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Carbon pricing is crucial to attain Paris Agreement goal

The UAE Consensus that was adopted by almost 200 parties during the 2023 climate change conference or COP28 held in Dubai, United Arab Emirates last December, was hailed as a significant agreement that could signal the beginning of the end for fossil fuels.

The UAE Consensus gives us renewed hope that we can still stall global warming and limit it to 1.5 degrees Celsius. However, there is the bigger question of whether or not it will really make an impact. 

If we are to look again at the first Global Stocktake (GST), it said that countries are not on track to meet the Paris Agreement goal of limiting global warming to well below 2 degrees Celsius compared to the pre-industrial era, and ideally to 1.5 degrees Celsius to avoid the most severe and irreversible climate change impacts. 

The first GST is the result of the assessment on the progress countries have made toward the Paris Agreement targets five years after it went into effect. Moreover, this year, based on the forecast of the United Kingdom’s Met Office, we will temporarily hit the 1.5 degrees Celsius threshold. Considering this and the result of the first GST, do we still have enough time to reach the Paris Agreement goals?

In reality, we are in a race against time because we were sorely lacking in our actions for the past years. We did not deliver on our commitments. The good news is that, we can still catch up, but we need bold measures to make deep cuts in global greenhouse gas (GHG) emissions.

The need for carbon pricing

One effective way to compel everyone to choose clean energy over fossil fuels is to put a price on carbon.

At a high-level event on carbon markets at COP28, European Union (EU) President Ursula von der Leyen said that EU’s carbon pricing, which started 18 years ago, resulted in a 40 percent decrease in their GHG emissions while the economy continued to grow. Through carbon pricing, they have raised EUR 175 billion in revenues which they have been using to fund programs for climate action and innovation, including for developing nations.

Carbon pricing is a good mechanism to decarbonize because those who continue to emit GHG will have to pay for their excessive emissions, which can then be used to support climate action; or they can consider shifting to clean energy sources, which could initially be costly but would yield incentives. There are several forms of carbon pricing. One is the emissions trading system (ETS), or the cap and trade, wherein the government sets a cap on emissions and issues an emission allowance to entities. The allowance must be consistent with the cap. When an entity does not use up its emission allowance, it can spare it for future use or sell it to another company. Moreover, as the government continuously lowers its emissions cap to eventually reach its overall GHG reduction target, the emission allowance for entities will also continuously decrease.

There is also the carbon tax, wherein government sets a price or tax on the use of fossil fuel. This means that the more one uses fossil fuel, the greater the carbon tax that must be paid. So instead of paying carbon tax, it would be cost-effective to begin the shift to environment-friendly alternatives.Other main types of carbon pricing are crediting mechanisms, results-based climate finance (RBCF), and internal carbon pricing. According to the UN Climate Change, a hybrid approach can also be considered depending on the needs of an entity or state. But the vital step here is to utilize this as a strategy to significantly lower emissions. 

The world will only get warmer if we fail to take concrete, gigantic steps to reducing and eventually eliminating fossil fuels. We need to undo decades of GHG emissions. Our actions need to match the massive scale of the climate crisis. We cannot waste the remaining time that we have in order to prevent the worst from happening.

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