Carbon pricing – overdue, but not enough

With global carbon dioxide emissions on the rise, it is imperative that we provide economic incentives for reduction. Why carbon pricing is an indispensable tool, but why it is not enough.

22. Apr 2020 · Sören Mohrdieck

Carbon pricing could move energy production to more sustainable alternatives than coal.

The article below is based on the results of the summer school «Sustainability – People, Planet and Profit from different perspectives» of the Swiss Study Foundation and was editorially supervised by reatch.

When Canada’s Prime Minister Justin Trudeau delivered his speech about introducing «carbon pricing» in 2016 before Parliament, he accidentally used the word «taxation». His colleagues’ reaction, a storm of laughing and booing, is symptomatic of the world’s struggle to grasp the dire state of our environment.

In spite of the publicity surrounding climate change, there is still a general lack of concern in society. Mark Carney, former governor of the Bank of England, expressed this dilemma as «imposing costs on future generations that the current one has no incentive to fix»[1]. Recent environmental disasters have only further invalidated such dollars-and-cents approaches to the matter; altruism is, after all, reason enough to want to lead a more sustainable lifestyle. Still, Mr. Carney had a point when he stressed the need to get our generation on board through economic incentives and to seriously reconsider our way of life.

Communication matters – and should be positive!

This is by no means an easy task. Current developments in Germany bear testament to the wide gap between attitude and behaviour. The Green Party has gone from garnering less than nine percent of the votes at the federal election in 2017 to almost 25% by the beginning of 2020, which is a small revolution for a country with such a stable political landscape [2]. Political parties from both sides of the spectrum have put climate issues at the very top of their agenda. And there are few public and private discussions about politics these days in which the environment does not come up. Green policies have gained traction as far as the general public is concerned. The lack of concern mentioned above certainly seems like a baseless accusation.

Unfortunately, that is not the reality. On the whole, Germans continue to lead highly wasteful lifestyles and show very little willingness to change. This is the case in most of the industrialized world, where carbon-intensive products are taken for granted. Questioning this «self-evidence» has become the main purpose of environmental communication. Positive feedback mechanisms, such as rewarding low energy consumption, are essential to initiate change in behaviour. In fact, psychological studies indicate that they are more effective than the currently dominant method of issuing warnings, prohibitions and engaging in apocalyptic-like marketing, in the aim of instilling fear in the population. This can eventually result in an undesired feeling of resignation [3].

In addition, honesty is crucial. Trudeau’s gaffe, mentioned in the introduction, is a perfect example of how not to communicate, since he disguised what was in fact a tax proposal and was therefore met with criticism when it was revealed. Instead of beating around the bush, he should have made it explicit that his plan would involve an actual tax burden for the Canadian population, which would nevertheless be compensated through an elaborate reimbursement package. This shows that, beyond the necessity of more positive and engaging environmental marketing, public communication also needs to offer more alternatives in order to showcase how the general public can change their way of life. Continuously appealing to people’s conscience by emphasizing how destructive their steak-eating, SUV-driving and jet-setting lifestyle is takes us nowhere. We need solution-oriented instead of problem-oriented thinking, positive reinforcement rather than fearmongering,rewards instead of punishments.

At the top of the political agenda

Redefining the economic value of carbon-intensive products has been, and continues to be, of high priority in some developed countries, including Switzerland and Germany. Recently, the ruling parties in Germany reaffirmed their commitment towards extending the already existing emission trade to the housing and mobility sector while speaking against carbon taxation due to its supposed inefficacy and general lack of support in the German population[4]. But is the ongoing certificate trade really affecting the companies with the most environmentally burdening products and services?  And how can the consumer recognize carbon-intensive consumption if it is not directly reflected in the price?

Carbon pricing is a flexible tool, which suits the requirements of complex international trade. Generally speaking, a carbon pricing system should be profit-oriented, as is the case in many countries already, and be assigned to every ton of carbon emissions. The word «pricing» is used intentionally, imagining a system extending beyond pure taxation: surplus fines for «environmental sins», such as long-distance flights, tax releases and repayments for sustainable products and processes, and so on. By steadily increasing the tax amount charged per unit carbon dioxide, governments are more likely to tailor international regulations to their own economy and thereby succeed in achieving their climate goals.

