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Transforming the global economy to meet global climate goals, to limit global average temperature rise to well below 2.0°C and to pursue efforts to keep it under 1.5°C, has now reached implementation stage for many economies globally. One way forward is setting a price on carbon, whereby the externality costs of carbon are factored into its consumption. A new report highlights some of the effects of such an endeavour on consumer prices.
Late last year the Paris Agreement, hammered out at the end of 2015, was ratified. The agreement lays out a framework for a global move away from polluting and climate changing forms of energy consumption towards sustainability. The agreement, while a key step forward, places considerable onus on countries, business and citizens globally to transform their respective value chains and behaviours in line with the stated target of the agreement - to limit global average temperature rise to well below 2.0°C above pre-industrial levels, and to pursue efforts to keep it under 1.5°C.
One key element cited by more than two thirds of signatories to the Paris Agreement, of which 40 countries, 20 cities and around 1,200 businesses have concrete plans, is to price carbon consumption into the cost of products and services. Pricing carbon can take a number of forms, including emission trading systems (ETSs)-both cap-andtrade and baseline-and-credit systems, carbon taxes, offset mechanisms and results-based climate finance mechanisms. The effects of carbon pricing are not, however, well understood on the final cost of consumption.
In a bid to better understand possible outcomes from setting a price on carbon, The Generation Foundation and Ecofys entered into partnership. One of the resulting reports, titled 'Impacts of a Global Carbon Price on Consumption and Value Creation', explores the costs, and benefits, of a global carbon price.
The cost of carbon
One way to understand the current relationship between carbon intensity and economic output, as well as model long-term change to meet global goals, is the measurement of greenhouse gas (GHG) productivity. The relationship considers in how far greenhouse gasses uses are able to generate economic value in different segments, and for different types of goods and services. According to the firm's analysis - and only in relation to economically tracked value - global The global average GHG productivity equals $1.7/kgCO2e.
