The conference on climate change which will bring together for two weeks some 80,000 representatives of governments and civil organizations in Dubai (COP28) will end in failure, just like the previous COPs in Paris (2015), Marrakech (2016), Bonn (2017), Katowice (2018), Madrid (2019), Glasgow (2021), Sharm el Sheikh (2022). Ambitious and grandiose commitments will be made to reduce greenhouse gas (GHG) emissions by 2030 and 2050, but will not be kept. Because the “right” goals are pursued using the wrong tools or means.
Rather than discussing a substantial, significant and universal price on CO emissions2to be levied in conjunction with compensatory tariffs, under the aegis of the World Trade Organization (WTO), on imports from non-compliant countries, leaders and activists prefer a dirigiste approach, flattering anyone who parades under a banner environmental, pontificating good-natured bans, subsidizing anyone with sufficient political clout and sometimes advocating a toothless carbon tax.
It’s ineffective and doesn’t solve anything, but it allows some leaders and activists to garner applause, go on TV, cut ribbons, and continue to complain.
It may be useful to remember that economic analysis is an important component of environmental protection. It is false and misleading to oppose environment and economy. In many cases, economists are the real credible and clear-minded defenders of the environment. Indeed, they are above all experts in the effectiveness of systems and instruments, whether in production, consumption, public policies, investment or environmental protection.
For economists, the problems of environmental protection are attributable to the absence of relevant market prices, an absence leading to a tragedy of the commons by incentivizing each user of environmental resources to abuse them. For more than 30 years, there has been a consensus among economists that the best tool for reducing greenhouse gas emissions is a carbon right, which is not a tax, but a price for use of a rare resource, the environment.
By correcting a well-known market failure, a carbon right sends a powerful price signal capable of directing economic agents (consumers, producers, investors) towards a low-carbon future: technological innovation and development of pro-environmental infrastructure, energy transition and production, distribution and consumption of low-carbon goods and services.
The carbon right should increase each year to encourage gradual and sustainable adaptation by economic agents, until emissions reduction objectives are achieved. The best available studies suggest real annual increases of 5%, from, say, $210 per tonne of CO2 in 2023 to $300 in 2030 (in 2022 dollars).
In order to prevent carbon leakage, protect the competitiveness of nations and promote broad citizen support, the system of carbon border adjustments should be accompanied by a redistribution to households of the tax revenue thus generated, possibly in equal shares, thereby helping to protect low-income groups while maintaining incentives for all to adapt.
This is essentially Canada’s carbon tax regime, except that the current level is too low or too timid with too many loopholes or exemptions for various big polluters and for provincial regimes, including the Quebec exchange regime pollution rights.
With an adequate carbon right, it would no longer be necessary to define large government plans full of moralistic regulations and prohibitions and pet projects of all kinds, nor to impose on companies a set of poorly defined and manipulable ESG measures, a sham that can consume significant management resources without generating measurable profits.
Even if it is undoubtedly already too late for COP28 in Dubai, we can hope that climate leaders and activists, first and foremost Canadians, will one day pay more attention to the message of economists and will devote themselves to determining and the implementation of a consistent, universal and generalized carbon right to protect lands, rivers, lakes, seas and oceans, and the air we breathe. Ideally, the main players in climate change, the United States, the European Union and the BRIC (Brazil, Russia, India, China) would take the lead and rally all countries to such a carbon right.
The negotiations will be arduous and demanding, and social acceptability will require significant education and information efforts, but it will be easier than implementing a plethora of national “grand plans” that are as ambitious as they are illusory.
We can hope that the great people of this world will listen to economists.