Governments have long tried to price carbon to attract companies to reduce the kind of serious emissions needed to address the climate crisis.
They did this by introducing a carbon tax, an additional fee for every tonne of carbon dioxide released, or through cap and trade schemes, which give companies limited allowances for how much CO2 they can emit and then allow to buy and sell those grants to provide more flexibility.
The idea is that the price of carbon will reduce CO2 emissions over time by making pollution so expensive that companies have the incentive to find cleaner ways to work.
However, the price of carbon has not been very effective in reducing emissions due to the dramatic levels needed to prevent the catastrophic effects of climate change. And carbon taxes have become unpopular in many parts of the world because it usually means people have to pay more for the everyday costs.
But that has not stopped governments from trying.
Jessica F. Green, an associate professor of political science at the University of Toronto whose work focuses on global environmental policy, argues that in part because focusing on the technical aspects of carbon pricing is a great way to avoid the more difficult problem is addressed to terminate the fossil fuel. use.
“We’ve been working on measuring carbon for thirty years, and we’ve still debating whether it’s refining, because it’s easier to do than making carbon dioxide,” Green told me.
Green argues in a new article that climate change is not a ‘market failure’ that needs to be corrected by mechanisms such as carbon prices. On the contrary, she says, it is “a problem of societal transformation” that “requires strong state intervention to reorganize the economy.”
Green says countries should aggressively pursue taxes (one of the basic functions of the state), but some of the rich – and use the money generated to finance climate policy.
‘The climate crisis was not caused equally by everyone. Rich people cause climate problems, ”Green said.
I called Green to find out more why carbon prices, and especially carbon taxes, have not worked so well and why she thinks taxes on the rich are possible. Our conversation, edited for clarity and length, is below.
Jariel Arvin
What would you say is the main idea of your paper?
Jessica Green
If something does not work very well, we should try something else. That is the conclusion. And what we do know from the empirical record of carbon prices is that it does not do much to reduce carbon emissions, much less to facilitate carbon dioxide.
If countries do see the reduction in emissions, it often comes from things like efficiency improvements or the switch from coal to fossil gas. These things are not bad, but they are not going to bring us to net emissions by 2050. This is what countries agreed to under the Paris Agreement.
Jariel Arvin
Are you saying that we should just forget about the price of carbon? Do you think there is an aspect of the policy that is worth saving?
Jessica Green
This is really a troublesome problem, but I think in an ideal world we would just get rid of it. For example, today there is an article in the Washington Post that explains how the U.S. Petroleum Institute is strongly considering supporting a carbon tax – which is a sign that this policy was co-opted by the people that it was supposed to regulate. .
If you have large, powerful oil and gas companies that also support a carbon tax, it should be a sign that the ideal conditions under which such a policy can function are unlikely to materialize, as these interests are very powerful and it is so entrenched in the governments they try to regulate.
Jariel Arvin
What about the European Union’s experience with carbon prices? I feel that the EU was effective in implementing a carbon tax, right?
Jessica Green
The EU story is positive, but it takes a tall time. The EU Emissions Trading Scheme was first created in 2005 and for the first three years the program had an effect on reducing emissions. (This is understandable because they set up the policy).
But over the last 11 or 12 years, they have made many improvements to the functioning of the market. Carbon prices were very volatile, but they are now more stable – they have actually risen.
They really dealt with their supply problem – because they had a large oversupply, which caused an abundance in the market and caused prices to fall. They have created a stability mechanism, a market stability reserve, which acts as a central bank and controls supply.
Jariel Arvin
Sounds pretty good to me! What has the EU failed to do?
Jessica Green
I looked at the studies on the actual performance of the EU: if you try to isolate how many emissions have fallen due to the EU emissions trading system, estimates have put it at only one to three percent per year, which is not much not.
In addition, the EU is a set of countries that are very rich and have significant regulatory capacity. I mean, it’s literally armies of bureaucrats working on this issue. And they have a lot of political will. So the EU was in many ways the most likely success – and it’s still not that great.
