Only A Carbon Tax Can Tackle Climate Change, by Stéphane Dion

StephaneDionBy the Honourable Stéphane Dion, Privy Council of Canada and Member of Parliament, based on his address to the Harvard University “Weatherhead Center for International Affairs”. 

Things are not going well on the human activity-induced climate change battlefront. And we cannot pretend we are not aware: the warnings are coming in from every quarter. In the summer of 2014, the US National Climatic Data Center announced that the combined global land and ocean average surface temperature for the January–July 2014 period “was tying with 2002 as the third warmest such period on record”. [1]

On September 9, 2014, the World Meteorological Organization published its 2014 Annual Greenhouse Gas Bulletin.[2] WMO Secretary-General Michel Jarraud declared: “The Greenhouse Gas Bulletin shows that far from falling, the concentration of carbon dioxide in the atmosphere actually increased last year at the fastest rate for nearly 30 years. We must reverse this trend by cutting emissions of CO2 and other greenhouse gases across the board. We are running out of time”.[3]

A few days later, the Global Carbon Project released its annual report card on the global and national trends in carbon dioxide (CO2) emissions.[4] It showed that global emissions from burning fossil fuels and cement production reached a new record in 2013, and are predicted to grow by a further 2.5 percent in 2014, raising the total CO2 emissions to 65 percent over its 1990 level – the year international negotiations to reduce anthropogenic climate change began.

On September 23, 2014, the United Nations hosted a climate change summit in New York. “The race is on, said UN Secretary General Ban Ki-moon, and now is the time for leaders to step up and steer the world toward a safer future”.[5]

Well, it didn’t happen: the leaders did not step up in New York. To be fair, a wide range of pledges were made by governments and businesses; but few countries announced real, new commitments regarding greenhouse gas (GHGs) reduction targets. Several key Heads of State did not even show up, including those from China, India, Russia, Australia, and… Canada.

Global warming is threatening to reach dangerous levels and humankind is losing the battle against it. At the same time, we have been unable to conclude an international agreement to help correct the situation. Why is that? And what can be done?

  1. Things are not going well: the planet is heating up.

The consensus among climate scientists is that it would be imprudent to allow global warming to exceed 2 degrees Celsius (2ºC = 3.6°F) above pre-industrial levels. Beyond this tipping point, climate science warns that our planet will become much less hospitable for virtually all forms of life, including humans. That is what the UN-mandated scientists grouped under the Intergovernmental Panel on Climate Change (IPCC) are telling us. In fact, the IPCC 2007 report stated that even 2ºC above pre-industrial levels is likely to have serious impacts.

Unless we act quickly, the 2ºC threshold will be crossed. The IPCC foresees that under current policies, global warming could well exceed 4ºC by the end of the current century: “Baseline scenarios, those without additional mitigation, result in global mean surface temperature increases in 2100 from 3.7°C to 4.8°C compared to pre-industrial levels”.[6] Such a temperature rise would increase climate disruption, the severity of extreme weather events, sea level rise and ocean acidification, animal and plant extinctions, food production and water supply disruptions, damage to infrastructure and settlements, etc.[7]

To get back on track and maintain a 50/50 chance to limit global warming to 2ºC, the IPCC’s recommendation is to reduce global GHG emissions by 40 to 70 percent by 2050, relative to 2010 emissions.[8] And according to the International Energy Agency,[9] we must do it right now if we are to succeed: we would have to reduce energy-related carbon dioxide emissions by 31.4 percent between 2012 and 2035, whereas if nothing is done, post-haste, to correct the current trend, these emissions will increase by 36.1 percent. In other words, in the absence of new measures, emissions will increase by one-third by 2035, whereas they would really need to decrease by one-third!

It should be noted that this anticipated growth of global GHG emissions – plus one-third by 2035 – marks a decoupling from the evolution of the world economy, which the IEA expects to more than double by 2035. This decoupling is in itself an accomplishment in which the countries can take pride; however, it is not good enough. To avoid a climate debacle, it is not enough that the growth of GHG emissions is slower than economic growth. What is needed is a significant reduction in emissions.

What must we do to counter this climate change hazard? Much more than what we are doing now.

