?A Global Carbon Permit Market Is Not A Very Good Idea?
30 Mar, 2007 11:42 am
Interview with Warwick McKibbin, the director of the Center of Applied Macroeconomic Analysis at the Australian National University and a professorial fellow at the Lowly Institute for International Policy.
The idea of carbon trading is that there is some constraint placed on emissions, and that constraint is converted into certificates, which companies that are required to buy carbon can do so. Individuals who may earn these permits can sell them.
What programs do they implement to reduce greenhouse gases?
The idea of a carbon market is that it puts a price on carbon. For someone who is producing electricity using fossil fuels, or even oil or gas, having to buy carbon permit means that the price of producing those fuels becomes more expensive. This then gives an incentive to alternatives, such as renewable. Wind, hydro, and a whole range of renewables become more competitive, and therefore throughout the economy more people are interested in pursuing development and purchasing of alternative energy sources that donít use carbon.
Most of the emission reduction programs proposed by these companies are designed to invest in the development of non-CO2 polluting technologies in underdeveloped countries. Is there an ethical issue?
My view on this is that the emission reductions should be occurring in the industrial countries, and each of these programs should be country specific. We want developing countries to undertake emission reductions, but my view is that these countries should have the right to develop along a particular path before they pay a price for carbon reduction. A global permit market is not a very good idea for that particular reason. Emissions should be reduced globally and in industrial countries where itís cheapest to reduce first, but developing countries must be given the opportunity to trade off between development and emission reduction.
Could this in any specific way limit the development of underdeveloped countries?
If itís not done correctly it can actually be a problem, because by developing counties so being allowed to sell into the world market, the price of carbon in those economies will rise to the level of the world market. For many of these countries energy is extremely inexpensive, and pricing energy in a much more expensive way can cause a problem for development strategies in the short term.
My view is that there has to be a transitional period in which these countries are committed to abatement of greenhouse gases, but in which they donít participate directly in a global market. Again, that is why I think there should be country specific or region specific markets, and not a global system linked all together at the very beginning.
Interview by Christopher Le Coq