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7 September, 2018

Carbon Pricing Explained

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Despite the frequency with which the concept is discussed, when removed from the political forum general understanding of carbon pricing is relatively low.

 

When it comes to tackling climate change, the topic that gets batted back and forth most across the political divide is ‘carbon pricing’.

 

However, despite the frequency with which the concept is discussed, when removed from the political forum general understanding of carbon pricing is relatively low.

 

Is this a problem?

 

Unfortunately, yes. Climate change affects us all, and with governments having failed for years to sufficiently address it now more than ever it’s our job as a society to step in and push for a solution.

 

So, let’s get down to basics…

 

 

What is a carbon price and why do we need it?

 

A carbon price is a cost assigned to carbon emissions, typically in one of two ways:

 

-      A Carbon Tax – In which an emitter must pay a fee per tonne of carbon emissions they produce.

 

-      A Cap-and-Trade System – Whereby a quota is set at a country or regional level for the total amount of carbon emissions which can be produced. Permits are then allocated or auctioned to emitters, with each permit allowing a set amount of carbon emissions. Any emitter subsequently found to be producing more carbon emissions than their permits budget for will be fined for non-compliance.

 

By attaching a cost to carbon emissions, emitters are incentivised to not only limit their emissions but also work at reducing them.

 

This is crucial, because over 97% of scientific evidence agrees that climate change is a direct result of human induced carbon emissions, and without a carbon price emitters do not have enough of an incentive to limit these emissions (for more of an understanding of why this is the case, please refer to our piece ‘The economic market failure driving climate change’).

 

 

Are there any drawbacks to carbon pricing?

 

Lobbying groups have argued that any form of carbon pricing will discourage investment and economic growth. It has also been suggested that emitters will simply either conceal the true levels of their carbon emissions, or move their business overseas to countries which do not have a carbon price.

 

However, whilst there is an element of truth in this, in actuality many emitters support carbon pricing. In today’s world, with our level of social interconnectivity and the overwhelming agreement surrounding the looming dangers of climate change, the majority of emitters are able to think beyond the short-term benefits and acknowledge the long-term costs of failing to reduce emissions.

 

Unfortunately, regardless of the level of support from both industry and society as a whole, till now any form of carbon pricing still has to be passed through the governmental system. It’s at this point that carbon pricing starts to struggle, with the political debate (influenced by lobbyists and the opportunity for short-term political gains) often descending into fruitless bickering. All too often, in attempting to satisfy all sides of the political spectrum and gain majority approval, any carbon pricing policy ends up watered down to the point that it’s woefully insufficient or simply discarded altogether (for a more in-depth analysis of this, please read our previous piece ‘Political carbon policy - a lost cause that wastes time we don’t have’).

 

 

Is there an alternative?

 

Rather than abandon carbon pricing (which is widely agreed to be the best way to tackle the growing problem of climate change) it’s actually more productive to work out how to bypass the factors that currently hinder it.

 

For instance, as opposed to relying on governments to impose a carbon policy, why not pursue it from another angle?

 

This is where emmi comes in; emmi’s vision is to provide a not-for-profit carbon trading and rating system, which will empower society and allow communities to have a direct say in the fight against climate change. The emmi platform, powered by the blockchain, will allow the carbon price to be set at a social level, and the interconnectivity of the modern world will allow society itself to enforce the limit on carbon emissions. emmi’s foundation on the blockchain will mean that the carbon pricing registry remains accountable, unbiased, and secure.

 

In addition, where governments would distribute carbon pricing revenue away from businesses and into other unrelated areas of the economy, emmi plan to rebate 90% of all emission permit revenue back to emitters for future emission reduction projects. This means that not only are emitters incentivised to limit their emissions, they’re also aided in reducing them.

 

 

Carbon pricing may not be the most widely understood topic in our society, but it’s one of the most important. Together, we can take over where governments have failed and ensure it’s given the attention it deserves.

 

At the end of the day, it’s our climate and our responsibility.