Climate Change: Who pays?

Thoughts on BBC Radio 4’s debate ‘The Global Philosopher’.

BBC News Summary.
Click here to listen to the debate.


As the human race burns through more oil fields and woodlands, polluting the ocean, dumping waste and flooding inhabited land, it makes sense to ask the question: ‘who pays for climate change?’

For too long, leaders of the worst emitting countries have avoided answering this question. They have done so because they fear being financially worse off if they did. At first, it makes sense to suggest that the countries polluting the most can afford to pay for the damage they make. After all, more pollutants in the skies must mean greater production of goods and services – right?


Climate change is a social issue and should not be view through a nationalist lens. As one Canadian contributor to the programme said, ‘who are the largest emitters? Those are companies, those are co-operations, they are not countries.’ A nationalist response to climate change is limited to a carbon tax on companies. Although a carbon tax has its merits, it only works on the basis that ALL governments support and enforce it. If one country introduces a tax of say $20 per tonne of CO2, then a large multi-national cooperation will just relocate their headquarters to another country where the tax is lower or even non-existent.

Even if an international tax level is agreed, this also poses some difficulties. The world’s economies are at different stages of development, some more dependent than others on oil, coal and gas as a cheap means of production. This is no better than the current unfair share of the burden. The poorest still pay.

But to dismiss a loose carbon tax does not mean to diminish the role of governments in regulating carbon pollutants and sanctioning against those that are responsible for a disproportionate segment of carbon emissions.

In 2011, the US Federal Court heard the ‘American Electric Power Co. v. Connecticut’ case. It was the first time that an American company was being sued on a ‘public nuisance’ claim. The state argued that American Electric had irreversibly damaged the environment and although the company did not contest this accusation, it did question why the case was being heard by the Supreme Court.

American Electric won on a judgement of 8-0 and although the legal situation is currently in favor of emitters, more cases like this are making appearances in court.

Carbon Trading
Carbon trading – or ‘Cap and Trade’ is worth an estimated $3 Tn to the market. The system sets an international cap on CO2 emissions, meaning that in theory, the rate of carbon emissions does not widen year on year. Companies are allocated a certain number of ‘credits’ based on their size and carbon output. These credits act as tokens or licences which stipulate the levels at which companies can legally pollute the Earth’s atmosphere. ‘Greener’ companies are able to sell off their credits to wealthier nations hat want to exceed their designated carbon limits.

Because we want to lower the global carbon output, the number of carbon credits released each year is reduced, pushing up the value of one credit.

Here’s the problem.

If Carbon Trading is released into the market, private companies, banks and wealthy individuals are able to make billions off the back of the system. A better solution is to effectively ‘nationalize’ the cap and trade system, allowing governments to funnel profits into renewable energy development or dividends for families on the cost of fuel and gas during the transition to a greener economy.

Only under this scheme is the cost of climate change evenly shared. In addition to this, green energy projects can receive billions of pounds worth of new investment, increasing the rate at which companies and households reject fossil fuels in industry and their daily lives.

As it exists, the carbon trading limit is set too high. This allows European businesses to buy credits from India and China. It is then possible for large coal-powered electricity generators to be built within Europe itself, thus failing to address the problem.

Graph of CO2 concentration
Source: BBC News
Why is this so important?
In May 2013, atmospheric CO2 reached a record 400 parts per million. Safe levels are estimated at 350 parts, significantly lower than first thought. Considering 450 parts per million is the threshold upon which the Earth becomes free of ice, the current cap and trade system has clearly failed.
The Carbon Tax
Another option is a tax on carbon production. However, unlike cap-and-trade, a carbon tax does not guarantee a real-term annual fall in carbon emissions. Companies are merely taxed on the carbon they produce but are not tied to any form of restrictive cap.
The most publicised attempt at a ‘carbon tax’ was under Julia Gillard’s Australian government. The tax was a measure taken to ensure Australia reached its emissions target of -5% and at first, the results were promising.
In the first year 2012-13, the new tax was set at a rate of $23.00AUD per tonne and increased slightly to $24.15AUD the following year. Although it succeeded in cutting carbon output by 0.8% in its first year, an unstable political situation resulted in its repeal on 17th July 2014.
The government’s Department of the Environment website explains why the tax was abandoned:

“Abolishing the carbon tax will lower costs for Australian businesses and ease cost of living pressures for households.” 

This explanation is important in answering the question of ‘who pays for climate change?’ The incoming Abbott administration had adopted the mantra that short-term business growth overruled long-term environmental sustainability.

This is our problem. Short-term plans.

In repealing the tax, Mr Abbott had no intention of replacing it with a viable alternative. If the then-Prime Minister had been asked ‘who pays?’, his answered would have been ‘NOT BUSINESSES. NOT POLLUTERS’.  Here, Mr Abbott and the US Supreme Court are in agreement.

So what’s the best plan?
Nationalize the carbon market:

  • Rather than sell additional credits to companies that exceed their legal limits, the government should issue additional credits at a fixed price.
  • The government should also subtract the value of these additional credits from the total number of credits a company receives over the next five years.
  • Credits should no longer be transferable from one company to another.
  • All treasury receipts from a ‘state’ carbon market should fund new PUBLIC environmental projects and subsidize the cost of renewable energy at market.

For example:

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Total Credits Over 6 Years
Set Credit Targets 120 100 80 60 40 20 420
Credit Limits (after borrowing) 130

This way, large-scale public environmental projects are guaranteed funding and carbon costs are not passed on from businesses to their consumers.

Free-market economists may ask ‘where’s the incentive?’ Why should there be a financial incentive when the most significant stimulus already exists – the chance to save the planet?

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