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The World Bank’s State and Trends of Carbon Pricing 2020.
Earth ’s climate is a complex adaptive system interconnected to the atmosphere, oceans and land surface. Our emissions of greenhouse gases – primarily CO2 due to burning fossil fuels and deforestation but also methane, nitrous oxide and some other industrial chemicals – jeopardise the balance within the system. Droughts, fires, storms and floods are hugely disruptive risks to our lives, livelihoods and landscapes. Mitigating these climate change risks means radically reducing emissions
… but how … when carbon is so embedded in our current economies?
It is crucial to decouple economic growth from emissions growth. Carbon pricing is an effective instrument to guide production and investment decisions towards mitigating emissions and can be implemented using a tax, an emissions trading system, or a combination of the two.
Economists have made a strong case for carbon (CO2) pricing for many years. Carbon (carbon emissions) are an externality. They are often unpriced, even though priced research shows that price levels are below what is needed to support the changes the world needs to transition to a low carbon economy. Carbon pricing increases the cost of CO2 emissions and implements the polluter pays principle. It does this by increasing costs and, if sufficiently high and rising over time, making carbon- intensive energy carriers unprofitable. Coal is the most carbon-intensive fossil fuel we burn so carbon pricing can effectively counteract the global renaissance of coal.
The World Bank’s State and Trends of Carbon Pricing 2020 is the latest in their annual reports which gives a comprehensive update on carbon pricing around the world. The Foreword to the report says: “A well-designed carbon price embedded in a broader package of climate, energy and development policies and measures remains critical to solving the climate challenge and advancing the achievement of sustainable development aspirations.”
For some years the UK has been a member of the European Union Emissions Trading Scheme (ETS). At the time of writing the Department for Business, Energy and Industrial Strategy (BEIS) has consulted on a UK ETS, operative after the UK leaves the European Union (UK ETS).
ETS allowances were designed as part of industrial strategy, but investors have started to consider them as investible entities.
Energy policies urgently need to promote energy efficiency while embracing clean energy sources to make things move, heat up and cool down. The energy transition is a pathway towards transformation of the global energy sector from fossil-based to zero-carbon by the second half of this century. At its heart is the need to reduce energy-related CO2 emissions to limit climate change. The Energy Transitions Commission is a global coalition of leaders from across the energy landscape committed to achieving net-zero emissions by mid-century.
Afforestation is another mechanism for climate change mitigation. It is considered a cost-effective and readily available climate change mitigation option.
Appropriate policies for agriculture, forestry and other land use are also needed as these sectors account for about a quarter of net emissions mainly from deforestation, agricultural emissions from soil, and nutrient management and livestock. The most cost-effective mitigation options in forestry are afforestation, sustainable forest management and reducing deforestation, with large differences in their relative importance across regions. In agriculture, the most cost-effective mitigation options are cropland management, grazing land management, and restoration of organic soils. Demand-side measures, such as changes in diet and reductions of losses in the food supply chain, have a significant, but uncertain, potential to reduce emissions from food production.
These climate change mitigation measures are closely related to broader concepts of sustainability. The circular economy aims to redefine growth, focusing on positive society-wide benefits. It entails gradually decoupling economic activity from the consumption of finite resources and designing waste out of the system. Underpinned by a transition to renewable energy sources, the circular model builds economic, natural, and social capital. It is based on three principles:
- Design out waste and pollution
- Keep products and materials in use
- Regenerate natural systems
The Doughnut Economy has balance as its central theme. The theory postulates that a thriving human existence is only possible by considered use of available resources. Use too much, and we risk catastrophic effects that are harmful to human life. However, using earth’s resources unwisely can also lead to a shortfall, with humans existing in danger and hardship. The ‘doughnut’ is the safe zone between these two extremes. It represents the ability to thrive economically, with 12 social foundations, such as water, food, health and income, being met for all people.
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