  1. Negotiations on a global climate treaty are stalled

For 22 years now, beginning with the Convention on Climate Change resulting from the 1992 Rio Conference, the international community has worked hard to build a global strategy against the threat of human activity-induced climate change. To achieve this, the United Nations brings the representatives of virtually all Nations together each year. The meeting is called the Annual United Nations Conference of the Parties to the Framework Convention on Climate Change, or COP. The Kyoto Protocol was signed in 1997, at the Third Conference (COP 3) held in Kyoto, Japan. The Kyoto Protocol did go into effect worldwide eight years later, at COP 11, the UN Montreal Conference on Climate Change, which I had the honour to chair in 2005 as Canada’s Environment Minister.

Today, the Kyoto Protocol is in disarray and the world faces huge difficulties as it tries to conclude a new global agreement on climate change. Kyoto was concluded through a “politics-precedes-science” approach: following long and hard discussions and negotiations, governments announced national GHG reduction targets and only then did the scientists compute what the sum of these targets would mean for overall GHG reductions and climate change mitigation. But over time, COP after COP, the parties implicitly accepted to work through a “science-informs-politics” approach whereby GHG reduction targets are first established by climate scientists (the 2º C limit), after which national governments try, together, to determine how they are to be reached.

Countries accepted this 2ºC limit at the 2009 Copenhagen international climate Conference (COP 15), and more officially at the 2010 Cancún Conference (COP 16). But there is a problem: with all the commitments already made, countries will not reach this target. The Intergovernmental Panel on Climate Change foresees that even if all countries were to meet, by the agreed date of 2020, the greenhouse gas (GHG) emissions reduction targets to which they committed at the Copenhagen and Cancún Conferences, we would still fall short of what is needed: “The Cancún Pledges are broadly consistent with cost-effective scenarios that are likely to keep temperature change below 3°C relative to preindustrial levels” rather than the targeted 2°C.[10]

At the 2011 Durban Conference (COP 17), the countries admitted to this gap between their commitments and achieving the 2º C objective. And they went even further in the preamble of their joint statement, expressing their “grave concern” and promising to “raise the level of ambition” to bridge this gap. Yet countries did not announce stricter GHG reduction targets at Durban. They only managed to agree on a plan to reach an agreement, no later than 2015, for action to assemble all countries under the same legal system – beginning only in 2020. The very terms of this agreement are disquietingly vague: “a process to develop a protocol, another legal instrument or an agreed outcome with legal force under the Convention applicable to all Parties.” Even Christina Figueres, Executive Secretary of the United Nations Framework Convention on Climate Change, regretfully agreed that “What [the agreement] means has yet to be decided.”

This 2015 Conference (COP 21) will be held in Paris. As the MIT pointed out, this international venue is of tremendous importance, since it will heavily influence global GHG emissions reductions strategies “as far out as 2045 or 2050”.[11] Unfortunately, it is unlikely that the Paris Conference will secure the global treaty that the world needs, unless we significantly change our approach.

When on September 23, 2014, UN Secretary General Ban-Ki Moon hosted his climate change summit at the New York headquarters, during the UN General Assembly session, it was in the hope of creating some political momentum in preparation of this Paris 2015 Conference. He hoped that every Member State would come up with strong and bold new commitments on climate change.

But from this point of view, the Ban Ki-moon summit was yet another disappointment. Despite positive signals and a wide range of pledges and non-binding initiatives made by governments and businesses, including a new commitment to end tropical deforestation by 2030, no country really strengthened its GHG reduction commitments for 2020, and only a handful of them announced the post-2020 carbon reduction targets that will be required for the Paris summit. Even Christina Figueres recognized that these partial and piecemeal responses will not be enough to keep global warming below 2°C.[12]

Developing countries showed no sign that they would be willing to adopt legally binding GHGs emission control commitments by 2020. The four BASIC countries (Brazil, South Africa, India and China) stuck to the long-held stand of developing nations, linking their intended nationally determined contributions (INDCs) to “the extent of financial, technological and capacity-building support provided by the developed countries”.[13]

In other words, the blame game goes on. That doesn’t bode well for the 2015 Paris conference, and it is hard to believe that representatives of all the world’s countries will be able to reach a new deal to cut GHG emissions and prevent the planet from overheating dangerously.

This deadlock on reduction targets impacts all aspects of negotiations, including the funding promised to developing countries to help them deal with climate change. While we do have an agreement on a collective objective (100 Billion dollars per year beginning in 2020), nobody knows how much each developed country needs to contribute.

What we do know is that several countries – including Canada– will not meet their GHG emissions reduction targets for 2020.[14] So while we all express our “serious concern” that we might be heading toward a 3ºC+ warming scenario, nobody strengthens their commitments in order to keep us closer to the 2ºC track.

