Many countries started introducing CO2 prices, either as taxes ranging between 2 $/t in Japan and 155 $/t in Uruguay or in an emission trading system (ETS) between 1.12 $/t in Kazakhstan and 96 $/t in the EU (see current prices). Carbon prices are expected to be a main tool for decarbonizing our economy.
At the same time, fossil fuel subsidies remain large and keep growing. Have these subsidies been estimated to 4.4 Trillion $ in 2015 (which was 5.3% of global GDP), they have risen to over 7 trillion $ (7% of global GDP) in 2022. In 2015, fossil CO2 emissions amounted to 35.3 Gt/a. This means that governments around the world had effectively paid 125 $ to emit one tonne of CO2. In 2022, emissions raised to 37 Gt/a and subsidies to almost 200 $ per tonne. CO2 prices are thus in the range of explicit fossil fuel subsidies, but far smaller than explicit and implicit subsidies.
The IMF projects fossil fuel subsidies to remain more or less constant in relation to GDP until 2030. Depending on the transition pathway, CO2 emissions will shrink in this decade more or less strongly. As a consequence, CO2 subsidies per tonne will increase. In the case of pathways targeting to stay below 1.5°C (IPCC SR1.5), subsidies would increase up to 450$/t!
Already today, carbon prices below 200$/t not even return the received explicit and implicit subsidies to society. Without these subsidies, fossil fuels would be much less competitive and the economic case for renewables much stronger (even despite these incredible subsidies, solar PV and wind are already the cheapest way to provide electricity today).
A real carbon price needs to be substantially larger than fossil
subsidies at any moment. Otherwise, it is merely a (partial) refund of
taxpayer's money and simply continues market distortion in favor of
environmentally harmful technologies.
A tax should not be used to adjust carbon prices but carbon dividends should! There is a difference. Carbon fee and dividend is not a tax. Taxes are collected by government for government use. A fee collected and paid to all people equally is a payment from the social commons not a tax. It is important to understand this or you likely will dismiss the benefits. Consider oil as the example, coal and gas would have fees collected as well but talking about one is easier. Money is taken at the wellhead where it is mined. Before first sale. If a dollar worth of oil is pulled out of the ground a percentage of value is taken from it. A percentage determined by a citizens assembly. After that the added cost is passed on as markup in the distribution chain. All the money is equally divided among all citizens. This allows the individual to cancel the fee added at the wellhead if they use an average amount of fossil fuel. If you use less fossil fuel than average the system pays you money. If you use more you pay more. Collected money is equally distributed with kids getting a percentage starting at 16. Younger children don't use gasoline or diesel, and the money, all of it, must go to citizens who use oil products. Younger kids are excluded because they do not buy anything and the money is paid out to consumers to offset the added price consumers must pay. Having a citizens assembly set the fee is appropriate and should not be done by government. Government provides infrastructure, but the commons should decide to do with the commons. Not an elite group.
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