But the outcome to date is far from optimal. Depending on the country, carbon is priced in a multitude of ways. Sometimes the price is very high, often it is low to negligible.
It is a chaotic landscape that sends no clear signal. According to the latest IEA estimates, subsidies to fossil fuel consumers in developing and emerging economies totalled USD billion in In many countries, these subsidies are used as a substitute for poverty relief. That is understandable since energy is one of the fundamental basic human necessities. But such subsidies are generally poorly targeted and instead end up being captured overwhelmingly by better-off households who can afford larger cars and houses that consume more energy.
These subsidies are bad for the economy, bad for the environment, and also bad in terms of social justice. We need systems for social redistribution that protect people from energy poverty without hard-wiring a reliance on emissions-intensive consumption. In recent years, the OECD has extended this analysis to make an inventory of support to both the consumption and production of fossil fuels in our own Member Countries. This is a major achievement that builds on the methodology developed over twenty five years to track support for agriculture.
Again, the support we have uncovered is non-trivial - in the range of USD billion per year recently. Most of the support in OECD countries is quite opaque, particularly as it relates to production subsidies, lost in the details of taxing statutes. The figure is by no means comprehensive and our work is on-going. For instance, tax breaks for company cars can significantly increase the social costs of transport, through increased emissions, as well as more accidents and congestion.
Preliminary findings of work we have currently underway suggest these tax breaks amount to over USD 30 billion per year across 25 OECD countries. Incoherent and inconsistent policies The net effect of the massive misallocation of resources arising from fossil fuel subsidies is to tilt the playing field in favour of continued reliance on fossil fuels.
These policies actively undermine the carbon-pricing initiatives in some of the same countries and the economics of low carbon energy. Fossil fuel already has a huge advantage as the energy resource of choice.
Moreover, the investment playing field is naturally attuned to channelling capital to mature, incumbent technologies that it understands. Governments need to stand back and look across the entire range of signals they are sending to consumers, to producers and investors. If they are serious about climate change they can leave no stone unturned — all avenues to price carbon in a cost-effective way need to be explored and all conflicting policy signals eliminated.
A critical element in this is financing the transition. There is no shortage of capital in this world. The question is whether non-fossil energy investments can currently compete in terms of their risk-return profile. In addition to pricing carbon, that means ensuring the right regulatory arrangements are in place and where appropriate, sufficient incentives for investors to redirect investment from fossil fuels to more climate-friendly alternatives.
By mid we will have a good idea of the progress that has been made — and remains to be made — in both OECD countries and key emerging economy partners. But all need to be able to explain how their policy settings are consistent with a pathway to eliminate emissions from fossil fuel combustion in the second half of the century. Managing the transition to zero net emissions A clear, long term signal that the price of emissions will only go one way — up — would be the best path to put us on a trajectory towards zero emissions.
But given the long life of many energy generation assets, and the fact that investors will inevitably question whether governments will stay the course, it may be worth considering complementary measures to accelerate transformational technological change.
Complementary measures are also required because vested interests and institutional inertia can delay the introduction of carbon pricing and inhibit its effectiveness.
And for these groups the costs are real. The very transparency of prices makes them an easy target for opponents. So a whole variety of less transparent regulatory interventions and subsidies are sometimes favoured to make progress. These are rarely cost effective. But if such policies can give producers and consumers the confidence that viable technical alternatives exist and their costs can be managed down, then they may be a justified means of making the transition to stronger carbon pricing.
The key point to stress is that, whatever is attempted, the whole range of price- and non-price- based measures must be mutually supportive. This may involve some hard questions. A first hard question is: Should governments impose a moratorium on new coal-fired power stations?
Coal releases far more CO2 per unit of energy than oil or gas. Without CCS, continued reliance on coal-fired power is a road to disaster.
This should be something every government considers for itself in terms of domestic developments and for those countries that are donors in respect of development assistance. In some countries, today, coal is on the retreat as a simple result of market forces.
Obviously I have in mind the United States where the exploitation of shale gas has changed the game. How should we regard the advent of shale gas in terms of the long term goal I have been talking about? For heavily coal dependent countries a switch to shale gas can reduce the carbon intensity of power generation as in the USA.
This is an improvement from a climate perspective provided the gains are not off-set by vented and fugitive emissions. If we invest too much in dedicated pipelines and other infrastructure, the transition risks becoming a new and permanent dependency. Any new fossil resources brought to market — conventional or unconventional — risk taking us further away from the trajectory we need to be on, unless there is a firm CCS requirement in place or governments are prepared to risk writing off large amounts of invested capital.
Another hard question: Should governments regulate to ensure that new plants can be retrofitted for carbon capture and storage CCS? Given the scale of our current dependence on fossil fuels and the scale of sunk investment in their extraction and use, CCS will have to play a vital role.
