For a global carbon price

On 14 December 2015, observers will no doubt have their calculators at the ready to add up the contributions of the various parties and assess the conference’s overall ambition. But can the success of the summit be gauged from such figures? The public has grown weary of high-flown declarations without any real impact. It will be important to examine what aspects of the agreement lend credibility to the commitments undertaken.

To curb greenhouse gas emissions the Paris agreement needs to set up an independent measuring and verification system that by deploying the right economic incentives applies to all parties. In this regard, the introduction of an international carbon price remains the key action variable. As it current operates, the global economy attaches no value to the protection of the climate: the amount of public support provided for fossil energy has more impact than the sum total of embryonic carbon pricing devices. Introducing an international carbon price would change the situation: currently the source of problems, the economy would then be in a position to generate solutions.

With the seizing up of the UN negotiation process, the issue of international carbon pricing was pushed to one side. It needs now once again to become central. A carbon bonus-malus device would give real substance to the promise of the 100 billion dollar annual transfer made in Copenhagen. This is a sine qua non for the majority of developing countries to join the climate agreement, and thus break the deadlock in the negotiations. The introduction of a bonus-malus would also be a real test of commitment for the oil-producing countries and for countries such as China and Korea, which must now be numbered among the contributors.

A bonus-malus system would encourage governments to join a universal agreement. In addition, the Paris conference should also give new impetus to carbon markets, which determine the CO2 price for companies and households. The uncoordinated spread of carbon markets around the world cannot provide the requisite signal. A different approach needs to be taken, counteracting this atomisation and its resulting inefficiency. The creation of a transcontinental carbon market would be initially based on a tripartite coalition of China, the United States and Europe, reflecting the new geography of global emissions. The size of such a market would make it attractive to other parties. The main impediment to its launch is political: in taking the transcontinental carbon market road, the three members of the coalition would need to pool their emissions reduction commitments, with a view to substantially reducing costs.

On 14 December 2015, observers will have only very limited indications as to whether the Paris conference has achieved the required breakthroughs. The effectiveness of a climate agreement is judged over time. On the legal front first of all, the Paris Agreement will not come into force until 2020. And the precedent of the Kyoto Protocol is a reminder that some signatories at the start may fail to cross the finishing line. The time for required for its implementation comes next: it will take a good ten years from the agreement coming into force to assess whether emission trajectories have altered as intended. Fast forward, therefore, to December 14, 2030!