A global coalition of countries adopting carbon pricing across four major industrial sectors – iron, steel, aluminium, cement and fertilisers – could reduce emissions by around 1.5% while also generating close to $200 billion in annual public revenue, a study has suggested.
According to the study, Building a scalable climate coalition for heavy industry, which was published in the Science journal, these four industries together account for around 20% of global greenhouse gas emissions.
Carbon pricing
Under the proposed coalition, member countries would introduce carbon pricing for these industries and apply carbon charges to imports from countries outside the coalition.
‘The important interaction between trade and climate policy has sharpened the case for a coalition of countries that commit to price industrial emissions at home and use border adjustments to apply a carbon price to imports from non-members,’ the researchers noted.
Such a situation would address ‘carbon leakage’, where companies move production to countries with weaker climate policies, they added. It would also tackle the so called ‘free-rider’ problem, in which countries benefit from emissions reductions made elsewhere while retaining incentives to limit their own climate action.
‘Aligning incentives’
“A coalition that marries carbon pricing and trade policies offers a practical path at a fractious time and offers a pathway to overcome the international climate-policy coordination problem,” commented Catherine Wolfram
Sloan School of Management, Massachusetts Institute of Technology (MIT), one of the lead researchers on the project.
“It aligns incentives, builds on what countries are already doing, and replaces a race to the bottom with a race to the cleanest.”
As the study notes, the coalition approach is designed to address a ‘central weakness’ of international climate policy – that countries ‘differ greatly’ in their economic capacity and willingness to impose carbon costs.
A system that would apply different carbon prices according to countries’ income levels could enable lower-income countries to participate without immediately facing the same costs as wealthier members, the researchers noted. Read more here.
