NEW YORK – Of all major world regions, Europe has worked the hardest
to implement policies aimed at countering human-caused climate change.
Yet the cornerstone of Europe’s approach – a continent-wide
emissions trading system for the greenhouse gases that cause climate
change – is in trouble. That experience suggests a better strategy
for both Europe and the rest of the world.
The basic story of human-caused climate change is becoming clearer to
the global public. Several gases, including carbon dioxide, methane,
and nitrous oxide, warm the planet as their concentrations in the atmosphere
increase. As the world economy grows, so do emissions of these gases,
accelerating the pace of human-caused climate change.
The main greenhouse gas is carbon dioxide. Most CO2 emissions result
from the burning of fossil fuels – coal, oil, and natural gas – for
energy, global consumption of which is rising as the world economy grows.
As a result, we are on a path to very dangerous levels of CO2 in the
Twenty years ago, the world agreed to reduce sharply emissions of CO2
and other greenhouse gases, but little progress has been made. Instead,
the rapid growth of the emerging economies, especially coal-burning China,
has caused global CO2 emissions to soar.
Dangerous changes in climate have already begun. If the world continues
on its current trajectory, global temperatures will eventually rise by
several degrees centigrade, causing higher sea levels, mega-storms, severe
heat waves, massive crop failures, extreme droughts, heavy flooding,
and a sharp loss of biodiversity.
Yet changing the world’s energy system is a daunting challenge,
because fossil fuels are so deeply embedded in the workings of the global
economy. Oil provides the main fuel for transportation worldwide. Coal
and gas are burned in huge and growing amounts to produce electricity
and to provide energy for industry. How, then, can we sustain worldwide
economic progress while cutting back sharply on carbon emissions?
There are essentially two solutions, but neither has been deployed on
a large scale. The first is to shift massively from fossil fuels to renewable
energy sources, especially wind power and solar power. Some countries
will also continue to use nuclear power. (Hydroelectric power generation
emits no CO2, but there are only a few remaining places in the world
where it can be expanded without major environmental or social costs.)
The second solution is to capture CO2 emissions for storage underground.
But this technology, called carbon capture and sequestration (CCS), is
not yet proven on a large scale. One approach is to capture the CO2 at
the power plant as the coal or gas is burned. Another is to capture it
directly from the air using specially designed chemical processes. Either
way, CCS will require significant investment in further research and
development before it becomes a viable technology.
The big problem is time. If we had a century to change the world’s
energy system, we could feel reasonably secure. Yet we must complete
most of the transformation to low-carbon energy by mid-century. This
is extraordinarily difficult given the long transition period needed
to overhaul the world’s energy infrastructure, including not only
power plants, transmission lines, and transport systems, but also homes
and commercial buildings.
Few economic regions have made much progress in this transformation.
In fact, the United States is now investing heavily in natural gas without
recognizing or caring that its shale-gas boom, based on new hydraulic-fracturing
technology, is likely to make matters worse.
Even if the US economy shifts from coal to natural gas, America’s
coal will probably be exported for use elsewhere in the world. In any
event, natural gas, though somewhat less carbon-intensive than coal,
is a fossil fuel; burning it will cause unacceptable climate damage.
Only Europe has tried to make a serious shift away from carbon emissions,
creating a system that requires each industrial emitter to obtain a
permit for each ton of CO2 emissions. Because these permits trade at
price, companies have an incentive to reduce their emissions, thereby
requiring them to buy fewer permits or enabling them to sell excess
permits for a profit.
The problem is that the permits’ market price has plummeted in
the midst of Europe’s economic slowdown. Permits that used to sell
for more than $30 per ton before the crisis now trade for under $10.
At this low price, companies have little incentive to cut back on their
CO2 emissions – and little faith that a market-based incentive
will return. As a result, much of European industry continues on a
business-as-usual energy path, even as Europe tries to lead the world
in this transformation.
But there is a much better strategy than tradable permits. Each region
of the world should introduce a tax on CO2 emissions that starts low
today and increases gradually and predictably in the future.
Part of the tax revenue should be channeled into subsidies for new
low-carbon energy sources like wind and solar, and to cover the costs
CCS. These subsidies could start fairly high and decline gradually
over time, as the tax on CO2 emissions rises and the costs of new energy
fall with more experience and innovation.
With a long-term and predictable carbon tax and subsidy system, the
world would move systematically toward low-carbon energy, greater energy
and CCS. Time is short. The need for all major world regions to adopt
practical and far-sighted energy policies is more urgent than ever.