The Critical Role Of Carbon Pricing In Curbing Global Warming: An Overview

By Chinedu Henry Uchenna (LLB, B.L)

1.0 INTRODUCTION

Human beings have always sought for ways to make life easier and more enjoyable. Therefore, man in his intelligence decided to take advantage of the natural resources provided by nature, to ensure survival. Exploration of Oil and Gas, Farming and Agriculture are all human activities geared towards economic stimulation and survival. However, these activities originally discovered to help man, have unfortunately become both ‘a blessing and a curse’. This is because these human activities have led to serious environmental degradation such as global warming. Thus, according to the Natural Resources Defense Council (NRDC), “Since the Industrial Revolution, the global annual temperature has increased in total by a little more than 1 degree Celsius, or about 2 degrees Fahrenheit. Between 1880—the year that accurate record keeping began—and 1980, it rose on average by 0.07 degrees Celsius (0.13 degrees Fahrenheit) every 10 years. Since 1981, however, the rate of increase has more than doubled: For the last 40 years, we’ve seen the global annual temperature rise by 0.18 degrees Celsius, or 0.32 degrees Fahrenheit, per decade”^[1].

This is a clear revelation of how industrialization and other human activities have quickened the rate at which the Globe warms. Today, Global warming has become a source of concern, as the catastrophic increase in the earth’s temperature and its concomitant effects, are threatening human existence on earth.

We shall therefore briefly consider Global Warming, the causes of Global warming and its effect. We shall also consider carbon pricing and its role in mitigating or curbing global warming.

2.0 WHAT IS GLOBAL WARMING?

According to the National Aeronautics and Space Administration (NASA), Global warming is the long-term heating of earth’s climate system observed since the pre-industrial period (between 1850 and 1900) due to human activities, primarily fossil fuel burning, which increases heat-trapping greenhouse gas levels in Earth’s atmosphere^[2]. It therefore goes without saying, that the various human activities that increase concentration of Greenhouse gases (GHG) in the atmosphere, are primarily responsible for global warming

Greenhouse gas is defined as any gas that has the property of absorbing infrared radiation (net heat energy) emitted from Earth’s surface and reradiating it back to Earth’s surface, thus contributing to the greenhouse effect.^[3] In simpler terms, GHG are gases that trap heat in the atmosphere.^[4] These gases are called greenhouse gases because they absorb heat in the atmosphere, which causes the greenhouse effect. By trapping heat in the atmosphere, the greenhouse gases help to keep the earth warmer than it would otherwise be, allowing life on earth to exist.

While the greenhouse effect sustains warmth on earth to enable life on earth exist, the enhanced greenhouse effect is on the other hand, harmful to life on earth. The enhanced greenhouse effect, otherwise called global warming, is caused by human activities which increase concentration of greenhouse gases in the atmosphere, thereby making the earth warmer than it ordinarily should be. The stages of enhanced greenhouse effect are illustrated below^[5]:

Step 1: Solar radiation reaches the Earth’s atmosphere – some of this is reflected back into space.

Step 2: The rest of the sun’s energy is absorbed by the land and the oceans, heating the Earth. Step 3: Heat radiates from Earth towards space.

Step 4: Some of this heat is trapped by greenhouse gases in the atmosphere, keeping the Earth warm enough to sustain life.

Step 5: Human activities such as burning fossil fuels, agriculture and land clearing are   increasing the amount of greenhouse gases released into the atmosphere. Step 6: This is trapping extra heat, and causing the Earth’s temperature to rise.

Steps 1 -4 above reflect the greenhouse effect, while steps 5 & 6 reflect enhanced greenhouse effect. The problem therefore, is the increased concentration of greenhouse gases caused by human activities which culminates to global warming.

2.1 AGENTS OF GLOBAL WARMING

As earlier said, human activities, are responsible for the increase in emission of GHG and concentration of same in the atmosphere, which then leads to global warming. GHGs include; Carbon dioxide, methane, nitrous oxide, water vapor, and synthetic fluorinated gases. According to the European Commission, the various human activities responsible for increase in GHG concentration in the atmosphere and global warming include⁶:

1. Burning coal, oil and gas produces carbon dioxide and nitrous oxide.
2. Cutting down forests (deforestation). Trees help to regulate the climate by absorbing CO₂ from the atmosphere. When they are cut down, that beneficial effect is lost and the carbon stored in the trees is released into the atmosphere, adding to the greenhouse effect.
3. Increasing livestock farming. Cows and sheep produce large amounts of methane when they digest their food.
4. Fertilizers containing nitrogen produce nitrous oxide emissions.
5. Fluorinated gases are emitted from equipment and products that use these gases.

