Rhein on Energy and Climate

Climate change keeps accelerating at an alarming rate. The 2013 global weather conditions demonstrate it once again, with summer temperatures in northern Alaska , floods in central Europe and India, algae pollution at Chinese beaches, forest fires in California etc.

Humanity must put an end to climate change if it wants to survive in the long term. To do so it has no choice but to phase out burning fossil energies; and this should happen over the next 50 years.

The efforts undertaken by EU, China, USA go into the right direction; but globally they remain ineffective. As long as the prices for coal, oil and even gas do not nearly reflect their external costs on health, environment and climate consumers lack the incentives to invest in energy efficiency and switch to renewable energies.

The IMF has recently put a $ two trillion price tag for all fossil energy burntannually by Humanity, the equivalent of roughly $ 30/ton of C02.

It is therefore indispensable to include the external costs into the fossil energy prices.

This can ideally be done by an agreement among the 20-odd major fossil energy producer countries to impose excise taxes on their coal, oil and gas production. The tax level should reflect the relative C02 content, with coal to be subject to the highest and gas the lowest tax.

An excise tax on fossil energy at the source has two major advantages:

  • It can be introduced progressively. The impact of, say, an initial tax of $ 3.-/ton C02 would hardly be felt. But investors will start turning away from fossil energies if they are sure that the tax will rise to some $ 30 in the next two decades.
  • It provides governments with extra fiscal revenues. This will allow them to accumulate wealth funds and invest in alternative sectors to make up for the long-term of decline of fossil energy.

The USA as the world’s biggest producer of fossil energy needs to take the initiative and convince China, Russia, Saudi Arabia and some 15 other major producers to join it in this approach to climate change.

The resistance in the USA will be strong. The coal, oil and gas industries will not like the idea; Congress will therefore be loath to approve a tax. The President will only succeed if he convinces other major producers to go along.

The IEA, which has become a powerful advocate for reducing global C02 emissions, should campaign to convince political leaders across the world of the utility of such a tax.

The EU should also lend its support, as it would help establishing an international carbon price. It will take off the pressure from emission caps and costly subsidies for solar and wind energies and help balance the extremely low fossil energy costs of its major competitors.

If this approach fails due to US opposition, the second best way to reduce C02 emissions will be through mandatory carbon capture and storage installations in all new power plants across the world. It will only impact on power generation and require rapid increase of R&D on CCS technology.

The forthcoming international climate conference in Warsaw at the end of the year offers an opportunity for discussing unconventional ideas for tackling climate change. But will the heavy UN machinery have the flexibility to do so? Past experience should make us pessimistic.

Eberhard Rhein, Brussels


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