Sep 18, 2014 10:40 AM IST
How much do the emissions coming from your car’s exhaust pipe cost in terms of damage to the environment? What about the gases that factories emit? Smog can be seen – and felt—in places like Beijing and Mexico City, in other words, it is tangible. But it is difficult to measure and calculate in monetary terms the damage done to the planet, nature and people by greenhouse gases.
Nevertheless, scientists, governments, international institutions and non-governmental organizations are analyzing formulas (some of which already exist) to “charge for polluting,” or “put a price on carbon.” In other words, those who pollute the most must provide monetary compensation for the harm they do to the environment. The idea is to limit and reduce greenhouse gas emissions, which are responsible for global warming and climate change.
If emissions continue at the current pace, the average global temperatures will rise and seriously impact the environment, with more severe and frequent climate events affecting agriculture, among others.
To calculate the cost of the damage caused by these emissions, it helps if they are quantified. It is common to calculate CO2-equivalent emissions of all gases that cause the greenhouse effect, including CO2 and methane, which warms even more quickly.
The “buying” and “selling” of emissions that cause the greenhouse effect and climate change is known as the “carbon market.”
A question of pricing
Although the price assigned to CO2 (or its equivalent) is not equal to the real cost of emissions, it does serve to discourage emissions, according to Neeraj Prasad, Climate Change Knowledge & Partnerships Manager. “With carbon prices we can say, for example, that the energy produced with carbon is more expensive than that produced by a solar panel,” says Prasad.
“If we cannot estimate (in monetary terms) the damages that climate change causes, there are other mechanisms we can implement to determine the prices we should use as indicators,” says Alvaro Umaña, Costa Rica’s former Minister of the Environment and Energy at the recent Latin American Carbon Forum in Bogota.
While not the most polluting region, Latin America is extremely vulnerable to changes in the climate, such as more frequent and severe droughts, flooding and storms. In response, some governments of the region have established a variety of mechanisms and policies to discourage emissions.
One example is a carbon tax, which is applied to carbon dioxide emissions and which varies by country. In Mexico, for example, a new tax on fossil fuels is linked to the carbon content of the product: for example, it is higher for diesel fuel (12.40 cents per liter) than for Magna gasoline (10.38 cents per liter).
In Costa Rica, the revenue from a 3.5 percent fuel tax has been used to preserve forests.
There are also national and regional emissions trading markets, such as that of the European Union, and even a global carbon market. There are mechanisms that allow carbon credits from projects in developing countries to be sold into emissions trading markets around the world, such as the Clean Development Mechanism. If a company gets certification that its greenhouse gas emissions fell thanks to its implementation of renewable energy, methane capture or energy efficiency measures, for example, it can earn carbon credits issued by the United Nations and sell them on a carbon market (trade them). The funds generated by selling carbon credits can be used to finance “green” investments.
Right now, nearly 40 countries and more than 20 cities, states, and provinces use carbon pricing though carbon taxes or emissions trading schemes, or plan to do so. Together, those jurisdictions are responsible for about 22 percent of global emissions.
Another formula to protect the environment and reduce greenhouse gas emissions is to pay farmers, indigenous communities or companies for the environmental services they provide. Governments can pay them for protecting nature, conserving biodiversity or reducing greenhouse gas emissions.
Costa Rica, Mexico, Colombia and Brazil use different variations of this mechanism. In Costa Rica, for example, land owners receive payment for every tree they plant or conserve. The results are evident: forest coverage increased from 21 percent in the 1980s to 52 percent in 2012. “With the support of the World Bank and others, we have fixed more than 90 million tons of forest carbon in the past decade,” says Alvaro Umaña.
A look towards the future
On September 23rd the Secretary-General of the United Nations will host a Climate Summit in New York to build political momentum and ambition needed to reach a global climate change agreement in 2015.
The issue of carbon pricing is high on the agenda.
The World Bank Group is encouraging corporate and government leaders to register their support for the Put a Price on Carbon statement that will be launched at the Summit. In the statement, governments pledge to work together and companies pledge to work with governments towards the long-term objective of carbon pricing used throughout the global economy.
After the Summit next week, the focus will then shift to the global legal climate negotiations on climate that will take place in Lima this December and will continue in Paris in 2015.
Countries can reduce greenhouse gas emissions by putting a price on carbon through an emissions trading scheme or a carbon tax. The environment can be protected in other ways, as well, such as through payments for environmental services. Regardless of how it is achieved, it is crucial for countries to act on climate change and transform high-carbon economies into a low-carbon, livable future.
© World Bank.