Another Stern warning on carbon price

3rd July 2014


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  • Carbon Trading ,
  • EU

Author

Gillian Kennedy

The price of carbon may have to rise to $260 a tonne by 2035 if the world is to avoid warming of more than 2ºC above pre-industrial levels, says a new assessment by economist Lord Stern, author of the 2006 review of the economics of climate change and chair of the ESRC centre for climate change economics and policy.

His latest study estimates that a tonne of carbon today needs to cost between $32 and $103 to prevent warming above the 2ºC threshold scientists believe is the limit to avoid dangerous climate change. By 2035, the price could rise to between $82 and $260 a tonne, depending on how great the damage from climate change is over the next two decades.

The figures are contained in a paper published in The Economic Journal and co-authored with Dr Simon Dietz.

Standard economic models tend to underestimate the risks of climate change, so Stern and Dietz base their figures on a revised version of the dynamic integrated climate-economy (DICE) model. Whereas the standard DICE model looks only at the economic impact of around 3ºC of warming, Stern and Dietz used it to calculate the economic cost of a range of temperature rises, from 1.5ºC to 6ºC. They also factored in the impact of climate change on countries’ infrastructure, such as the damage to coastal power stations from a rise in sea levels and the amount of global economic output lost as temperatures increase.

The findings, described by the authors as preliminary, came as José Ángel Gurría, secretary-general at the OECD, called on policymakers to impose a “big fat tax” on carbon emissions. He told the World Cities summit in Singapore that the most cost-effective way of cutting emissions to keep the rate of global warming below 2ºC is through pricing measures, such as a carbon tax or an emissions trading system (ETS). His preference would be the former, he said.

A report in 2013 from the OECD made the case for carbon pricing mechanisms as a way to move to a low-carbon economy: “Since producers and consumers would pay for each tonne of CO2 emitted, explicit carbon pricing provides an incentive to continuously improve the efficiency of energy use, and to develop and deploy technologies that substitute for existing carbon-emitting technologies.”


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