Edenhofer: "A good idea is not a guaranteed success"
In the German newspaper "F.A.Z.", the MCC Director advocates an ambitious minimum price for CO2 as an instrument for efficient emissions reduction and easier international cooperation.
Emissions trading systems, such as the EU ETS in Europe, typically deliver very low carbon prices not long after their introduction. This is a systemic problem, say Ottmar Edenhofer, Director of the Mercator Research Institute on Global Commons and Climate Change (MCC), and Axel Ockenfels of the University of Cologne. Their op-ed on effective carbon pricing has been published today in the influential German newspaper “Frankfurter Allgemeine Zeitung”. The problem, the economists argue, could be solved by introducing a minimum price for CO2.
Compared to certain quantity targets for maximum CO2 emissions—like in the EU ETS—a minimum price would be easier to coordinate on an international level. But the instrument’s main advantage is that it is more effective than a quantity cap in delivering higher carbon prices, say the authors.
Higher CO2 prices are needed globally to steer investments into low-carbon assets and push dirty coal-generated energy out of the market. On the other hand, in a mere cap-and-trade system, market participants often expect that policymakers will release the cap in the future in the event of a drastic price increase. Due to these expectations, prices remain low.
In order for climate policy to become more credible, decision-makers should not only focus on ambitious goals, but should also opt for effective tools to achieve these goals. The climate change conference in Bonn has shown that even a good idea like a minimum price for carbon is “not a guaranteed success”. However, it is encouraging that more and more countries and regions around the world are planning to introduce carbon pricing, write Edenhofer and Ockenfels.