Carbon
pricing:
Carbon prices in the European Union reach a record after COP26
In a previous
blog article, I described the probable expansion of the
taxation of carbon emissions, as a consequence of the climate emergency we are
experiencing: It is predictable and ineluctable, for the survival of humanity,
that the value of non-polluting activities will keep growing and that the
economic value of polluting activities should be decreasing. Delaying changes
contributes to making them more expensive and chaotic in the future.
In this regard, despite delays in the decisions of COP
26 in Glasgow, carbon prices in the EU have more than doubled the level of
early 2021 after the UN climate conference, as they are accepted as an
important tool for decarbonization.
CO2 prices in the EU reached a record 66 euros/tonne
on November 15, the first day of trading after the UN Climate Change Conference
and amid the rise in fuel prices driven by the resurgence of gas supply fears.[1]
Current prices are also higher than the 55 euros per tonne of a month ago.
Carbon emission permits in the EU increased by more
than 5% and more than double their level at the beginning of the year after the
conclusion of the COP26 climate summit .
Carbon markets are a key tool for decarbonization and
help countries "cut down" carbon. Europe's carbon emission permits
have reached a record high following the conclusion of the two-week UN COP26
climate summit in Glasgow, in which 197 attending countries agreed to reduce
the use of fossil fuels.[2]
These record numbers come just after COP26 finally set
the standards for a global carbon market, making polluting countries and
companies pay for carbon emission permits and allowing them to trade in
emissions offset credits. Carbon markets are critical to reducing carbon
emissions in Europe and fostering new investments in clean and green
technologies such as carbon capture and storage and green hydrogen in
developing countries. [3]
Carbon Price Inequality Raises Competitiveness and "Carbon Leakage" Concerns[4]
Discrepancy among G-20 members on the price of carbon:
The adoption of the Glasgow Climate Pact[5]
at the end of COP26 will see bilateral agreements take place in a market
supervised by the UN. The EU also plans to expand the bloc's trading system to
more sectors, as well as launch its ambitious carbon border adjustment
mechanism[6],
a tax on carbon emissions attributed to imported goods that have not been
taxed. on carbon at source.
The increase in carbon emission permits also reflects
the rise in natural gas prices, which has recently made coal more competitive
again. For countries to "phase down" coal - as agreed in the Glasgow
Climate Pact - carbon permits would make burning coal more expensive and less
attractive to long-term investors.
"Although the outcome [of the COP] was perhaps
not as strong as expected, it is still a clear signal that policy makers must
take carbon pricing seriously if we want emissions to decrease," said Mark
Lewis. , of the investment fund Andurand Capital.
"There is a general feeling that carbon markets
come out stronger from the COP process," Lewis continues, "as what
has become clear is that there is now an acceptance among policy makers that
the limited space left for carbon in the atmosphere is the scarcest resource of
all."[7]
The promises
of COP 26
Following the COP26 climate summit in
Glasgow, we wonder when decisions to reduce greenhouse gas emissions will have
an impact on our climate.
Among the most prominent decisions from this year's UN
climate summit are:
-The promise of more than 100 countries to stop
deforestation by 2030.
-A plan of more than 100 countries to reduce 30% of
current methane emissions by 2030
-The abandonment of coal by 40 countries (including countries
that depend heavily on coal).
-New cooperation between the United States and China
on methane emissions, the transition to clean energy and decarbonization
Hundreds of financial organizations have also decided
to support clean technologies in an attempt to move away from fossil fuels.
International
taxation and climate sustainability
According to the MDPI Institute, the two main
international concerns currently being studied by international tax organizations
are the following (1) tax avoidance, mostly by multinationals in relation to
corporate tax; and (2) environmental taxation, which is considered key to
curbing climate change. For this reason, organizations are trying to develop
guidelines for action that can serve as a guide for different countries.[8]
The prospects for a carbon border
adjustment system increase the relationship between these two aspects, since
the avoidance of the environmental impact of products exported may be linked to
forms of tax avoidance.
[1] S&P Global, November 17,
2021: “https://www.spglobal.com/platts/en/market-insights/latest-news/electric-power/111521-eu-carbon-prices-hit-record-eur66mt-amid
-cold-snap-cop26-aftermath
[4] Source: OECD at COP26,
November 2021, https://www.oecd.org/tax/tax-policy/presentation-cop26-carbon-pricing-g20-countries-oecd-november-2021.pdf
[5] The Glasgow Climate Pact is
the first global agreement to explicitly include parties committing to reduce
the use of fossil fuels, specifically to "accelerate efforts to phase out
unretained coal energy and inefficient subsidies to fossil fuels". Unabated
coal power refers to power plants that do not use carbon capture technology,
although the term "inefficient subsidies" for fossil fuels was not
clearly defined in the final text.
[6] Importers of
emissions-intensive goods pay a fee linked to what they would have had to pay
had they been covered by European carbon reduction laws in the first place. The
price of carbon in the program is at 43.44 euros, the highest point it has
reached. It will be limited to a few sectors, with the most likely candidates
being energy, cement, steel, aluminum and fertilizers. It will be designed to
allow gradual expansion to other industries in the coming years. The mechanism
will have to be approved by the European Parliament and by the Member States, a
process that could take up to two years. This means that, realistically, the
mechanism will not take effect until 2023.
[8] See
https://www.mdpi.com/journal/sustainability/special_issues/Taxation_Sustainability
