Opinion | Global carbon tax
A global carbon tax could be an ethical solution to global climate impacts
Global calls to establish carbon taxes and calculators are growing and for good reason. As countries and clients focus on climate impact and decarbonisation, they need to know that the tools and practices they use are working.
IOLI KYNIGOU
Take carbon taxes. The International Monetary Fund (IMF) recently warned that governments face up to 50% rises in public debt if net zero investments are not backed by a carbon tax. But how effective are carbon taxes at present?
According to the IMF, nearly 50 countries have carbon pricing schemes. Some have also applied energy taxes, though these can also affect renewable energy.
Then we see taxes on vehicle sales, clean air zone charges, tolls and traffic congestion charges that serve as other forms of carbon taxation, although some governments still subsidise the production and consumption of hydrocarbons.
Against that backdrop, the efficacy of any energy related pricing mechanism in decarbonising economies needs investigating.
In the UK, for example, a carbon tax is paid by vehicle owners depending on their engine size or type. This does not factor in distance travelled and thus carbon used. That may matter because owners of older, less energy-efficient cars may be less likely to travel longer distances than owners of newer cars.
The Africa Climate Summit in September 2023 was also in favour of a global carbon taxation regime, but global regimes are complicated.
There is no global carbon calculator, so individual organisations refer to the high-level information provided by the Greenhouse Gas Protocol.
Similarly, the BSI’s PAS2080 carbon measurement information is not yet at the level of carbon calculator, although it serves as a standard for certification and as guidance for managing carbon in buildings and infrastructure.
“Developing countries are the worst hit by climate change having contributed least to itA global framework would therefore require all governments to agree how emissions and their reduction will be calculated and verified and what data sources should be used. That would be hard to achieve.
Other non-carbon tax incentives do exist. If a firm deploying direct-air capture uses this technology to exceed this reduction target as part of its corporate social responsibility policy, this may be done at the expense of profitability – in which case less corporation tax is paid. But paying less carbon tax if carbon taxes are well formed, should incentivise the introduction of carbon reduction technology and reward early adopters.
Subsequently, the success of any carbon pricing mechanism will depend on the following characteristics:
- Fairness: Taxes are raised and administered by governments. Investment decisions undergo a political procedure in a transparent manner
- Simplicity: Cashflow is easily understood and directly links to the carbon impact
- Flexibility: Agility to adapt to changes and unexpected climate-related shocks
- Efficacy: Potential to achieve net zero by 2050 as per the 2015 Paris Agreement.
That matters internationally as well as nationally. We must not forget that developing countries are the worst hit by climate change, having contributed least to it.
The United Nations Sustainable Development Goal number 13 aims to mobilise US$100bn [£80.5bn] annually to address the needs of developing countries to adapt to climate change and invest in low carbon development.
Carbon taxes might not raise that alone, but I would like to believe that they can help to repay the historic carbon debt of richer countries towards the poorest.
- Ioli Kynigou is a senior manager at Systra and member of the ICE’s ethics committee