New report on building an international carbon pricing coalition
There's a new report out led by academics at Harvard and MIT on building an international climate coalition that aligns carbon pricing, trade, and development. One concern is that when the EU implements its carbon border adjustment mechanism (CBAM) starting in January, it will unfairly penalize industrial activity in some developing countries with low per-person climate pollution by applying the EU's carbon price equally to all imports. The Center for Global Development also had a webinar on the subject today that you can watch here, including panelists from the US, Brazil, UK, and Canada:
The report suggests that governments led by the finance and trade ministries in potential coalition countries could create a climate coalition to address concerns related to the EU's CBAM implementation and encourage expanded carbon pricing in those countries.
One possibility would be for the coalition to agree to a graduated carbon pricing system. For example, a $25/ton carbon fee in lower-middle-income and low-income countries could be considered equal to a $50/ton price in upper-middle income countries and a $75/ton price in high-income countries. Alternatively, a uniform price like $50/ton could be applied:
The Harvard/MIT paper found that applying either a uniform or graduated carbon pricing approach would yield ~7x more emissions reductions in countries participating in the coalition than in the current policy scenario:
They also found that such a system would generate substantial revenues for countries participating in the coalition and applying domestic carbon prices:
For a number of countries this revenue could boost national GDP by a fairly significant amount, in the 0.5–3% range:
But perhaps more importantly, this approach would prevent significant economic output declines in participating countries, especially in lower-middle-income and low-income countries if a graduated price were implemented:
The report suggests that such a system could begin by only covering four industries that account for more than 20% of global carbon emissions: steel, aluminum, cement, and fertilizers.
And it notes that over 80% of emissions from these industries are already covered by some level of carbon price, although in most cases it's currently a very low carbon price.
It's an interesting paper and good to see discussions among folks from different countries about how to practically implement carbon pricing coalitions that will yield benefits for all participants 🤓
Carbon Border Adjustment Mechanisms can be adjusted to zero for any country that adopts its own Carbon Cash Back Fee and Dividend system and should be agnostic in nature regardless of the GDP Per Capita of the developing country as exporter.
Unless their main export is oil.
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