World Bank: NZ carbon prices may need to double
Wednesday 8 Jun 2022
(BusinessDesk) High carbon prices may bring economic pain, but low prices may
increase trade barriers - A World Bank report suggests New Zealand’s carbon
price may have to double if it's to achieve the emissions reductions it's agreed
to under the Paris Agreement.
The study – State and Trends of Carbon
Pricing 2022 – also warns that current carbon prices in NZ are at the bottom end
of what is considered by some as reasonable and this in turn may expose
exporters to risk from potential carbon border taxes. The World Bank study looks
at developments in carbon pricing, including carbon taxes and emissions trading
schemes (ETS), around the world and including NZ.
It notes global carbon
prices fell after the Russian invasion of Ukraine, but they have since
stabilised and increased slightly, though there remain large differences in what
is covered and the price itself. Record ETS prices were seen in the European
Union (EU), California, NZ, and the Republic of Korea, among other markets,
while several carbon taxes also saw prices hit their highest levels yet.
How high is high? - The work includes an analysis of how high carbon
prices must be to drive down emissions with the report saying: “On the whole,
current prices remain short of levels needed to drive the transformative change
needed to reach the 1.5°C target.”
The price of an NZU (the equivalent
of a tonne of carbon on the NZ ETS) is about $77 (US$50).
The World Bank said the report of the High-Level Commission on Carbon Prices
identified a US$50-100/ a tonne (or “carbon price corridor”) as the price needed
by 2030 to keep global heating to below 2°C – the upper end of the limit agreed
in the Paris Agreement – as part of a comprehensive climate policy package.
However, less than 4% of global emissions in 2022 are covered by a direct
carbon price at or above the estimated range required by 2030.
The World
Bank cites updated work which shows even higher prices may be needed to reduce
emissions to net-zero by 2050. The survey of 30 climate economists estimates
prices of US$50-250 a tonne would be needed to meet the 1.5°C goal, with a
median forecast of US$100.
The upper range of this estimate would be an
NZ price of $386 and the median forecast would be $154. It's difficult to
directly compare different prices internationally because they're applied
differently with different areas covered and varying forms of credits and
exemptions.
But, for comparison, the World Bank noted Uruguay was at the
top end with a direct carbon tax of US$137, the UK – US$99, and the EU’s ETS at
US$87. At the other end of the scale, Japan, Singapore and Mexico have a carbon
price of below US$5.
That report covers 68 carbon pricing instruments
around the globe, but they cover just 23% of total global greenhouse gas
emissions. This includes 37 carbon taxes and 34 emissions trading systems.
Despite suggesting a need for higher carbon prices, the World Bank also notes a
“backlash” against rising energy prices, particularly when they're perceived to
disproportionately affect vulnerable populations.
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