- Pakistan should impose a $30 a ton carbon tax by 2030
With regard to the global warming targets, article 1, clause (b) of the Paris Agreement, signed in 2015, indicated ‘Holding the increase in the global average temperature to well below 2 °C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5 °C above pre-industrial levels, recognizing that this would significantly reduce the risks and impacts of climate change’.
Having said that, a press release produced this week in Madrid (Spain) by the World Meteorological Organization (WMO) on ‘WMO provisional statement on the State of Global Warming’ made some alarming revelations with regard to global warming, whereby it was highlighted that ‘The year 2019 concludes a decade of exceptional global heat, retreating ice and record sea levels driven by greenhouse gases from human activities. Average temperatures for the five-year (2015-2019) and ten-year (2010-2019) periods are almost certain to be the highest on record. 2019 is on course to be the second or third warmest year on record.’
Yet the most shocking prediction is with regard to taming the average temperatures, where unlike target set under the Paris Agreement, the WMO’s findings suggested an increase in average temperatures, by the end of the century, to a tune of 3 °C to 5 °C; in turn, marking the largest shift in temperatures during the last 10,000 years, around which time the last ice age ended.
This holds catastrophic consequences for the earth, the impact of which is already vividly being experienced. According to the Secretary General of WMO, Petteri Taalas, ‘If we do not take urgent climate action now, then we are heading for a temperature increase of more than 3 °C by the end of the century, with ever more harmful impacts on human wellbeing. We are nowhere near on track to meet the Paris Agreement target.’ Moreover he pointed out ‘On a day-to-day basis, the impacts of climate change play out through extreme and “abnormal” weather.’
Also, Mr Taalas pointed out that the consequences of global warming were not restricted to any particular country or region, since ‘Countries ranging from the Bahamas to Japan to Mozambique suffered the effect of devastating tropical cyclones. Wildfires swept through the Arctic and Australia. One of the main impacts of climate change is more erratic rainfall patterns. This poses a threat to crop yields and, combined with population increase, will mean considerable food security challenges for vulnerable countries in the future.’
Other organizations are highlighting similar concerns with regard to risks associated with un-tamed global warming, whereby according to the Pottsdam Institute for Climate Impact and Research and Climate Analytics, that a 4 °C gain is likely to cause a) vanishing of ice from both poles, b) a lot of rainforests turning into desert, c) interior flooding of continents at the back of rising sea level, and d) loss of diversity of animals and plants to the extent that the loss would be irreversible.
While the highly negative consequences for the world are clear to see, yet the countries have not stepped up to their pledges made in the Paris Agreement, as highlighted by Mr Taalas, who further pointed out that resultantly, ‘The number of emissions are somewhat alarming… once again in 2019, weather and climate related risks hit hard… Heatwaves and floods which used to be “once-in-a-century events” are becoming more regular occurrences.’
One such innovative mechanism for effectively meeting commitments, with regard to domestic emissions, is the introduction of carbon taxation, which is a tax on the content of carbon in the fossil fuel. A tax of, say, $35 a ton on CO2 emissions in 2030 would typically increase prices for coal, electricity, and gasoline by about 100, 25, and 10 percent, respectively. Carbon taxes also provide a clear incentive for redirecting energy investment toward low-carbon technologies like renewable power plants
It is indeed high time for countries globally to come through on their pledges with regard to positively contributing towards lowering global warming. In this regard, Ian Parry, in his article ‘Putting a price on pollution’ published in the December 2019 issue of Finance and Development (F&D) magazine of IMF (International Monetary Fund), pointed out that ‘The international community’s response is grounded in the 2015 Paris Agreement… For this international response to work, policymakers need carefully crafted measures that effectively meet their mitigation commitments while at the same time limiting the burdens on their countries’ economies and navigating the political obstacles to implementation. Even if successfully implemented, however, current country pledges would cut global emissions by only about one-third of the amount required to meet climate stabilization goals. Innovative mechanisms are therefore needed to scale up mitigation efforts at the international level.’
One such innovative mechanism for effectively meeting commitments, with regard to domestic emissions, is the introduction of carbon taxation, which is a tax on the content of carbon in the fossil fuel. According to Mr. Parry, ‘A tax of, say, $35 a ton on CO2 emissions in 2030 would typically increase prices for coal, electricity, and gasoline by about 100, 25, and 10 percent, respectively. Carbon taxes also provide a clear incentive for redirecting energy investment toward low-carbon technologies like renewable power plants.’
Having said that, it would take more than $35 a ton tax in certain countries to tame their global warming impact, since according to Mr. Parry ‘A $35 per ton carbon tax by itself would exceed the level needed to meet mitigation commitments in such countries as China, India, and South Africa, and it would be about right to meet pledges in Indonesia, the Islamic Republic of Iran, Pakistan, the United Kingdom, and the United States. But even a carbon tax as high as $70 per ton (or equivalent measures) would fall short of what is needed in some countries like Australia and Canada.’
In the case of Pakistan, the same article points out that the country pledged under the Paris Agreement to reduce the ‘business-as-usual’ carbon dioxide level by around 10 percent by 2030, and impose $35 a ton carbon tax. At the same time, Mr. Parry pointed out that ‘Another important argument for carbon taxes is that they could raise a significant amount of revenue, typically 1–2 percent of GDP for a $35 a ton tax in 2030… [which]… could be used to lower other taxes or fund green initiatives and other productive investments.’ Once again, for Pakistan a $35 a ton carbon tax, held a potential of raising additional revenue of around 1.5 percent of GDP in 2030.
The writer holds PhD in Economics degree from the University of Barcelona, and previously worked at International Monetary Fund. He tweets @omerjaved7