"The case for carbon pricing".

The main points highlighted in the policy brief “The case for carbon pricing” by Alex Bowen, The Grantham Research Institute in Climate Change and the Environment, London School of Economics, December, 2011.  are given below:

· The UK’s Committee on Climate Change has suggested that a price of £30 per tonne of carbon-dioxide-equivalent in 2020, rising to £70 in 2030, would be consistent with achieving UK Government targets for emissions reductions.

· Changing prices does affect demand for example Agnolucci (2009) investigated energy demand from the British and German industrial sectors and found that a 10% rise in price, other things being equal, leads in the long run to a fall in energy demand of 6.4%.

· There are two main methods of establishing a carbon price:

• Government can levy a tax or duty on carbon content or the carbon dioxide emissions caused by its production and the production of its inputs, direct and indirect.
• Government can establish a quota system in which the aggregate level of emissions covered by the quotas is set equal to the desired level of total emissions and individual quotas are tradable within a cap-and-trade system.

· According to the Pew Center on Climate Change (2008), energy-intensive industries including those for which energy costs are 4% or more of shipped value consume more than half of the energy used in US manufacturing, while generating only 16% of manufacturing production and 20% of manufacturing employment.

· According to the Carbon Trust (2010) six sectors including iron and steel; aluminum; nitrogen fertilizers; cement and lime; basic inorganic chemicals (principally chlorine and alkalis); and pulp and paper accounting for only around 0.5% of GDP have significant concern for competitiveness due to carbon pricing in UK.

· The most extensive carbon pricing scheme is the European Union’s Emissions Trading System (EU ETS), which covers more about 12,000 installations that are responsible for 40% of its total greenhouse gas emissions.

· The Chinese National Development and Reform Commission has informed that trading schemes will begin in the cities of Beijing, Chongqing, Shanghai and Tianjin and the provinces of Hubei and Guangdong before 2013, with a view to introducing a national scheme by 2015.

· The state of California has received the go-ahead for a state-wide cap-and-trade scheme to start in 2013 that is expected to trade about US$10 billion worth of carbon allowances by 2016.

Posted By:

Ramesh Kumar Jalan, Ph.D.

Resource Person & Moderator

Climate Change Community, Solution Exchange,

United Nations Development Programme

New Delhi, India