Germany to push for carbon price at G20
20 March 2017 | Markets
Germany will use its G20 Presidency to nudge world leaders towards a global price on carbon, according to its director general of energy policy.
Thorsten Herdan told BBC News that the world can’t stabilise CO2 emissions without making polluters pay.
Mr Herdan, of the Federal Ministry for Economic Affairs and Energy, said if renewables got cheaper still, the market would respond by dropping the coal price more.
Some of President Trump’s advisers have argued that any carbon price should be fixed at zero to reflect the benefits of fossil fuels.
But German Chancellor Angela Merkel is expected to try to persuade President Trump that the world is moving towards clean energy.
Mr Herdan said that the German government was preparing research that would reveal that business is showing huge support for a transition towards a low carbon economy.
It will be presented at the G20 in Hamburg in July, when climate change and sustainable development will be among a handful of major themes.
The G20 is the central forum for international cooperation on economic issues. Its member countries account for three-quarters of global trade, and house almost two-thirds of the world’s population.
The agenda appears to offer a direct challenge to President Trump’s 'America First' credo. The symbol of the meeting is a reef knot, to emphasise the interconnectedness of peoples.
The text says: “The digital age and the globalised world are marked by increasing diversity and complexity.
"The world is a world of ever-closer connection. It is a challenge for policy makers, but it also expands their possibilities for action.”
The agenda re-affirms the commitment made by all G20 members in Paris in 2015 to keep global warming significantly below 2°C and to pursue the UN’s global goals for sustainable development.
Mr Herdan said a carbon price was essential for both goals. He said he believed it could be achieved – even with a climate sceptic in the White House.
Global investment patterns were key, he said: “The chance of getting a carbon price is as realistic as it was before the 2015 Paris climate summit to think we could agree on the Paris deal.
“I don’t think President Trump will add too much to that (equation) because so many investors out there recognise that investment in energy transition technologies will pay off much faster, with a much better return than other investments.
"Other (fossil fuel) investments may become stranded assets anyway.”
He continued: “If the demand for fossil fuels goes down, then the price of fossil fuels goes down, and then you need to install a system that prevents economies worldwide riding on the cheap price wave. If you can’t achieve that, there’s really a problem.
“We need to find a mechanism for a carbon price. Then it’ll be debated in the G20 and we will have an energy and climate action plan as a result of the G20 presidency.”
The US Congress has resisted a federal carbon tax until now. A small group of veteran Republicans recently pressed the idea with White House officials, but it received a hostile response from many Congressmen.
The group is the newly formed Climate Leadership Council - headed by former Secretary of State James Baker. It proposes to scrap most of President Obama’s climate policies in exchange for a rising carbon tax starting at $40 per ton.
Revenue raised from the tax would be shared out between every American in the form of a quarterly Social Security cheque. Mr Baker sees it as a sort of insurance policy against climate change. As a tax-neutral measure, it fits Republican philosophy. President Trump has not yet indicated his opinion.
Certainly pressure on the US will increase later this year when China begins its national carbon pricing scheme, joining the EU, Canada, Mexico, South Korea, California, the North-East states of the US, Washington State and Oregon in putting a price on carbon.
The situation is being monitored by Jeff Swartz from the International Emissions Trading Association, IETA – a group of industries with global assets pressing for carbon trading as a climate solution.
He told BBC News that China's move would bring 25% of global CO2 emissions into a pricing scheme.
“I don't want to speculate on the US position," he said. "But I think its inevitable that more and more parts of the global economy are subject to a carbon price - we’ve seen a tremendously-fast rise recently.
“When China moves this year it will be a very, very big development and have a huge influence on countries it trades with. For that reason we’re very optimistic – China takes climate change and carbon pricing very seriously.
"We are moving into a direction in which more and more countries are putting a price on carbon.
“Our firms really want to see global co-operation on this so there’s a level playing field.”
The participation of China in the carbon pricing club helps to neuter a long-standing complaint from the US Congress that lower Chinese environmental standards gave them an unfair trade advantage. This accusation may in future be reversed.
Among the G20, though, other major players like Japan have not yet adopted carbon pricing. Australia embraced it, only to drop it again after an onslaught from fossil fuel companies.
But not all fossil fuel firms think the same. Last year the chief executives of six large European oil companies, including BP and Shell, called for “widespread carbon pricing in all countries”.
Close to zero?
Of course, even if a carbon tax is agreed more widely, the price itself will be key – and that is likely to be influenced by a measure known as the social cost of carbon, which measures the negative impacts burning fossil fuels has on the economy.
This is already used in US federal law-making, but Thomas Pyle, who led the Trump transition team for the Department of Energy, predicted that it would be abandoned under President Trump because of the benefits fossil fuels bring to the economy.
An economist from Mr Pyle's energy institute testified in 2013 that the social cost of carbon "would probably be close to zero, or possibly even negative".
Some environmentalists see the carbon price debate as a trap, anyway. Tom Burke from the green think tank e3g told BBC News: “The problem with a carbon tax in the USA is that you can’t talk about a new tax without it getting shot down immediately.
“What’s more, a carbon price will only properly work if it’s global – and how tough do you think it will be to harmonise taxes globally?”
The German government insists the carbon tax is just one of many measures to achieve climate goals.
Source: BBC News