Sunday, November 28

Climate protection measure: The CO2 price and its effects


Status: 03.11.2021 10:28 a.m.

Carbon pricing is seen as an effective way to reduce carbon dioxide emissions. Chancellor Merkel is therefore calling for it to be applied worldwide. In addition to opportunities, the model also has undesirable side effects.

By Lothar Gries,

“I want to make a clear plea for pricing carbon emissions,” said Chancellor Angela Merkel at the world climate conference in Glasgow. With such a price one could get the industry to find the technologically best way to achieve climate neutrality. Consumers should also be encouraged to use climate-friendly alternatives, such as buying an electric car instead of a combustion engine.

According to the World Bank, this instrument is already used by 64 countries worldwide; These include all EU countries as well as third world countries such as Kazakhstan or Colombia. However, they only cover 21.5 percent of all global CO2 emissions. The USA, one of the largest carbon dioxide emitters in the world, does not want CO2 pricing. In its climate package, the government of US President Joe Biden relies primarily on subsidies to encourage companies to make climate-friendly conversions.

China, with a share of 27 percent the world’s largest emitter of CO2, is also hesitant when it comes to pricing. Although such an instrument was introduced at the beginning of February, it initially only applies to the operators of coal and gas-fired power plants. The power plant operators also only have to buy certificates if their CO2 emissions in relation to the provision of electricity exceed a certain limit value.

Sweden pioneers

“The current limit values ​​correspond to the average of past years and will therefore not lead to a decrease in CO2 emissions and coal-fired power plants to be closed in the short term,” says a study by the Konrad Adenauer Foundation. “On the contrary, newer, more efficient and already planned coal-fired power plants will be added. Therefore, CO2 emissions in China will initially continue to rise,” predicts Christian Hübner, head of the energy security and climate change program at the foundation. In fact, China wants to limit the increase in coal consumption initially by 2025 and then gradually reduce it from 2030.

Regardless of this, the Europeans are advancing. The front runner, Sweden, is already pricing a ton of carbon dioxide at $ 137 (as of April). Switzerland, Liechtenstein, Finland, Norway and France are also well ahead with prices between 52 and 101 dollars, as the World Bank has calculated. With the equivalent of $ 29 per tonne of CO2, Germany is in the middle, roughly on a par with Portugal and Denmark.

Hardship for low-income households

In the following years, the taxes in this country are to increase gradually until they reach a value of 55 euros per ton in 2025. This corresponds to 15.5 cents per liter of gasoline and 17.3 cents per liter of heating oil. While experts and climate activists consider this price too low, the authors of a study by the Bertelsmann Stiftung warn of “undesirable side effects”, such as social tensions, which could result from excessive and rapid increases in prices for greenhouse gas emissions.

“This results from the fact that an increase in the prices of energy and emission-containing consumer goods can mean a noticeable loss of purchasing power, especially for low-income households, while high-income households can cope with such loss of purchasing power more easily,” says the study. In fact, it is the consumers who end up paying for the carbon price. The tax introduced in Germany at the beginning of the year has made petrol about seven cents more expensive and diesel about eight cents more expensive per liter. Heating costs are also increasing. In order to offset the burden of higher fuel prices, the federal government has decided to increase the commuter allowance for the years 2021 to 2026.

Fear of relocation of production

But companies are also threatened with “hardship”, as Thieß Petersen and Thomas Rausch write in their study. Economic sectors with high energy consumption and correspondingly high CO2 emissions are particularly affected. This applies to producers of steel, aluminum and copper, for example. Therefore, loss of income or job losses cannot be ruled out. “Countries with high CO2 prices feel a decline in production, employment and income,” the Bertelsmann experts state.

In the worst case, there is a risk of so-called “carbon leakage”. This term describes a situation in which economic activities are being relocated from one country to another and the cause is the unilateral introduction or increase in the price of greenhouse gas emissions in the country. A sharp rise in the CO2 price should therefore always be accompanied by social compensation payments.

Experts also recommend increased digitization. The use of big data, supported by artificial intelligence, could contribute to making economic decision-making and production processes faster, more precise and more reliable. This reduces the consumption of resources and thus also the emission of greenhouse gas.

A study by the German digital association Bitkom from 2020 comes to the conclusion that significant CO2 savings can be achieved in companies through technological innovations, resource-saving behavior and more efficient organizations. Targeted aid from the state is a prerequisite for this.

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