In which I put a price on it
Greetings, fellow Terran!
This is the (belated) sixth edition of Greenwhile, a periodical highlighting some of the people, projects and companies concerned with one of the most complex challenges we've ever faced: how to get our shit together before the planet "shakes us off like a bad case of fleas".
I'll be very honest with you: keeping up with the news has been rough lately. Some would argue that it's been this rough since 2016, a particularly shitty year for purveyors of truth and unity, while others would simply say: “Suck it up, kiddo, it's always been rough”.
From the reestablishment of dictatorship in Myanmar and unimaginable suffering in India to yet another escalation of violence in the Middle East, and the constant fear of Vladimir Putin’s Russia... sometimes I wish for a bit of Irish in my morning coffee.
But then I get all sorts of feelgood messages from friends and family, folks who learn something new from Greenwhile – enough to even change their approach towards sustainability at times. I've learned a lot too, no doubt about it. Case in point: Nutella jars are the requeijão glasses of Canada, Ireland and Italy, and grape jelly jars were the equivalent in the US. 😉
Thanks to your moral support I was able to indeed suck it up, comb through this bad-hair-day newscycle of ours, and find the unexpected: good reasons to be hopeful about carbon pricing.
So take a deep breath and hold my sanitised hand as we explore the world of emissions trading, learn how it compares to a carbon tax, and find out if there’s anyone taking any of these approaches seriously.
Although it may sound like a relatively new concept, emissions trading (aka cap and trade) was introduced in the 1960s by two North American economists: John Dales, from Canada, and Thomas Crocker, from the United States. However, the original argument in favour of making companies and customers pay for “externality problems” was made in 1920 by English economist Arthur Cecil Pigou, in his book The Economics of Welfare.
The idea behind cap and trade is straightforward. Let’s say that you own a steel mill and I own an oil refinery, and none of us takes any precautions to minimise the pollution caused by our economic activity because, well, we’re shameless bastards. One day the government of the country where our companies are based sets a limit to how much we can pollute, forcing us to clean up our acts. This is the cap.
One doesn’t simply stop polluting, though. More often than not, it’s a costly and laborious process – one that already developed countries barely bothered with on their path to industrialisation. So what the government does is allow us to buy emissions credits if we’re above the limit, or sell them if we’re emitting less greenhouse gases than our quota permits. This is the trade.
To prevent us from budgeting for this extra cost, this system includes two mechanisms: the cap gets stricter, as in, as time goes by our pollution allowance decreases; and the credits get more expensive, therefore buying them eventually becomes dearer than ‘going green’.
If I figure out a way to capture enough of my emissions to keep me well below the cap and you’re struggling to clean up your steel mill, I can sell whatever credits I have to you. The end result? My revenue increases (perhaps allowing me to prepare for those inevitable stricter limits), you buy some time, and none of us has financial incentives to continue acting like shameless bastards.
It’s by no means a miraculous solution, but it’s worked before. If you’re old enough to remember that acid rain used to be a big issue in regions such as North America and Europe, you may know how it was tackled: emissions trading.
An arguably stricter way of dealing with emissions is to impose a carbon tax. Instead of being given (or sold) permits to pollute up to a certain limit, companies and, in some cases, households pay according to how much they pollute.
While researching this topic, I read about how the US is calculating the social cost of carbon, why Australia became the first country to ban a carbon tax, what sort of price Singapore charges… and then I read about Canada.
In what’s probably an attempt to not offend anyone, Canada’s current approach to carbon pricing is a bit messy. According to energyhub.org, a social enterprise focused on sustainable energy, as of 2020 there were “14 different carbon-pricing mechanisms in Canada (plus two more planned). This includes six carbon-tax programmes, six baseline-and-credit systems, and two cap-and-trade systems.” Eh?
In order to ensure that all provinces and territories were subject to an effective set of regulations, rather than toothless schemes or none at all, prime minister Justin Trudeau’s Liberal Party introduced the federal Greenhouse Gas Pollution Pricing Act (GGPPA) in 2018. Among other things, this federal law established that all Canadian pricing mechanisms must meet the minimum of CA$40 per tonne of carbon dioxide (CO2), which increases yearly up to CA$170 per tonne by 2030.
Unsurprisingly, not every province was on board with it – including Saskatchewan, where mining, oil and gas are major players. The GGPPA’s constitutionality was challenged in provincial courts, and ended up in the Supreme Court of Canada in 2019. Reason prevailed, though, and the GGPPA was ruled constitutional two months ago. 🙌
Normally I would have seen no need to include the following statement by Chief Justice Richard Wagner, one of the six justices who voted to strike down the legal challenge, but one can no longer take rationality for granted:
“Climate change is real. It is caused by greenhouse gas emissions resulting from human activities, and it poses a grave threat to humanity’s future. The only way to address the threat of climate change is to reduce greenhouse gas emissions.”
Fret not, this edition’s share of good news isn’t exclusive to the land of Rush, Arcade Fire, Barenaked Ladies and... Nickelback? Damn it, Canada!
Implemented on the 1st of January 2005, the European Union Emission Trading Scheme (EU ETS) is the world’s largest scheme of its kind. As well as CO2, it covers the emission of nitrous oxide (N2O) and perfluorocarbons (PFCs) from power plants, oil refineries, paper mills, airlines*, chemical companies, and others.
Like all things EU, the EU ETS is a complex mechanism. Now in its fourth phase, it’s been revised a few times and contains provisions to ensure that the bloc remains economically competitive. It’s also proven to be effective. According to a peer-reviewed article published last year, between 2008 and 2016 the EU ETS achieved “reductions of 3.8% of total EU-wide emissions compared to a world without the EU ETS”.
It may not sound like much, but let’s not forget one of the main characteristics of the cap-and-trade system: companies can buy and sell credits in a market that follows the principle of supply and demand. The higher the demand, the higher the prices get.
That’s exactly what’s been happening since the beginning of this year. The price per tonne of CO2, which had never remained above €30 for long, is currently at around €50 – a record. With the 26th edition of the United Nations Climate Change Conference (COP26) only months away, there’s reason to believe the rate will continue to go up.
As much as such a hike can be detrimental to sectors of the economy that, for one reason or another, are taking longer to adapt, it’s also a clear incentive to speed up efforts across the board. And luckily for us all, if there’s one thing capitalism is good at is finding cheaper ways to conduct business as usual.
Okay, you can let go of my hand.
If you didn’t know much about carbon pricing, now you know. I hope you’re better equipped to digest this contentious subject next time you encounter it. Now I gotta go close a ridiculous number of browser tabs, so get off my lawn!
* It only applies to flights between airports located in the EU, Iceland, Liechtenstein and Norway right now, though this will change in 2024.