Paris, We Have a Problem: World’s Largest Economies Not Getting Policy Mix Right to Avoid Worst of Climate Change, IHS Markit Says
Carbon-pricing mechanisms, including carbon taxes and emission
trading systems, are falling well short of levels needed to achieve
low-emission targets
Despite potentially game-changing shifts in energy use and supply
patterns during the coming decades, the world may not be able to reach a
sufficiently low emissions pathway by 2050 to avoid the worst of climate
change because the incentives provided by policies in leading economies
are insufficient, according to new climate and carbon analysis from
business information provider IHS
Markit (Nasdaq: INFO).
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Carbon prices in the G20 (through September 2018). Source: IHS Markit
“The world’s largest economies have made market-based
mechanisms—including carbon pricing, subsidy management, and fiscal
incentives—a central feature of their climate-change mitigation
strategies. However, our research indicates that the current
implementation of these mechanisms is unlikely to result in sufficient
emission reductions to realize the Paris Agreement* objectives,” said
Anna Mosby, senior climate and carbon analyst at IHS Markit, and lead
author of the IHS
Markit Climate and Carbon Insight, entitled: G20 Price Signals
Insufficient to Reach Paris Agreement Goals. “Carbon-pricing
mechanisms, including carbon taxes and emission-trading systems, are
falling well short of the levels needed to achieve low-emission targets.”
It has been suggested that the global economy-wide carbon price needed
to achieve emission-reduction targets consistent with the Paris
Agreement is between U.S. $40 per metric ton and U.S. $80 per metric ton
of carbon dioxide (CO2) by 2020. However, by contrast, the
average carbon price across the Group of 20 (G20)** largest economies
today is U.S. $16 per metric ton of CO2, IHS Markit said.
“By these estimates, the average G20 carbon price will essentially need
to triple to get the reductions within the acceptable range,” Mosby
said. “Based on our IHS Markit survey of the G20 members, it appears the
world’s largest economies, with the sole exception of Russia, are
increasingly incorporating market-based mechanisms in their
climate-change mitigation policies, but countries are clearly still
searching for the right mix of tools to meet the agreed greenhouse-gas
(GHG) emission targets. We just don’t see that happening at a pace that
will bring the desired results by 2020, in part because there are some
price barriers that exist in the form of fossil-fuel subsidies, which
act as negative-emission price signals,” Mosby said.
Public-sector support to lower fossil-fuel cost profiles can counteract
market-based mitigation mechanisms, Mosby said. “G20 governments have
been slow to make the changes to existing fossil-fuel subsidy regimes
during the past decade. However, just removing fossil-fuel subsidies
would be insufficient to reach GHG emissions targets,” Mosby said.
Subsidies for low-carbon technologies can complement other market-based
mechanisms for mitigation, IHS Markit said. Changes to tax rates,
deductions, or exemptions reduce the cost of low-carbon alternative
technologies. These incentives can help support the price signal from
existing policies, but without additional mitigation policies in place,
fiscal incentives cannot close the gap between the other market-based
mechanisms, like carbon prices and target levels, IHS Markit said.
The approach of G20 governments toward carbon pricing has varied to
date, and it is notable that the implementation of a carbon-pricing
mechanism is not correlated with economic activity such as GDP or gross
national income per capita, IHS Markit said.
“On the contrary, the popularity of such market-based mechanisms among
G20 countries seems to be more related to fossil-fuel production,” said
Steven Knell Ph.D., director, climate and carbon research at IHS Markit,
and an author of the IHS Markit study. “Countries where the most
emission-intensive fossil fuels, specifically coal and oil, make up a
higher percentage of domestic energy production do not typically have
carbon-pricing mechanisms in place. While Canada is a notable exception,
the likes of Brazil, India, Indonesia, Russia, Saudi Arabia, and the
United States do not have emission-trading systems or carbon taxes and
have not announced an intention to implement these mechanisms,” Knell
said.
The IHS Markit report follows the annual update of the business
information provider’s long-term (to 2050) scenario views of energy
markets and associated greenhouse-gas emissions (GHGs). The three
scenarios – “Rivalry” (which presents the IHS Markit “base-case”),
“Autonomy” (which models a revolutionary change in energy demand and
supply patterns), and “Vertigo” (which models perennial uncertainty and
geopolitical/economic upheaval) – are each based on a plausible and
integrated narrative or storyline, including the future use of
market-based mechanisms for climate-change mitigation. These storyline
scenarios envision a different set of challenges and opportunities
regarding the future paths of geopolitics, global economic growth,
government policy and consumer behavior and the impact these will have
on the role of oil, gas, coal, wind, solar and other primary fuels in
the future energy mix at a regional, country and sector level.
Carbon prices figure in these scenarios, but IHS Markit expects it will
be closer to 2030 before carbon price signals approach the levels
associated with the Paris Agreement pathway. “Clearly, across all
scenarios we modeled, there is much work to be done by the G20 to get
close to the emissions targets set in Paris,” Knell said.
To speak with Anna Mosby or Steven Knell, contact Melissa Manning at melissa.manning@ihsmarkit.com.
For more information on the IHS Markit analysis, IHS
Markit Climate and Carbon Insight, entitled: G20 Price Signals
Insufficient to Reach Paris Agreement Goals, contact sandra.ortega@ihsmarkit.com.
*Paris Climate Agreement entered into force in October 2016, and was
adopted by 197 parties, including all members of the G20.
**G20: Group of 20 countries include Argentina, Australia, Brazil,
Canada, China, the E.U., France, Germany, India, Indonesia, Italy,
Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey,
the U.K. and the U.S.
About IHS Markit (www.ihsmarkit.com)
IHS Markit (Nasdaq: INFO) is a world leader in critical information,
analytics and solutions for the major industries and markets that drive
economies worldwide. The company delivers next-generation information,
analytics and solutions to customers in business, finance and
government, improving their operational efficiency and providing deep
insights that lead to well-informed, confident decisions. IHS Markit has
more than 50,000 business and government customers, including 80 percent
of the Fortune Global 500 and the world’s leading financial
institutions. Headquartered in London, IHS Markit is committed to
sustainable, profitable growth.
IHS Markit is a registered trademark of IHS Markit Ltd. and/or its
affiliates. All other company and product names may be trademarks of
their respective owners © 2018 IHS Markit Ltd. All rights reserved.
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