Unprecedented. The word has become overused when talking about climate. Unprecedented heatwaves, droughts, windspeeds and storm forces, and now it can describe political action. With 195 signatures on the Paris Climate Agreement, and only 191 undisputed sovereign states in the world, this is an unprecedented declaration of political intent. To tackle a global problem, we must speak in the global language – money. If carbon has a price, change will happen quickly; but how will signatories achieve this?
Taxing greenhouse gas (GHG) emissions is the quickest and easiest carbon pricing mechanism to enact, although setting the price is a delicate balance. Setting it too high risks carbon leakage, too low and no change occurs. Although often effective, tax is an unpalatable concept for business. The United Kingdom has had a non-domestic carbon tax since 2001. While some argue it reduces competitiveness, it has arguably been a success.
Elsewhere carbon taxes have not fared so well. In 2012 Australia launched a tax of A$ 23 per tonne of CO2 equivalent (tCO2e), which in two years, reportedly reduced emissions by nearly 17 million tCO2e. However, it was widely slated as economically damaging and it became a platform the government opposition party used for its “axe the tax” campaign. In 2014 the newly elected Australian Government became the first in the world to repeal a carbon tax. The eyes of the climate community are now on the newly implemented South African carbon tax, which though anticipated, has been widely opposed by large industries.
The Paris Agreement alludes to an alternative solution. The agreement set a limit of 2°C global warming, a value easily translatable into a cap on global carbon emissions. The agreement contains the option for signatories to use “internationally transferred mitigation outcomes”, essentially allowing nations that don’t emit much carbon to sell that capacity to those already emitting more. If everyone can agree that one allowance equals one tCO2e, the stage is set for emissions trading schemes (ETS). Although governments won’t receive tax income, ETS give carbon a value and a market and encourage emitters to conserve or reduce its loss; like cash. To date 21 ETS are in operation globally, with five waiting in the wings and another nine under consideration.
Although mining has largely fallen under the inclusion thresholds of ETSs, in 2018 Kazakhstan launched their rejuvenated ETS, including mining operations that emit more than 20,000 tCO2e annually. With schemes considered in mining jurisdictions, Canada, Brazil, Turkey and Australia, governments pricing carbon may well be inevitable. With recently acquired skills in carbon accounting, trading and compliance in the EU’s most established international ETS in the world, SRK UK is well prepared for the day these requirements reach our clients.