We can see that the United Nations climate negotiations are stalled. That is the inescapable conclusion of a cool, lucid mind. Collectively, we are facing what can be called a “great climate inconsistency”: an increasingly untenable gap between the urgency of taking action and the inertia of international negotiations. Why this gap? Why is it so difficult to do what must be done?

  1. Why this great climate inconsistency?

The Theory of Collective Action teaches us that it is easier to develop public policy when the goods are divisible – when those who work to achieve the results are the ones to benefit from them. Unfortunately, climate change doesn’t work this way. The climate is a global public good: one tonne of carbon dioxide emitted in New York has exactly the same effect on global warming as one tonne of carbon dioxide emitted in Montreal, Paris or Beijing. In effect, those who do something to decrease their GHG emissions are working for those who reap the benefits of that action while doing nothing. And the negative impacts of climate change on those who are particularly affected by them have no direct link with the latter’s level of GHG emissions.

Consequently, each country, each economic agent, each GHG emitter, big or small, may well expect others to do the job in their stead, expect to benefit from the efforts of others while doing as little as they can get away with, and lamely say: “I will not act until my neighbour does”. This perverse freeriding effect is the fundamental reason why negotiations are stalled: COP after COP, we wait for every country to increase its target significantly, only to see that they all decline to do it, waiting for the others to move. As long as countries keep acting as climate freeriders, they are unlikely to increase their GHG emissions reduction targets and our efforts will fall well short of the mark.

In other words, governments and businesses are very unlikely to step up their greening efforts if they have no assurance that their competitors will play by the same climate rules. What we need is an international agreement that gives them that assurance, one that changes the rules of the game for every player. What we need to do is to create a world where every decision maker, public or private, must and can take the true cost of global warming into account, secure in the knowledge that his/her partners and competitors have to pay for this cost as well.

As more and more experts agree, putting a price on carbon is essential to the success of any serious, comprehensive climate plan. Even the International Monetary Fund now recommends it.[15] So does the OECD.[16] And just ahead of the UN Secretary-General’s Climate Summit, the World Bank was able to convince 73 countries, 22 subnational jurisdictions and over 1,000 companies and investors to express their support for a price on carbon.[17]

In a report released just before the Ban Ki-moon summit, the Global Commission on the Economy and Climate made the point that a carbon price may be beneficial for the economy: “The Commission recommends that governments introduce a strong, predictable and rising carbon price as part of fiscal reform strategies, prioritizing the use of the revenues to offset impacts on low-income households or to finance reductions in other distortionary taxes”.[18]

In fact, the Ban Ki-moon summit made more progress on the carbon pricing front than on the adoption of more stringent, binding GHG reduction targets. That progress on carbon pricing is a positive development. It shows there are opportunities to explore linkages between carbon pricing and the new international climate change agreement to be reached in Paris.[19] But the main challenge facing us now is how to evolve from a hodge-podge of local or national carbon prices to a global, harmonized carbon pricing system. That is exactly what the IPCC recommends: adopting a “single global carbon price”.[20]

A global, harmonized carbon price would provide the world with an excellent sustainable development instrument. The price should be high enough to create the necessary incentives to limit global warming to about 2ºC. The International Energy Agency (IEA) recommends that the price of a tonne of CO2 be gradually raised, by 2035, to $125 for developed countries and $100 for China, Russia, Brazil and South Africa. According to the IEA, this can be done without jeopardizing economic growth: “Carbon pricing is not necessarily detrimental to industrial competitiveness: it all depends on how it is implemented and whether similar action is taken in competing economies. (…) In addition, part of all the revenue from carbon pricing may be recycled back to energy users in the form of investments towards improved energy efficiency, or through other, broader supportive policies for industry; hence, this may actually increase industrial and energy competitiveness”.[21]

This cost of about $125 per tonne of CO2 may seem high. Yet it is small compared to the social, environmental and financial cost of doing nothing to mitigate climate change: the Stockholm Environment Institute estimates the latter cost could reach $1,500 per tonne of CO2 in 2050.[22] But the main problem is that it is impossible for the world price of carbon to reach $100 or $120 per tonne of CO2 without first having negotiated an international agreement that can assure all economic agents that their partners and competitors will play according to the same climate rules. Carbon pricing will not reach the desired level as long as individual countries fear that carbon price-setting within their respective jurisdictions will scare businesses and investments away and send them off to countries where carbon dioxide emissions are still free of charge.

