the air, but it varies significantly in cost. Assuming this technology be deployed at scale at an average cost of $100 per ton, we can calculate that removing the CO2 emitted in 2019 would cost $3.3 trillion. And considering, not unreasonably, that the cost of abatement ($100 per ton) coincides with the social cost incurred by global warming, we can then compare this figure to the wealth created by an economy like Germany, where 2019 GDP amounted to $3.861 trillion. That yields the formidable price that must be paid annually to prevent any further aggravation of climate change.