The gap between where we are and where we need to be is huge but perhaps not surprising. Under current carbon prices, CCS is only commercially interesting for enhanced oil recovery! Beyond CCS, we should see transformative zero-emission technologies as opportunities that will deliver a range of environmental benefits and economic opportunities. These are not just about fuel savings on the energy supply side.
The applications of ICT to a world in which consumers can manage their own demand and choose their energy sources — including disengaging entirely from the grid — is likely to be a world reliant on a large number of products and services that currently do not exist. Understandably, the cost of exiting from the status quo can appear daunting. The transition to a zero emissions economy will not be a costless one. Governments must be frank about the costs of this transformation.
But if we are equally realistic about the costs climate change could impose, we should see transformative zero-emission technologies as opportunities. Every one of them will be part of a new growth dynamic. We are on a collision course with nature, and we need to take bold decisions to change that path. We must help governments identify ambitious but achievable goals, and then to achieve them in the most cost-effective manner.
Our efforts have so far been a fraction of what is required. We are neither on track to achieve internationally agreed goals nor managing to execute even the existing policies in a cost effective way. This is placing human well-being at risk. There is only one way forward: governments need to put together the optimal policy mix to eliminate emissions from fossil fuels in the second half of the century.
Cherry-picking a few easy measures will not do the trick. There has to be progress on every front, notably with respect to carbon pricing, and that is what peer review and learning from best practice should help achieve.
The OECD is dedicated to assisting countries in that process in order to design, promote, and implement better policies for better lives! Today our understanding of the scale of the risks posed by climate change is much better developed and supported by seriously tested and globally accepted evidence.
The IPCC report released on 27 September stated that warming of the climate system is unequivocal, and since the s, many of the observed changes are unprecedented over decades to millennia. The report is also clear that it is extremely likely that human influence has been the dominant cause of the observed warming since the midth century. While governments need to start taking action now to put us on a pathway to achieve zero net greenhouse emissions globally in the second half of this century, our dependence on fossil fuels appears to be unshaken.
We need to learn from the policies some countries are implementing to drive the investment and technology shift needed to break that dependence, and to highlight the stumbling blocks that will require strong political will to be overcome. From an environmental perspective, the elimination of waste represents the ultimate solution to pollution problems that threaten ecosystems at global, national and local levels.
In addition, full use of raw materials, accompanied by a shift towards renewable sources, means that utilization of the earth's resources can be brought back to sustainable levels. For business, Zero Emissions can mean greater competitiveness and represents a continuation of its inevitable drive towards efficiency.
First came productivity of labor and capital, and now comes the productivity of raw materials - producing more from less. Zero Emissions can therefore be understood as a new standard of efficiency and integration. For businesses, the fundamental issue is how to organize industrial clusters based on the Zero Emissions concept.
In this context, case studies and demonstration projects are being developed to show how the Zero Emissions approach differs from other pollution prevention strategies. To summarize, the control and reduction of emissions from industrial pollution sources has gone through three phases: End-of-pipe pollution control technologies and practices dealing with wastes and emissions after they have been created.
Cleaner Production - application of integrated preventive environmental strategies to processes, products and services to increase efficiencies and reduce risks to the environment and humans. The goal is to avoid generating pollution in the first place and thus reduce costs and risks.
Practically every country has joined the Paris Agreement on climate change, which calls for keeping the global temperature to 1. If we continue to pump out the emissions that cause climate change, however, temperatures will continue to rise well beyond 1. This is why a growing number of countries are making commitments to achieve carbon neutrality, or "net zero" emissions within the next few decades. Net zero by is the goal. But countries also need to demonstrate how they will get there.
Efforts to reach net-zero must be complemented with adaptation and resilience measures, and the mobilization of climate financing for developing countries. A key element is powering economies with clean energy, replacing polluting coal - and gas and oil-fired power stations - with renewable energy sources, such as wind or solar farms. This would dramatically reduce carbon emissions. Plus, renewable energy is now not only cleaner, but often cheaper than fossil fuels.
Electric vehicles are rapidly becoming cheaper and more efficient, and many countries, including those committed to net zero, have proposed plans to phase out the sale of fossil-fuel powered cars. Other harmful emissions come from agriculture livestock produce significant levels of methane, a greenhouse gas. These could be reduced drastically if we eat less meat and more plant-based foods. Here again, the signs are promising, such as the rising popularity of "plant-based meats" now being sold in major international fast-food chains.
Reducing emissions is extremely important. To get to net zero, we also need to find ways to remove carbon from the atmosphere. Here again, solutions are at hand. The most important have existed in nature for thousands of years. These "nature-based solutions" include forests, peatbogs, mangroves, soil and even underground seaweed forests , which are all highly efficient at absorbing carbon. This is why huge efforts are being made around the world to save forests, plant trees, and rehabilitate peat and mangrove areas, as well as to improve farming techniques.
Many governments are now moving in the right direction. By early , countries representing more than 65 per cent of global carbon dioxide emissions and more than 70 per cent of the world economy, will have made ambitious commitments to carbon neutrality.
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