2.2 EFFECTS OF GLOBAL WARMING

Some of the effects of global warming are as follows;

1. Increase in average temperatures and temperature extremes
2. Extreme weather events
3. Ice melt
4. Rise in sea levels and ocean acidification
5. Extinction of plants and Animals

3.0 ROLE OF CARBON PRICING

3.1 What is carbon pricing?

Carbon pricing is one of the strategies employed by some Nations in-order to discourage emission of GHG. It is an instrument that captures the external costs of (GHG) emissions— the costs of emissions that the public pays for, such as damage to crops, health care costs from heat waves and droughts, and loss of property from flooding and sea level rise—and ties them to their sources through a price, usually in the form of a price on the carbon dioxide (CO₂) emitted^[6]. In other words, a carbon price gives an economic signal to polluting businesses to reduce and eventually discontinue their harmful activities emitting CO2 and other GHG^[7].

The popularity and widespread adoption of carbon pricing can be traced to the 1997 United Nations Framework Convention on Climate Change (UNFCC) in Kyoto, Japan. Here various nations of the world agreed that carbon credits were a good way to reduce emission of GHG. The emission trading system and carbon credits were discussed and implementation of same began.

Thus, according to the World Bank, there are two major types of carbon pricing; Emission Trading System; and Carbon Taxes. There are other indirect types of carbon pricing such as taxing fossil fuels or removing fossil fuel subsidies, but the focus here shall be on the two bedrocks of carbon pricing.

3.2 Emission Trading Systems

Emission trading system (ETS), also referred to as the cap and trade system, is a system of carbon pricing that caps the total level of GHG emissions and allows those industries with low emissions to sell their extra allowances to larger emitters^[8]. In other words, the Government prescribes the total level of allowable GHG emissions and ascribes emission rights to various emitters, while allowing emitting who do not exhaust their total allowable emissions to sell their emission rights to the larger emitters. Thus, ETS helps ensure that the total allowable emissions are not exceeded.

According to the 2015 report of the International Carbon Action Partnership (ICAP)^[9], there are 17 ETS in force across four continents, covering 35 countries, 12 states or provinces and seven cities, which altogether produce about 40% of global GDP. ETS is therefore becoming increasingly acceptable as a machinery to reduce emission of GHG which causes harm to the planet.

Various studies have considered the effectiveness of ETS in reducing emission of GHG. In a study by ICAP, it was found that ETS accounted for a great percentage reduction in GHG emission. According to ICAP, EU ETS impacts range from an estimated 3% of aggregate emissions to 25-28% at the firm level. The RGGI participating states witnessed a 50% reduction in the energy sector between 2009 and 2012 and emissions would have been 24% higher in the absence of ETS. The study further revealed that aside reducing emission of GHG, ETS had other impacts including: decrease in carbon intensity, promoting the deployment and innovation of clean energy, generating revenues from auctioning emission permits, amongst others^[10].

In a related article by Ellerman and Buchner, which discussed the preliminary stage of EU

ETS^[11][12], the authors found that in phase 1, CO2 emissions were between 2.4 and 4.7% lower than what they would have been without the EU ETS. Similarly, Anderson and Di Maria estimated that about 2.8% of emission reduction can be ascribed to EU ETS^[13].

It portends therefore, that even though there may be disparities in various studies on the extent of ETS induced reduction in GHG emission, there is a consensus that the ETS is responsible for some level of reduction in emission of GHG.

3.3 Carbon Tax

Carbon tax is a form of carbon pricing that focuses on making emitters of GHG pay for such emission by establishing a tax rate on GHG emissions. According to the World Bank, a carbon tax directly sets a price on carbon by defining a tax rate on GHG^[14]. Contrary to the ETS, the emission reduction outcome in a carbon tax system is not pre-defined, as emitters are allowed to emit as long as they pay for it. Therefore, a carbon tax places a tax or price on each ton of GHG emitted, which is aimed at discouraging emitters from further emission, while influencing the adoption of clean energy and environmental friendly alternatives.

The earliest carbon tax regimes are those of Finland and Sweden, implemented in 1990 and 1991 respectively. Sweden levies the highest carbon tax rate in the world, at US $126 per metric ton of CO2. According to Johnson and Ydstedt^[15], Sweden’s carbon tax covers only about 40% of all GHG emitted nationally. The writers found that between 1990 and 2018, Sweden decreased its GHG emissions by 27 percent, which can be attributed to the carbon tax as well as a push for C02-free electricity production.

