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Sunday, August 16, 2015

The Current Cost of Carbon

In April of 2015 at a forum on the British Columbia carbon tax at MIT, I heard Merran Smith of Clean Energy Canada ( say if you add up the GDP of all the individual countries which have some kind of price on carbon, either an emission trading scheme (ETS) or a direct tax, it adds up to 42% of global GDP now and, by the end of 2016 when another five provinces in China come on board, it will be over 50%. (You can hear and see Merran Smith say this at 28:20 into this video of the MIT event at ).

Having heard expert after expert say, "We need a price on carbon" in order to address climate change, this struck me.  Was Merran Smith correct?  Have we already begun to put a price on carbon?  Looking a little further, I found a variety of carbon pricing structures - carbon taxes, emissions trading schemes, and even internal prices on carbon from individual businesses.

The World Bank 2015 carbon report advance brief ( puts it a little differently than Clean Energy Canada:
"In 2015, about 40 national and over 20 subnational jurisdictions, representing almost a quarter of global greenhouse gas emissions (GHG), are putting a price on carbon...

"The total value of the emissions trading schemes (ETSs) reported in the State and Trends of Carbon Pricing 2014 report was about US$30 billion (US$32 billion to be precise). Despite the repeal of Australia’s Carbon Pricing Mechanism in July 2014, and mainly due to the launch of the Korean ETS and the expansion of GHG emissions coverage in the California and Quebec ETSs, the value of global ETSs as of April 1, 2015 increased slightly to about US$34 billion. In addition, carbon taxes around the world, valued for the first time in this report, are about US$14 billion. Combined, the value of the carbon pricing mechanisms globally in 2015 is estimated to be just under US$50 billion...

"In addition, the adoption of an internal carbon price in business strategies is spreading, even in regions where carbon pricing has not been legislated. Currently, at least 150 companies are using an internal price on carbon. These companies represent diverse sectors, including consumer goods, energy, finance, industry, manufacturing, and utilities."

However, the International Energy Agency's 2015 Special Report on Energy and Climate Change ( concludes that

"Carbon markets covered 11% of global energy-related emissions in 2014 and the average price was $7 per tonne of CO2. In contrast, 13% of CO2 emissions were linked to fossil-fuel use supported by consumption subsidies, equivalent to an implicit subsidy of $115 per tonne of CO2."

If I understand that correctly, it means we have a global average price of $7 per tonne on CO2 with an implicit subsidy of $115 per tonne for fossil fuels at the present moment.  Not that we can't change those figures over time.

The social cost of carbon the EPA now uses is about $40.  The cost of carbon project of EDF ( reports that

"The current social cost of carbon pollution estimates for a unit of emissions in 2015 are $57, $37, and $11 using discount rates of 2.5 percent, 3 percent, and 5 percent, respectively. The fourth social cost of carbon pollution estimate of $109 uses a 3 percent discount rate and describes the 95th-percentile value for the social cost figure, in an attempt to capture the damages associated with extreme climatic outcomes. The estimate of $37, which uses a 3 percent discount rate, is considered the “central” estimate for a unit of emissions in 2015.  That $37 value is denoted in 2007 USD and equals around $40 in today’s dollars."

Here are the current prices on some of the various ETS around the world:
Averaging around €7.30
"Respondents anticipate an average EU carbon price of 10.79 euros ($11.76) per metric ton (1.1023 tons) in the third phase of the Emissions Trading System (ETS), which runs from 2013 to 2020."
EU ETS data for 2014 1,584 million tCO2 in 2014, down 4.4% from previous year, with list of 15 largest CO2 emitters

RGGI (Regional Greenhouse Gas Initiative) -
June 5, 2015, Auction 28, Clearing Price $5.50
Quantity Sold: 15,507,571

California -
$12.65 as of June 11

China - Carbon Pulse:
as of 8/15:  41.88 - 14.90 RMB (or $6.55 - $2.33)

The British Columbia revenue neutral carbon tax started in 2008 with individually set taxes on gasoline, diesel, jet fuel, natural gas, propane, and coal (low heat value and high heat value).  By January 2013, the carbon tax contributed about $1 billion each year which was used to lower other income and other taxes in British Columbia.  BC now has Canada's lowest income tax rate.

Finland was the first country to enact a carbon tax in 1990.  Originally based only on carbon content, it has become a combination carbon/energy tax, currently €18.05 per tonne of CO2 (€66.2 per tonne of carbon) or $24.39 per tonne of CO2 ($89.39 per tonne of carbon) in U.S. dollars (using the August 17, 2007 exchange rate of USD 1.00= Euro 0.7405). 

Sweden began their carbon emissions tax in 1991. The tax is now $150/T CO2, with fuels used for electricity generation exempted, and industries are required to pay only 50% of the tax.

In October 2014, Chile enacted the first climate pollution tax in South America at $5 per metric ton of CO2 which begins in 2018 and applies to only 55% of emissions. 

Nearly 500 companies globally report that they are already regulated through global carbon markets.  96 (nearly 20%) of these are U.S. companies. Of these, 69 are participating in the EU ETS.

In addition, more and more private companies are adopting an internal carbon price, even in countries and regions where carbon pricing has not yet been legislated. Today, at least 150 companies are using an internal price on carbon ranging from $6 to $80 per ton with one outlier at $324. These companies represent diverse sectors, including consumer goods, energy, finance, industry, manufacturing, and utilities according to the Global Price on Carbon Report 2014 [pdf alert]
from CDP, "an international not-for- profit organization providing the only global system for companies and cities to measure, disclose, manage and share vital environmental information."

If you want more, try Putting a Price on Carbon (World Resources Institute)