Comment: Business needs a carbon budget to hit 2°C target

Japan’s former climate ambassador Yoshi Nishimura says paying more attention to the carbon we emit than setting arbitrary reduction targets is the best way to get the private sector to steer us away from dangerous levels of warming.

Efforts to fight climate change have so far focused on setting emissions reduction targets. This strategy is not working.

As the UNEP emissions gap report shows, the current focus on cuts, the reducing paradigm, has left us with a significant shortfall in what needs to be done to avoid dangerous levels of warming.

Focusing instead on how much carbon we can emit, is a better route to ensure we hit our goals. Let’s call that the emitting paradigm.

Both aim to achieve the adopted 2°C temperature target but they are very different in a multitude of ways.

Carbon Brief survey

CLICK TO ENLARGE The so-called gigatonne gap highlights how emission levels must be altered if we are to avoid 2°C of warming (Climate Action Tracker/Ecofys/Climate Analytics/PIK)

In the current Kyoto Protocol-led reducing paradigm, governments are the key players.

Each government sets and pledges its ambition arbitrarily. If a government raises its ambition, it has to regulate the private sector more by mobilizing stringent commanding and controlling measures.

They also have to find funding in their ever diminishing tax coffers for the technical innovations required for the switch to the low carbon economy.

Crucially, in this reducing paradigm, the private sector dampens governments’ ambitions since firms risk losing out to foreign competitors. In reality, the much vaunted public-private partnership is lacklustre. No wonder governments have been modest in their ambitions and vociferous in pointing the finger at one another.

If 18 years of quarrel-prone UN negotiations testify to anything at all, it is to the interminable failure of ambition. Are we going to continue this until the middle of the next century?

Healthy economy, healthy climate

If we move to the emitting paradigm, adopted targets can be achieved cost-effectively if private sector initiatives are mobilized to their full extent, poverty alleviated and global economy kept thriving.

As the above graph shows, there is only so much that can be emitted from here through 2050 if we are to achieve the 2°C target.

The private sector, not government, is emitting. This is quite simply because the consumers behind them draw benefits and utilities from emissions.

Businesses and consumers are both beneficiaries and polluters. Isn’t it just and fair to force those beneficiaries to pay for the right to use up the finite remaining carbon budget?

The finite carbon budget is a global commons for humanity. It is going to be the collective property of all the governments of the world.

Governments must decide to put collective property rights on the budget and sell those new assets in the form of allowances to firms that want to emit.

If this is done by instalments through 2050, the finite carbon budget will be sold out and the 2°C target achieved.

The right signal

During the course of the coming decades, a universal single carbon price will emerge and go gradually upward incentivizing firms and consumers to shift to low-carbon investment and consumption.

The price signal incentivizes the private sector to innovate and invest. No need to backload allowances to prop up the carbon price. Its universality means no competitiveness concerns whatsoever.

Furthermore, governments of the world will get a new large source of revenues from the sale of their assets, which they could use to help countries in need.

In the emitting paradigm, governments establish a new market framework and retire from the centre stage. Firms and consumers will instead come to the fore and play a new market game.

Expensive and ineffective governments will go away and price-driven business decisions reign.

Only here can the private sector excel as the whole system becomes price-driven. They are in their element aren’t they? This is the best public-private partnership to save the planet in the least expensive way.

Policy makers should start exploring a new game in the emitting paradigm as it is feared the old reducing game is unlikely to achieve a temperature target like 2°C.

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