Another popular carbon tax regime is the carbon tax of British Columbia (BC). Implemented in 2008, the tax established a price on GHG emission, beginning at $10/ton, with planned increases to $50/ton by 2022. The aim of the carbon price is to help provide an incentive for sustainable choices that produce fewer emissions^[16]. Professor Stewart Elgie has posited that the policy has been a real environmental and economic success and it is a world-leading example of how to tackle environmental pollution^[17].

Various researchers have also studied the impact of the BC tax in reducing GHG emissions, revealing some level of reduction in emission of GHG in BC.

Murray and Rivers conducted an analysis of various studies that estimate the effect of BC’s carbon tax on GHG emissions and fuel consumption. The studies analyzed, adopted different methods such as the numerical simulation model and the difference-in-difference approach in arriving at varying degrees of carbon tax induced reduction in GHG emissions^[18]. Premised on the studies, they concluded that the effect of the carbon tax led to a reduction of GHG emissions between 5-15% in BC. Similarly, the study by Scher revealed that total GHG emissions in BC declined by 7% relative to the baseline.

Carbon tax, as with the ETS, it is agreed induces reduction in emission of GHG. While the degree of reduction in emission may vary, its ability to influence reduction in emission of GHG is proven and should not be neglected.

4.0 CONCLUSION

Global warming is a real problem threatening not only man’s existence on earth, but also the existence of plants and animals. Carbon pricing is an ingenious method which helps to cut down human activities that have led to the emission of and enhanced concentration of GHG in the atmosphere. By reducing emission of GHG, concentration of GHG in the atmosphere will be reduced.

As concentration in the atmosphere of excess GHG has been identified as the major reason for global warming^[19], a policy such as Carbon Pricing which drives down GHG emission is very instrumental in climate actions. While it has been argued that global warming cannot be stopped even in the next several decades, we can however limit future warming to well below 2 degrees Celsius as envisaged by the Paris Agreement²⁰.

To achieve the above, all hands must be on deck and intentional policies, such as carbon pricing, amongst other policies, must be effectively implemented in ensuring that GHG emission is drastically reduced, thereby limiting future warming.

REFERENCES

Amanda Macmillan, Jeff Turrentine, “Global Warming 101” (April 7, 2021), Natural Resources Defense Council (blog), online:  https://www.nrdc.org/stories/global–warming–101#warming

Anderson, B., Di Maria, C. “Abatement and Allocation in the Pilot Phase of the EU ETS”, Environ Resource Econ 48, 83-13 (2011). https://doi.org/10.1007/s10640-010-9399-9.

Australian Government, Department of Agriculture, Water and Environment., “Greenhouse effect”, online: https://www.environment.gov.au/climate–change/climate–science–data/climatescience/greenhouse–effect

4. Murray and N. Rivers, “British Columbia’s Revenue Neutral Carbon Tax: A Review of the latest Grand Experiment in Environmental Policy” (2015) NI WP 15-04. Durham, NC: Duke University. http://nicholasinstitute.duke.edu/publications.

British Columbia, climate action legislation (blog), online:

https://www2.gov.bc.ca/gov/content/environment/climate–change/planning–andaction/legislation

Conference of the Parties, Adoption of the Paris Agreement, December 12, 2015, U.N. Doc. FCCC/CP/2015/L.9/Rev/1 (Dec. 12, 2015).

Eden. A, Unger. C, Acworth. W, Wikening. K, Haug. C, “Benefits of Emissions Trading: Taking stock of Emissions Trading Systems Worldwide”, International Carbon Action Partnership, (Updated: August, 2018)

Ellerman, A.D., Buchner, B.K. “Over-Allocation or abatement? A preliminary Analysis of the EU ETS Based on the 2005-06 Emissions Data”, Environ Resource Econ 41, 267-287 (2008). https://doi.org/10.1007/s10640-008-9191-2.

European Commission, Climate Action Directorate, “Causes of Climate Change”, online:

https://ec.europa.eu/clima/change/causes_en

International Carbon Action Partnership, “Emissions Trading Worldwide, International Carbon Action Partnership (ICAP) Status Report 2015”

Johnson. S., Ydstedt. A, “ Looking Back on 30 Years of Carbon Taxes in Sweden”, Tax Foundation (blog), online:   https://taxfoundation.org/sweden–carbon–tax–revenue–greenhousegas–emissions/

Mann, Micheal .E. “Greenhouse gas” (19 March, 2019), Encyclopedia Bitannica, online:

https://www.britannica.com/science/greenhouse–gas

National Aeronautics and Space Administration, “Overview: Weather, Global Warming and

