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What price carbon emissions?

Excess

Photo credit Pinot & Dita

One of the reasons we are facing a climate crisis is because people have not been paying the full economic price for their carbon consumption. Had they been, we’d be living in a very different world today. A quick comparison of average car fuel efficiency in the US versus the EU (where fuel has typically been priced at 2-3x the US price) bears this out.

When people have to pay a higher price for their emissions, they are less likely to pollute (if only to save themselves money!).

This brings us onto the trickier question though of what is a realistic price for carbon. The recent price of carbon emissions in the EU Emissions Trading System (ETS) has varied from €30 to €10 while today as I write this, it has a spot settlement price of €15.31. That may be current, but is it realistic?

What is a realistic price for carbon emissions?

Well, the reason we are charging for carbon emissions in the first place is to counter the damage being done to the environment by those very emissions – the polluter pays principle. In other words, the price to emit one tonne of CO2 into the atmosphere should be equal to the price of extracting one tonne of CO2 from the upper atmosphere.

And how much is that?

I have no idea to be honest! I have asked several people in this space and no-one has been able to tell me – principally because the technologies to extract CO2 from the upper atmosphere don’t yet exist! You can be sure that it is significantly more than €30 per tonne though.

As global CO2 emissions continue to rise and the effects of climate change become even more pronounced, the price being charged for CO2 emissions globally will need to trend closer to the price of extraction and away from the current €15.

If nothing else, this will encourage us to move to a less carbon intensive lifestyle – manufacturers of carbon intensive products beware!

Comments

  1. says

    Hang on Tom – this argument is nonsensical. You say: “…the price to emit one tonne of CO2 into the atmosphere should be equal to the price of extracting one tonne of CO2 from the upper atmosphere.

    And how much is that?

    I have no idea to be honest!”

    …and according to you no-one knows because the tech to extract doesn’t exist? If that’s the case then the whole premise for what you’re suggesting is meaningless.

    You also say: “You can be sure that it is significantly more than €30 per tonne though.” – How can ‘you’ be sure if the tech doesn’t exist? That’s fanciful at best.

  2. says

    I disagree that the premise is meaningless Dennis (obviously, or I wouldn’t have written it) – the premise is that the cost to pollute should equal the cost of cleanup. It is a well known and much utilised principle. Follow the link above for more.

    Just because the exact price isn’t known, that doesn’t make the premise any less meaningful. People’s estimates for this vary but typically start at the €150 per tonne extracted and go upwards from there.

    As for being fanciful, to suggest that a technology might come along capable of extracting CO2 from the upper atmosphere for less than €30 per tonne is far more fanciful, frankly! But hey, I’d be the first one whooping for joy if it did happen!

  3. says

    I don’t disagree with the premise but I do think it is hugely complex to try and significantly increase fuel costs on a world built around cars and roads and trucks and airplanes etc. A significant increase wouldn’t mean we just suck it up and use one car and buddy-up to get to work. It means not being able to afford the food in your local supermarket. Emergency services would be crippled (ambulances, fire trucks, medical supply shipments etc.) Electricity would go up (coal to power plants.) Waste removal services wouldn’t be affordable even with the current subsidies. Pretty much every part of our modern lives would be hit and hit hard.

    We’ve gone a long way down a carbon rabbit hole and we have to back up carefully. Many things need to change along with cost incentives to change.