Market Failure
Everywhere You Look, Carbon Markets Are a Bust

Pricing carbon is a more difficult task than many green policymakers initially envisioned, it seems. Only 15 percent of global greenhouse gases are covered by carbon markets, but according to a group of leading economists, the more pressing problem has to do with the price of carbon: around the world, costs for emitters are too low to change behavior. Reuters reports:

The cost of emitting carbon dioxide must rise to $50-$100 per tonne by 2030, much higher than the current price in Europe of less than $6, if countries are to meet climate pledges made under the Paris Agreement, economists said on Monday.

It follows a call this month by a group of more than 200 businesses and governments, including oil majors Shell and BP, for a worldwide carbon pricing system to prevent dangerous levels of global warming.

This confirms something we’ve known for a long time: the current patchwork system of regional carbon markets is failing to find that goldilocks carbon price, high enough to incentivize companies to change but not so high that it drives those heavy emitters right out of the region (a process called carbon leakage).

That latter scenario is the biggest fear in any of these regional markets, and as a result policymakers err on the side of caution and set the price of carbon so low as to make the schemes meaningless. In Europe, the price of carbon would need to septuple before it ascended into the range wherein economists believe it might start helping solve the climate problem. In California, carbon market planners can’t get companies to purchase more than the bare minimum of permits offered on auction.

It seems that wherever in the world you look, businesses aren’t buying in to carbon markets—literally.

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