For some years now, I and others have been arguing that international climate negotiations must be readjusted.[23] The idea is to refocus these international efforts on negotiating a global harmonized carbon price signal, instead of doggedly spending the next years attempting to convince countries to accept stricter national quantitative targets to reduce their GHG emissions.

The mixed results achieved by the Ban-Ki Moon summit proved, once again, that the “to-each-their-own-target” approach does not work. Instead, we must adopt a “one-price-signal-for-all” strategy, a world carbon price – not as a stand-alone policy but as a cost-effective, universal anchor. This is essential to the success of any serious, comprehensive climate plan.

Let us see how such a strategy could work.

  1. A framework for a global, harmonized carbon price

The Dion-Laurent plan[24] would call for all countries to make a commitment to introduce, in their respective jurisdictions, a gradually evolving carbon price signal based on a scientifically-validated international standard, in order for the world to keep global warming to as close as possible to 2ºC over pre-industrial levels. Countries may levy this price through carbon taxes or emission quotas. Governments would be free to invest, as they see fit, any revenues accruing from carbon emission levies and the corresponding – and necessary – gradual elimination of fossil energy subsidies.

Under the principle of “Common But Differentiated Responsibility”, developed countries would be required to set aside part of their carbon pricing revenues to help developing countries introduce policies to lower their emissions, adapt to climate change impacts and create carbon sinks (through reforestation, for example). This requirement would help fund the yet unsourced $100 billion annual injection into the Green Climate Fund, which developed countries agreed to provide beginning in 2020. That amount could even be increased. The contributions of individual developed countries would be set according to the proportion of total developed country emissions that their respective GHG emissions represent. The lower a country’s emission level, the lower its share of the financial effort: that is sure to be another incentive for further emission reductions.

This international carbon pricing agreement would allow countries to levy border taxes on products from countries that do not establish a carbon price signal in accordance with the international standard. Of course, this solution would be a last resort, to be applied after the usual warnings have been issued. Hence, the message would be clear to all large GHG emitters: if you do not levy a carbon price on your products before exporting them, other countries will do it for you – and will keep the resulting revenue. In this way, it will be in each country’s interest to comply with the international agreement, to levy a carbon price on its own emissions, and to use the resulting revenue as it sees fit.

This international agreement would provide the world with an excellent instrument for sustainable development. At long last, carbon emitters would have to pay the social and environmental cost of pollution. Consumers and manufacturers would have an incentive to choose lower-carbon-content goods and services and to invest in new energy-saving and emission-reducing technologies. And governments and legislators would have the tool to achieve the scientific climate targets they have rightly endorsed.

Conclusion: Is this plan realistic?

Negotiating a global harmonized carbon price will be a very difficult task. I am not one to underestimate the political obstacles any government will face when trying to implement an economy-wide price on GHG emissions.[25] As Leader of the Official Opposition in the House of Commons of Canada between 2006 and 2008, I developed such a carbon-pricing plan; but during the 2008 federal electoral campaign, I was unable to convince Canadians to accept that approach. Today, I am well aware that here in the US, part of Congress, backed by a majority of the population, is opposed to President Obama’s initiatives to regulate GHG emissions through the Environmental Protection Agency.[26] And yet, we all know that a global carbon price will never be negotiated successfully if North American countries, notably the United States, fail to assume leadership in the matter.

So I understand why some will call this plan unrealistic. Yet I maintain that it would be easier to reach a negotiated global harmonized carbon price than to convince national governments to raise their respective GHG emissions reduction targets significantly. In particular, emerging economies – those with an annual growth of 6 to 10 percent – are likely to consider absolute reduction targets as an impediment to economic dynamism. But a harmonised carbon price, applying equally to their partners and competitors and yielding revenues that everybody could use as they see fit, would open much more interesting perspectives.

In any case, if anybody has a better idea to avoid the astronomical economic, human, political and environmental costs of a 3ºC (or more) global warming scenario, let them speak up! True realism – and plain common sense – dictate that as long as we are allowed to pollute for free, we will be unable to curb our GHG emissions sufficiently, and that we must therefore act now.

We need worldwide carbon pricing in order to do what must be done to make the world’s economy truly sustainable. We need harmonized carbon pricing as an incentive to replace coal with cleaner and renewable energy sources (or at least equip coal power plants with effective carbon capture and storage technology); to enhance energy efficiency; to develop affordable alternatives to petroleum-based fuels; to implement a major retooling of transportation industries and a massive conversion of on-road vehicle refueling infrastructures; to reduce high risk oil imports and increase energy security.