Jariel Arvin
So, in a way, it’s a success story, but it’s still not effective enough. I would like to talk more about what you suggest countries do instead of, or at least above and beyond, the price of carbon. The argument is that countries should change their tax policies to eliminate corporate tax havens, is that right?
Jessica Green
The basic idea is that each country draws up its own laws on how much tax they impose on individuals and corporations, and the rules around transparency. A handful of countries, including the UK by [overseas territories] like the British Virgin Islands, set their tax rates on companies very low or not at all.
So if you’re a multinational corporation like Google or Amazon, or an oil and gas company, you could say, ‘Okay, then I’ll have some of my company listed in the British Virgin Islands. And if I report my profits, it’s only taxed at 3 per cent, compared to 15 per cent in the UK. So it’s literally money in the bank. And as long as I do not bring the money back to the UK, I do not have to pay tax on the money. ”
It’s getting really complicated – international tax law is very complex. But there are ways you can create subsidiaries or parts of a corporation and lead your money in different ways to take advantage of the most advantageous tax laws.
Jariel Arvin:
Are there countries that you think are worse than others when it comes?
Jessica Green:
There are a handful: Switzerland, the Netherlands, the United Kingdom with its overseas territories and protectorates such as the Cayman Islands, Jersey, the Isle of Man and Bermuda; and the Bahamas.
Jariel Arvin
Okay, so I think I understand how these corporate tax havens work and why companies use them. But how does this relate to climate change? Is it so that financial kind of secrecy enables businesses to tackle bad environmental behavior without facing economic consequences?
Jessica Green
There are two ways. One is direct: we know, for example, that it [many] businesses that offer their prosperity abroad are linked to deforestation in the Amazon. These are companies that do bad environmental business, and they have money to do it in part because they end up abroad from their prosperity.
The second way is indirect. If you believe – as I do as a political scientist – that money is power, well: we know that fossil fuel companies offset some of their profits, which makes them richer and therefore more powerful in their ability to slow down political processes. carbon dioxide policy.
Jariel Arvin
Closing tax loopholes seems like a relatively simple thing for governments to do, so why do you think it’s not done?
Jessica Green
From my perspective, this is actually an easier political sale. Taxes of the rich are much more appealing to people than taxing carbon. In the first place, people are like, ‘What is carbon? I do not know. What does it mean to me? Increased cost for the basics I use every day? ”
On the other hand, taxes on the rich are like saying that countries should make sure there is enough income and fetch the bad guys who do not pay their fair share.
Jariel Arvin
How are countries actually going to work to “tax the rich”?
Jessica Green
There are a few ways to do this. One of them is one-sided: countries can only say, ‘If you have goods or employ people in country X, then you have to report your profits, you can not report your profits elsewhere.’ This is a unilateral measure. And politically, it can be difficult. It is a matter of political will.
But I think the political sale is easier, and technically, in many ways, much less complex. We do not argue about how to quantify and sell the absence of something [which is what carbon offsets would require] – we’re talking about getting rich people to pay their fair share.
Jariel Arvin
Once countries have that extra money to close tax loopholes, then how can we make sure it actually goes to climate policy?
Jessica Green
Therein lies the rub. There is no guarantee that the money will go to the “right” climate causes, but what it boils down to is to really think of climate change as a matter of inequality of prosperity distribution. What closing corporate tax loopholes will do is make these corporations and individuals less wealthy – and that is actually an important goal in itself.
Because, you know, if one percent of the world’s population has released as much as the poorest 50 percent, then climate change is really a problem of wealth inequality. And to the extent that you can limit the extreme prosperity of these actors, you are taking a step in the right direction. This is my best answer to the question because it is really a difficult question.
Jariel Arvin
I agree that this is definitely the question that is moving forward, and that it is difficult to answer as you say. But I think it’s an easier question to answer than, ‘How do we make the price of carbon prices work?’
Jessica Green
I think so too. We now have 30 years of experience in the price of carbon, and not a whole lot to show for it.