International pricing – doomed to fail?

This line of argument is rejected by those fearing that a pricing system of this scope might pose a competitive threat to national economies. They suspect that some countries might not participate and benefit from lower prices. Although there are indications that sustainable policies are actually more profitable on the long-term, the widespread reluctance to implementing carbon pricing systems suggests the importance of short-term incentives.
Therefore, solutions across borders are essential, but difficult to implement in a world of unique, sophisticated national taxation systems. Numerous negative experiences, including for instance the catastrophic corporative taxation system in the European Union, where a few countries are benefiting from extraordinarily low rates, are evidence to the challenge posed by international taxation and pricing systems. However, this should not prevent us from developing such a system.

Pricing does yield immediate results. The consequences are tangible from the day of their implementation, which corresponds to the highly urgent need for action. Considering the wide discrepancy between the original target to keep global warming below 1.5 degrees compared to pre-industrial levels and the current development, instantaneous policies are required. Regardless of whether one supports the proposed pricing system or not, there is no doubt that monetary policies are vital to any market-oriented, capitalistic system. So it is clear that, in order to transform our economies towards sustainable systems, pricing should not be neglected.

Society needs to have its say, too

In the end, carbon pricing policies provide an indispensable tool and are urgently needed in order to reach the international climate targets defined by the United Nations. Most importantly, it will allow us to price products and services at their true value, reflecting both economic and environmental factors. We cannot go about business as usual, but we probably will unless there is a proper pricing system in place. Life-cycle-assessment, approaches for ecological design, as well as additional research can help to generate environmentally fair prices.

Beyond that, carbon pricing is very likely to contribute to a mental shift in society, moving towards greater consumer awareness and narrowing the undesired gap between attitude and behavior. Nevertheless, challenges await. Carbon pricing poses  the risk of increasing social inequalities. The demonstrations of the French yellow vests movement should serve as a warning that society needs to be involved when fundamental political change is initiated, particularly on sensitive climate issues. In this context, it is worth reiterating the fact that any economic or social policy such as the proposed system should never be considered in isolation, but must be embedded in a set of societally acceptable measures and a sophisticated roadmap towards a sustainable development. 

The original article is published here.

Sources

[1]  Carney, Mark (2019):  A New Horizon. Speech given at the European Commission Conference «A global approach to sustainable finance» (https://www.bankofengland.co.uk/-/media/boe/files/speech/2019/a-new-horizon-speech-by-mark-carney.pdf?la=en&hash=F63F8064E0408F038CABB1F29C58FB1A0CD0FE25, accessed on 16.11.2019)

[2] Infratest Dimap (2020): Sonntagsfrage, bundesweit (https://www.infratest-dimap.de/umfragen-analysen/bundesweit/sonntagsfrage/, accessed on 27.01.2020)

[3] Whiting, Tabitha (2018): Why We Need To Change The Way We Talk About Climate Change. Medium (https://medium.com/@tabitha.whiting/why-we-need-to-change-the-way-we-talk-about-climate-change-9e43e9d77228, accessed on 13.11.2019)

[4] ZEIT Online (2019): Angela Merkel ist gegen eine CO2-Steuer (https://www.zeit.de/politik/deutschland/2019-09/klimapolitik-angela-merkel-co2-steuer-zertifikatehandel; accessed on 13.11.2019).

[5] Consultancy.eu (2018): Europe home to 6 of the globe's top 10 tax havens, Ireland tops list (https://www.consultancy.eu/news/1641/europe-home-to-6-of-the-globes-top-10-tax-havens-ireland-tops-list; accessed on 13.11.2019)

Autor*Innen

Sören Mohrdieck holds a scholarship of the German Academic Scholarship Foundation and is currently enrolled in the undergraduate programme «Engineering and Management» at the University of Applied Sciences in Ingolstadt, Germany. As a corporative student at the Airbus Group, his interests are located in the area of sustainable aviation technologies.

Disclaimer

Der vorliegende Blogeintrag gibt die persönliche Meinung der Autoren wieder und entspricht nicht zwingend derjenigen von reatch oder seiner Mitglieder.