So to protect humankind against the threat of a 3ºC – or more – global warming sequence, what choice do we have? Pursue our current initiatives? Not without merit but definitively not good enough. My opinion is that our best and soundest choice is to champion the simple and useful instrument, much needed for a comprehensive and effective climate/energy policy, that a worldwide, harmonized carbon price would be.

[1] US National Oceanic and Atmospheric Administration, National Climatic Data Center Global Analysis – July 2014. Also: Michael Slezak, «The world is warming faster than we thought », NewScientist, October 2014.

[2] World Meteorological Organization, 2014 Annual Greenhouse Gas Bulletin.

[3] Michel Jarraud, WMO Secretary-General.


[5] Ban Ki-moon, “Climate change affects us all. So what’s stopping us joining forces to act on it?”,, May 6, 2014.

[6] IPCC, Climate Change 2014: Mitigation of Climate Change, Final Draft Summary for Policymakers, IPCC WGIII AR5, December 17, 2013, p.8.

[7] IPCC, Climate Change 2014: Impacts, Adaptation, and Vulnerability, IPCC WGII AR5 Summary for Policymakers, WGII AR5, March 31, 2014.

[8] IPCC, Climate Change 2014: Mitigation of Climate Change, Final Draft Summary for Policymakers, IPCC WGIII AR5, December 17, 2013, p.15.

[9] IEA, World Energy Outlook 2013.

[10] IPCC, Climate Change 2014: Mitigation of Climate Change, Final Draft Summary for Policymakers, IPCC WGIII AR5, December 17, 2013, p. 15. PricewaterhouseCoopers comes to the same conclusion: “On our current trajectory we are headed for four degrees, with policy pledges that currently steer us only towards three.” The 2014 Low Carbon Economy Index, “Two degrees of separation: ambition and reality”

[11] Henry D. Jacoby and Y.-H Henry Chen, Expectations for a New Climate Agreement, The MIT Joint Program on the Science and Policy of Global Change, Report No. 264, August 2014:


[13] Text of the Joint Statement issued at the18th BASIC Ministerial Meeting on Climate Change, Press Information Bureau, Government of India, Ministry of Environment and Forests, August 8, 2014:

[14] 2014 Fall Report of the Commissioner of the Environment and Sustainable Development, Chapter 1- Mitigating Climate Change.

[15] IMF Survey Magazine: Fiscal Policy to Address Energy’s Environmental Impacts, July 31, 2014; also: Ian Parry, Dirk Heine, Eliza Lis, Shanjun Li, Getting Energy Prices Right: From Principle to Practice, IMF, 2014.

[16] OECD, Acting now to put a price on carbon, OECD Environmental Outlook to 2050: the Consequences of Inaction, 2012, p. 111.

[17] World Bank Statement, Putting a Price on Carbon, June 3, 2014: ; also: We Support Putting a Price on Carbon.

[18] Better Growth, Better Climate, the New Climate Economy Report. The Synthesis Report, Washington, September 2014, p. 42.

[19] Daniel Bodansky, Seth Hoedl, Gilbert Metcalf and Robert Stavins, Facilitating Linkage of Heterogeneous Regional, National, and Sub-National Climate Policies Through a Future International Agreement, Harvard Project on Climate Agreements, with the support of The International Emissions Trading Association, September 2014.

[20] IPCC, Climate Change 2014: Mitigation of Climate Change, p. 17.

[21] IEA, World Energy Outlook 2013, p. 282. More recently, the IEA developed a plan to make solar energy the main source of electrical power, which plan would depend on a significant global carbon price: “The vision in this roadmap is consistent with global CO2 prices of USD 46/tCO2 in 2020, USD 115/tCO2 in 2030, and USD 152/tCO2 in 2040”. IEA, How solar energy could be the largest source of electricity by mid-century, 29 September 2014.

[22] Franck Ackerman and Elizabeth A. Stanton, Climate Risks and Carbon Prices: Revising the Social Cost of Carbon, Economics, 6, 2012-10, April 4, 2012.

[23] Stéphane Dion and Éloi Laurent, From Rio to Rio: A Global Carbon Price Signal to Escape the Great Climate Inconsistency, OFCE, Paris, May 2012;

[24] Stéphane Dion and Éloi Laurent, From Rio to Rio: A Global Carbon Price Signal to Escape the Great Climate Inconsistency, op. cit.

