In recent years there is a palpable enthusiasm for the view that governments can accomplish their climate goals by restraining collateral damage to the economic growth with a proper implication of carbon pricing. The general belief is that cheap energy usually comes with high level of carbon dioxide and there is a common consensus that climate goals cannot be attained with our current lifestyle. Governments at all level are seeking new policies towards a more sustainable future. Carbon pricing, in this regard, is one of the most influential instruments to help achieve the climate goals.

Underlying concept in carbon pricing is nothing new for the economists, which surprisingly dates back to 1920’s. The idea of pricing the externality of hydrocarbons emerged as a way of combating the undesired impacts of burning fossil fuels. The term of carbon pricing mainly refers to a taxing policy mainly imposed on fossil fuel users, which paves the way for emitters to internalize the overall social costs associated with emissions.

Proper implementation of rules together with detailed technicalities have to be put in place to yield the expected benefits, which have been overlooked by the practitioners most of the time. According to the Intergovernmental Panel on Climate Change report of 2017, for about 44,000 gigatonnes of carbon equivalents are stored in the atmosphere, and between 150 to 200 gigatonnes of carbon equivalent particulars are released by various means of human activity. Only through cement production alone, overall carbon release to the atmosphere increased to approximately 10 gigatonnes in 2013 from 6 gigatonnes in 1990’s.

Natural level of atmospheric concentration back in 1950’s were around 315 parts for per million. This level was recorded in Hawaiian Observatory, which is still used as a benchmark for the average global concentration of CO2 level. The volume of CO2 concentration, however, increased as much as 400 parts for per million . It should be noted that emission level has to drop below its natural volume, if we are to start reducing overall concentration accumulated in the atmosphere. There is no clear sign that we are on the path of reducing the curent levels below the natural sequestration rate, at least for the time being. 

Among many issues raised that is related to carbon pricing in the literature, one needs careful consideration. The objective of the carbon taxing is to price the carbon emissions and it has no direct linkage to reduce the greenhouse gas emissions. It rather aims at levying taxes to the polluters to pay the externalities associated with their activities. While taxpayers might respond to the carbon taxing by reducing their overall carbon emissions. It is an indirect approach but one should also remember that they are free to decide how to respond to the tax policy implied. It is expected that carbon pricing should result in carbon reduction with accurate price targets, in the case of emission reduction would not reach targeted level, this simply meant that market for the emission is inelastic, not responding to the policy measures as expected. 

The revenue raised through carbon pricing and how to use it is another subject that is widely discussed by policymakers and in academic circles. While some experts suggest that the revenue should be used to subsidize green technologies or green goods, while some others suggest that the revenue should be allocated to the abatement technology to combat with the carbon pollution. 

Despite the efficient use of taxing with proper target price, the results of carbon taxing should not be seen as a silver bullet in achieving the deep emission reduction, which will help countries to meet their carbon reduction target set in Paris, 2015. Finding the balance between cost containment and environmental stringency is of great importance for a successful carbon pricing mechanism.

Among various initiatives of carbon pricing around the globe, it would not be exaggeration to suggest that European Union’s Emission Trading System (EU ETS) has been the most successful as the largest system in the world. The EU ETS established back in 2005 and as of 2018, 1.8 billion tons of carbon emission covered through this system. 

The survey, which was undertaken by the World Bank in measuring whether the current carbon price is adequate in meeting the goals set in Paris, 2015, found that for a carbon price to be successful, the price for per tone should range in between 40 to 80 USD. This level of price only exists in countries such as France, Sweden, Switzerland and Finland. The price range stated in World Bank report in 2018 is a prerequisite if we are to achieve the temperature goal set in Paris by the Commission on carbon price. 

Major limitation for a successful implementation of the carbon pricing has been inextricably linked to the overly cautious policymakers. While carbon taxing has remained too modest in countries where carbon pricing exists, the caps have been too generous due to the major political hurdles. 

The policy of carbon pricing has shown that it can be a great source of revenue for governments when properly implemented. There was no records of market disruption or loss of confidence due to the carbon pricing policies. And this fact suggests that main idea behind the system is well established and accepted by the businesses around the globe. 

Overall, despite the fact that carbon pricing has remained an important part of a policy tool, which will yield great volume of tax income in allocation of funds from carbon emitters, it should clearly be noted that it is not a silver bullet that will solve major issues related to climate change. 

Among many issues raised related to carbon pricing in the literature, one needs careful consideration. The objective of the carbon taxing is to price the carbon emissions and it has no direct linkage to reduce the greenhouse gas emissions. It rather aims at levying taxes to the polluters to pay the externalities associated with their activities. It is an indirect approach but one should also remember that they are free to decide how to respond to the tax policy implied. It is expected that carbon pricing should result in carbon reduction with accurate price targets, in the case of emission reduction would not reach targeted level, this simply meant that market for the emission is inelastic, not responding to the policy measures as expected.

The revenue raised through carbon pricing and how to use it is another subject that is widely discussed by policymakers and in academic circles. While some experts suggest that the revenue should be used to subsidize green technologies or green goods, while some others suggest that the revenue should be allocated to the abatement technology to combat with the carbon pollution.

Despite the efficient use of taxing with proper target price, the results of carbon taxing should not be seen as a silver bullet in achieving the deep emission reduction, which will help countries to meet their carbon reduction target set in Paris, 2015. Finding the balance between cost containment and environmental stringency is of great importance for a successful carbon pricing mechanism.

Among various initiatives of carbon pricing around the globe, it would not be exaggeration to suggest that European Union’s Emission Trading System (EU ETS) has been the most successful as the largest system in the world. The EU ETS established back in 2005 and as of 2018, 1.8 billion tons of carbon emission covered through this system.

The survey, which was undertaken by the World Bank in measuring whether the current carbon price is adequate in meeting the goals set in Paris, 2015, found that for a carbon price to be successful, the price for per tone should range in between 40 to 80 USD. This level of price only exists in countries such as France, Sweden, Switzerland and Finland. The price range stated in World Bank report in 2018 is a prerequisite if we are to achieve the temperature goal set in Paris by the Commission on carbon price. Major limitation for a successful implementation of the carbon pricing has been inextricably linked to the overly cautious policymakers. While carbon taxing has remained too modest in countries where carbon pricing exists, the caps have been too generous due to the major political hurdles.The policy of carbon pricing has shown that it can be a great source of revenue for governments when properly implemented. There was no records of market disruption or loss of confidence due to the carbon pricing policies. And this fact suggests that main idea behind the system is well established and accepted by the businesses around the globe.

Overall, despite the fact that carbon pricing has remained an important part of a policy tool, which will yield great volume of tax income in allocation of funds from carbon emitters, it should clearly be noted that it is not a silver bullet that will solve major issues related to climate change.

- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.