How to Comply with the Paris Agreement Temperature Goal: Global Carbon Pricing According to Carbon Budgets
Abstract
:1. Introduction
2. Status Quo Concerning GHG Emissions
- CO2 from fossil fuel and industrial processes, with 65%;
- Methane, with 16%, and nitrous oxide, with 6%, e.g., from agriculture;
- Reduction of CO2 sinks, with 11%, e.g., through deforestation or the destruction of forests.
3. Reduction Paths: Carbon Law Adapted to a 1.5 °C Target with an Exponential or Logistic Decrease
- The severity of damage increases nonlinearly, with a GMST increase of over 2 °C [8]. Acting too late or not ambitiously enough could lead to nonlinear self-reinforcing and irreversible processes (tipping points, cf. Section 6.6) that would amplify warming, despite costly efforts;
- The reliance on net negative emissions to return warming to a specific temperature limit should be minimized, as there is still a lack of understanding of how the carbon cycle responds to net negative emissions. Thus, the effectiveness of negative emissions technologies to decrease the temperature after a peak is uncertain [7];
- Furthermore, “[…] delaying GHG emissions reductions over the coming years also leads to economic and institutional lock-in into carbon-intensive infrastructure, that is, the continued investment in and use of carbon-intensive technologies that are difficult or costly to phase-out, once deployed” [7].
- 11–22 GtCO2/yr. by 2030, i.e., a reduction of 46–72%, compared to 2020;
- 1–9 GtCO2/yr. by 2040, i.e., a reduction of 77–97%, compared to 2020;
- 0–4 GtCO2/yr. by 2050, i.e., a reduction of 89–100%, compared to 2020.
4. Internalization of the External Effects of Anthropogenic GHG Emissions: Possible Policy Frameworks
- Legal requirements (command and control approach), e.g., statutory emissions thresholds;
- Pigouvian tax and subsidies;
- Emissions trading.
- Legal requirements, e.g., a uniform emissions threshold for all polluters, lead to a lack of options for polluters to implement measures at the lowest marginal abatement costs;
- A design of the legal requirements, in accordance with the lowest marginal abatement costs, would require the state to be aware of the marginal abatement costs of each polluter. The state would therefore be dependent on receiving correct information from all polluters, the monitoring effort would be considerable, and there would be uncertainties in the accuracy of the information;
- Additionally, the regulator would have to adjust the requirements over time so that the private benefits from investing in the new technology equal the social benefits—a task that seems very difficult to achieve, considering the complexity of the systems involved and the uncertainties associated with the necessary estimates;
- The incentive to invest in new technologies, as well as in the most cost-effective ones, is lower for the legal requirements than for the market-based instruments.
5. Global Carbon Pricing
5.1. Quantity Control (Emissions Trading) vs. Price Control (Pigouvian Tax)
- The sum of the abatement and damage costs is minimal; in other words:
- The marginal damage is equal to the marginal abatement costs.
- Criterion for exclusion: A Pigouvian tax controls the price, not the quantity. Hence, it will not necessarily ensure that global CO2 emissions stay within a previously defined remaining carbon budget, which is a necessary condition for an instrument to be useful in limiting global warming to a specific temperature limit;
- Marginal abatement costs and marginal damage costs, and even the slope of them, cannot be calculated with sufficient accuracy. Hence, Weitzman’s rule cannot be used to identify a case where a Pigouvian tax would eventually be more favorable than emissions trading;
- Weitzman’s rule tells us that there is likewise a chance that emissions trading is more favorable than a Pigouvian tax, even if the criterion for exclusion would not hold.
5.2. National vs. International and Sectoral vs. Cross-Sectoral Structuring
6. Derived Political Instrument—A Global Cap-and-Trade System across All Sectors
6.1. Auctioning Emissions Permits
6.2. What Should the Money Be Used for That Is Collected within the Global Cap-and-Trade System
- Cushioning losses in value due to non-insurable damages that can be traced back to climate change;
- Enabling adaptation and investments, in developing countries that eventually lack the funding to implement even the cost-efficient solutions. This could be based on existing funds, like the Green Climate Fund (GCF) or Global Environmental Facility (GEF);
- Financing the net negative emissions, which may be necessary especially from 2050;
- Compensating for the eventual collapses of countries, industries and the financial system due to stranded assets caused by the fossil phase-out.
6.3. Measurement and Control
6.4. Extension of the CO2-Based Global Cap-and-Trade System to Non-CO2 GHG Emissions, AFOLU and Carbon Sinks
6.5. Substitution of Existing CO2-Related Governmental Intervention by the Global Cap-and-Trade System
6.6. Refutation of Objections to the Implementation of a Global Cap-and-Trade System
7. Discussion
- What are the impediments to a global carbon price agreement, and how can they be overcome?
- How should a global ETS fund be structured and managed?
- Provided that the implementation of a global ETS is agreed upon, how can existing governmental interventions concerning climate protection be phased out? What would be an adequate roadmap for the discontinuation of national subsidies for fossil fuels?
Author Contributions
Funding
Acknowledgments
Conflicts of Interest
References
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Zapf, M.; Pengg, H.; Weindl, C. How to Comply with the Paris Agreement Temperature Goal: Global Carbon Pricing According to Carbon Budgets. Energies 2019, 12, 2983. https://doi.org/10.3390/en12152983
Zapf M, Pengg H, Weindl C. How to Comply with the Paris Agreement Temperature Goal: Global Carbon Pricing According to Carbon Budgets. Energies. 2019; 12(15):2983. https://doi.org/10.3390/en12152983
Chicago/Turabian StyleZapf, Martin, Hermann Pengg, and Christian Weindl. 2019. "How to Comply with the Paris Agreement Temperature Goal: Global Carbon Pricing According to Carbon Budgets" Energies 12, no. 15: 2983. https://doi.org/10.3390/en12152983