[25] Stéphane Dion, Carbon Taxes; Can a Good Policy Become Good politics?, in: Alex Himelfarb and Jordan Himelfarb, Tax Is Not a Four-Letter Word: A Different Take on Taxes in Canada. Wilfrid Laurier university Press, 2013: .

[26] United Technologies/National Journal Congressional Connection Poll, July 2013.

Mixed Message from Australia after G20


As host of this G20, Australia reluctantly released a statement that had been agreed with other leaders at the summit. Interesting energy and climate related commitments  were made, including:

  • To improve energy efficiency emphasizing six sectors: buildings, transportation -especially heavy vehicles, industrial processes, electricity generation, the financing of energy efficiency, and efficiency of networked devices. The White House highlighted a focus on heavy trucks and large vehicles that represent half the vehicle emissions but only 10% of traffic. The USA is keen on promoting its leadership in this area.
  • To phase out fossil-fuel subsidies that encourage wasteful consumption. The USA, China and Germany will conduct a study with the support of the European Union.
  • Strong and effective actions to address climate change, including a successful outcome of the Paris climate conference in 2015. Domestic targets for emissions reductions should be announced as soon as possible, ideally by early 2015.
  • The importance of contributing to the Green Climate Fund was highlighted. The USA committed $3 billion.

Tony Abbot and the Coal Addiction

Image from The Guardian

Image from The Guardian

The Australian Prime Minister and his team were not pleased. Having tried to resist pressure from President Obama and the European Union for climate change to appear prominently in the statement, they reluctantly sent the communiqué but made sure to downplay its significance. They also announced major investments of $7.5 billion in coal infrastructure despite warnings that the project is not commercially viable. Major international financial institutions refused to provide  financing.

Australia is highly reliant on coal but has suffered major setbacks in this sector recently, including the recent ban by China on the lowest quality “dirty coal” to improve air quality  that will hurt Australian exports.

Town Moves Out of Harm’s Way

“We can’t solve our problems with the same thinking we used when we created them”, Albert Einstein

Soldiers GroveThis is the extraordinary tale of Soldiers Grove, Wisconsin, a village of 500 that was located along the meanders of the Kickapoo River to allow timber rafting and to get hydropower for its lumber mills. Proximity to the water was a mixed blessing. Situated at the bottom of a bowl surrounded by mountains, the town was prone to flooding. The small  floods they called “ankle ticklers” but once a decade a major one would be devastating. The courageous and stubborn residents would clean up and rebuild.

“Insanity: doing the same thing over and over again and expecting different results”, Albert Einstein

1978 Flood 4With time, the floods got worse for reasons that were largely self-inflicted. Deforestation of surrounding hills reduced the amount of water retained by the soil and the runoff  caused erosion that filled the bottom of the river aggravating the floods. After studying the problem for three decades a $3.5 million dam and levee was proposed… to protect $1 million worth of property… In a rare moment of genius someone asked “what if we moved the town?” and the rest is history. In 1979, the town relocated to higher grounds 800 meters away.

Solar Town_PharmacyThe river still floods but the town has been spared and the people of Soldiers Grove have more time (and money) to come up with more brilliant ideas like becoming the first Solar Town in America.

Bill Becker, Executive Director of the Presidential Climate Action Project (PCAP), is one of the humble architects behind the move of Soldiers Grove. Here is his TED version of the story:

Relevant Links:

Soldiers Grove Solar Town

About Bill Becker

Free Online Course on Natural Disasters

China and US White House agree on Climate Action


Picture Prabhu News

At the closing of his trade summit visit to China, Barack Obama and Chinese President Xi Jingping announced a landmark agreement between the two largest carbon polluting nations for the US to reduce its emissions by 26 to 28% (versus 2005) by 2025 and for Chinese emissions to peak by 2030 at the latest. China had always focused on reducing its carbon intensity with overall emissions still growing rapidly. This is the first time China agrees to cap overall emissions and reduce them afterwards. Together, China and the US account for around 45% of global emissions – China for 29% and 16% for the USA .