Climate Change” online: https://climate.nasa.gov/resources/global–warming–vs–climate–change/  Stewart Elgie, “British Columbia’s carbon tax shift: An environmental and economic success” (10 September, 2014), World Bank Blogs (blog), online: https://blogs.worldbank.org/climatechange/british–columbia–s–carbon–tax–shift–environmentaland–economic–success

United States Environmental Protection Agency, “Overview of Greenhouse gases”, online:

https://www.epa.gov/ghgemissions/overview–greenhouse–gases

World Bank Group, “What is Carbon Pricing”, The World Bank ((blog), online:

https://www.worldbank.org/en/programs/pricing–carbon

Youmatter, “Carbon Pricing and Carbon Credits: Definition, Examples and History”, (21 February, 2020), online: https://youmatter.world/en/definition/definitions–carbon–price–carboncredit/

[1] Amanda Macmillan, Jeff Turrentine, “Global Warming 101” (April 7, 2021), Natural Resources Defense Council

(blog), online:  https://www.nrdc.org/stories/global–warming–101#warming

[2] National Aeronautics and Space Administration, “Overview: Weather, Global Warming and Climate Change” online: https://climate.nasa.gov/resources/global–warming–vs–climate–change/

[3] Mann, Micheal .E. “Greenhouse gas” (19 March, 2019), Encyclopedia Bitannica, online:

https://www.britannica.com/science/greenhouse–gas

[4] United States Environmental Protection Agency, “Overview of Greenhouse gases”, online: https://www.epa.gov/ghgemissions/overview–greenhouse–gases

[5] Australian Government, Department of Agriculture, Water and Environment., “Greenhouse effect”, online: https://www.environment.gov.au/climate–change/climate–science–data/climate–science/greenhouse–effect  ⁶ European Commission, Climate Action Directorate, “Causes of Climate Change”, online:  https://ec.europa.eu/clima/change/causes_en

[6] World Bank Group, “What is Carbon Pricing”, The World Bank ((blog),online: https://carbonpricingdashboard.worldbank.org/what–carbonpricing#:~:text=Carbon%20pricing%20is%20an%20instrument,to%20their%20sources%20through%20a

[7] Youmatter, “Carbon Pricing and Carbon Credits: Definition, Examples and History”, (21 February, 2020), online: https://youmatter.world/en/definition/definitions–carbon–price–carbon–credit/

[8] World Bank Group, “What is Carbon Pricing”, The World Bank ((blog), online:

https://www.worldbank.org/en/programs/pricing–carbon

[9] International Carbon Action Partnership, “Emissions Trading Worldwide, International Carbon Action Partnership (ICAP) Status Report 2015”

[10] Eden. A, Unger. C, Acworth. W, Wikening. K, Haug. C, “Benefits of Emissions Trading: Taking stock of Emissions

Trading Systems Worldwide”, International Carbon Action Partnership, (Updated: August, 2018)

[11] Ellerman, A.D., Buchner, B.K. “Over-Allocation or abatement? A preliminary Analysis of the EU ETS Based on the

[12] -06 Emissions Data”, Environ Resource Econ 41, 267-287 (2008). https://doi.org/10.1007/s10640-008-9191-2.

[13] Anderson, B., Di Maria, C. “Abatement and Allocation in the Pilot Phase of the EU ETS”, Environ Resource Econ 48, 83-13 (2011). https://doi.org/10.1007/s10640-010-9399-9.

[14] World Bank Group, “Pricing carbon”, online: https://www.worldbank.org/en/programs/pricing–carbon

[15] Johnson. S., Ydstedt. A, “ Looking Back on 30 Years of Carbon Taxes in Sweden”, Tax Foundation (blog), online:

https://taxfoundation.org/sweden–carbon–tax–revenue–greenhouse–gas–emissions/

[16] British Columbia, climate action legislation (blog), online: https://www2.gov.bc.ca/gov/content/environment/climatechange/planning–and–action/legislation

[17] Stewart Elgie, “British Columbia’s carbon tax shift: An environmental and economic success” (10 September, 2014), World Bank Blogs (blog), online: https://blogs.worldbank.org/climatechange/british–columbia–s–carbon–tax–shift–environmental–andeconomic–success

[18] B. Murray and N. Rivers, “British Columbia’s Revenue Neutral Carbon Tax: A Review of the latest Grand Experiment in Environmental Policy” (2015) NI WP 15-04. Durham, NC: Duke University. http://nicholasinstitute.duke.edu/publications.

[19] EU, “Causes of Climate Change”, online:  https://ec.europa.eu/clima/change/causes_en ²⁰ Conference of the Parties, Adoption of the Paris Agreement, December 12, 2015, U.N. Doc. FCCC/CP/2015/L.9/Rev/1 (Dec. 12, 2015).