Now that Germany has adopted a carbon-pricing program, it could create a ripple effect among other developing countries. But the key to such a strategy is to set a price that is high enough to motivate companies to pursue cleaner alternatives.
The central premise behind penalizing carbon releases is to get utilities and other industry to invest in greener energies and modern methods. Two general paths are typically pursued, although each one can vary — as they have among those countries and jurisdictions trying or considering them: the first is a straight up tax on CO2 releases while the second is a free market trading program.
Doing either one must balance the political, economic and environmental objectives. But nations are under pressure to achieve their Paris climate targets and as a result, they are getting more aggressive. As for Germany, it has always been an environmental trend-setter, choosing now to rid itself of all coal-fired power by 2038 while increasing its renewable energy goals to 65% by 2030.
“The climate package is at best an indication of a change of direction, but this has not yet taken place,” says Ottmar Edenhofer, director of the Potsdam Institute for Climate Impact Research, which along with the Mercator Research Institute on Global Commons and Climate Change, is advising the German government. “Now it comes to the task of making adjustments during the next steps, developing carbon pricing as the core instrument of climate policy and raising the price to an appropriate level.”
Germany’s efforts are likely to fall short of its stated goal, he adds: carbon cuts of 55% by 2030 from 1990 levels; at the current rate, they will reduce those releases by 30%. The introductory price is set at 10 euros, or $11, a ton. That rate will gradually increase and hit 35 euros or $39 in 2025. Experts say that such prices need to reach at least $40 a ton.
Germany is responsible for 2% of the globe’s CO2 emissions. Besides shifting its electric generation portfolio, the government aims to put as many as 10 million electric cars on the road while also installing 1 million charging stations.
Australia, Canada and Great Britain are either considering or enacting pricing programs. And Austria might be forced to make a move. In all cases, it’s a question of how to structure their plans and how to ensure stable energy prices. The goal is to inspire investment in clean technologies.
“If you take the issue of climate change and its consequences seriously, we will not be able to get around CO2 pricing,” Verbund Chief Executive Wolfgang Anzengruber said in an interview with Reuters. “Germany has made an important step here, and other countries will not be able to avoid it.”
Verbund is Austria’s largest electricity group, says Reuters. It has 128 hydropower plants. It plans on building the country’s biggest solar plant while also starting an electrolytic hydrogen production business.
Carbon pricing often centers on a carbon tax or a cap-and-trade scheme, where carbon ceilings are set. If utilities can meet them, they must buy credits that allow them to exceed those limits. Advocates say that this is a free-market approach. Critics, though, say that CO2 is a global phenomenon and action by one state or one region will have little affect.
Under a carbon tax, government would tax utilities according to their carbon footprints that can be readily measured. NextEra Energy says that it is a fairer way to compute results and that it is easier to administer than a cap-and-trade system. The proceeds from the carbon fee would help fund the development of new technologies. In other cases, the monies are re-allocated to lower income residents to help them pay their electricity bills.
Here in this country, the Republican-led Climate Leadership Council wants a $40 a ton price set on CO2. It says that such a price would generate $194 billion in year one and $250 billion 10 years later.
Canada now has a carbon tax set at $15 a ton. But that figure is set to climb to $38 a ton by 2022. The individual provinces will have flexibility. In British Columbia, for example, government has gradually increased the tax and then redistributed the proceeds to individuals to offset their electricity bills. Canada’s goal is to cut CO2 by 30% by 2030 from a 2005 baseline.
And Great Britain could enact a carbon tax in November if it leaves the European Union and would no longer be obligated to participate in the continent’s cap-and-trade program. The price would be 16 pounds or $25 a ton. And, finally, Australia had a cap-and-trade program in 2012 when the Labor Government controlled the levers of power — one that set a price of $23 a ton. But that program got nixed as soon as the conservatives came to power in 2014.
“So our federal government is in the dark ages because it thinks that coal is wonderful,” says Rohan Gillespie, founder of Southern Green Gas in Australia, at the Enapter conference in Bangkok last week. “But the state governments — South Australia and Tasmania — are quite environmental: there has been a price on carbon for the last 15 years. So, in fact solar and wind are the cheapest forms of generation in Australia and that’s what finding business support.”
A movement is now afoot among some developed countries to price carbon, with the Paris climate agreement serving as the catalyst. Such efforts have never been easy, given that they upset national energy paradigms. But if Germany’s initiative achieves meaningful carbon reductions, it could trigger similar actions not just in Europe but also around the world.