The deal represents another important step towards a global agreement being reached at the climate conference in Paris next December. After a disappointing New York climate summit in September (it had not been attended by the Chinese President and Indian Prime Minister), a positive streak of developments has been unfolding. France announced a new energy law with ambitious targets for emission reductions and renewable energy in late June. In late October, the European Union, the 3rd largest emitter (11% of global carbon pollution), announced its commitment to reduce greenhouse gases by 40% before 2030. And just a few days ago, the IPCC and UN Secretary General, Ban Ki-moon, released a report that refuted the false choice between the economy and environment stating that reducing emissions to zero globally would have a very modest impact on global economic activity while continued climate inaction would result in mounting economic and human costs. For the first time reducing climate emissions was presented as a pre-condition to improve the lives of and hopes of the hundreds of millions of poor and underprivileged that are least responsible for causing the climate crisis and yet disproportionately suffer its consequences. In parallel, the US Environmental Protection Agency also raised the alarm about the impacts on human welfare, wellbeing and the economy of climate disruptions and extreme weather events in the US and worldwide.

The time for Solutions has arrived

It is time for a new paradigm for human development and wellbeing. The first step was agreeing to change course. After years of sterile debate, it appears we now moving in the right direction. Incremental change will not do it. A transition is not sufficient,  urgent transformational change is required. Technology will have a role but will not save us.  The time for a solutions driven economy and society has arrived. More on that soon.

Latest IPCC Report, the US EPA and the Cost of Climate Inaction: Reframing the Debate

On Sunday the IPCC issued its latest report with a new message to the international community and to investors and the business community in particular that reducing emissions to zero is an affordable option and that climate inaction will cost much more. UN Secretary General Ban Ki-moon said that: “Science has spoken” and to pension funds and investors that you should “reduce your investments in the coal and fossil fuel economy and move to renewable energy”.

The IPCC presented the case for reducing emissions  to zero as the coherent way forward from a scientific and economic point of view and the only way to reduce global poverty. Rajendra Pachauri, chair of the IPCC stated that: “The solutions are many and allow for continued economic and human development. All we need is the will to change.” The IPCC suggests that the cost of reducing emissions to keep temperature increases below the 2 degree threshold would reduce consumption by 0.04 to 0.14%. This modest impact is much lower then generally assumed and a fraction of the expected impacts on the economy if climate action is delayed. UN Secretary General Ban Ki-moon said: “There is a myth that climate change action will cost heavily. But I am telling you inaction will cost much much more.”

US EPA and the Cost of Inaction

The IPCC echoes the latest message from the US Environmental Protection Agency (EPA). Just last week it released a video warning about the intensifying climate change consequences experienced in the USA. How extreme weather events, floods, droughts and rising sea levels already affect the lives of Americans. Impacts on water availability, agriculture and food security, and increased risks to health are raised. Examples like Hurricanes Sandy in 2013 ($65 billion) and Katrina in 2005 ($125 billion), and the latest drought that threatens water supplies in California, Arizona and Nevada with Lake Mead experiencing its lowest water level ever, raising the need to ration water for drinking, agriculture and energy production support the case for urgent action. Throughout, emphasis is on the economic cost of inaction:

Until recently, the climate debate in America and elsewhere was presented as a choice between the environment and the economy. With the multiplication of extreme weather events resulting from less then 1 degree Celsius of warming and their impacts on lives and the economy, it is becoming clear that this is a false choice.

The Stern Review and the Economics of Climate Change

blueprintForASaferPlanet_238x317In 2006 already, former World Bank chief economist Nicholas Stern warned that the benefits of strong and early action on climate change greatly outweighed its costs and that the threats to human life – access to water, food, health and the state of the environment – were immense. In 2013, at the World Economic Forum in Davos, Nicholas Stern confessed: “Looking back, I underestimated the risks” but emphasized the economic opportunity of ambitious climate action. Significant reductions in green house gas emissions can be achieved at a profit (!), helping mitigate climate change while creating jobs and growing the economy.

McKinsey conducted one such study of the costs and opportunities of reducing emissions. On the vertical axis we see the cost of various measures to reduce Green House Gases (GHG). As we move from left to right we begin with the most interesting ones (lowest cost) and to the right we have the more expensive ones. On the basis of this analysis we should therefore prioritize LED lighting, energy efficiency and some second generation biofuels. Measures such as Carbon Capture and Storage and nuclear are however much less interesting in terms of cost efficient carbon reduction measures. Despite its limitations, the study provides an interesting method of prioritizing climate action measures in ways that realigns the false choice between economy and environment.

McKinsey Climate Abatement Cost Curve

McKinsey Climate Abatement Cost Curve