A Look Under the Hood: Mechanisms that Help Drive Greenhouse Gas Cuts

As thousands of diplomats, climate scientists, and activists approached the final hours of the United Nations 25th annual Conference of Parties meeting (COP 25) in Madrid on Friday, many eyes were already looking ahead to COP 26. The 2020 meeting, in Glasgow, is expected to see the world stepping up its commitment to cut the human-produced greenhouse gas emissions that lead to global heating and its many consequences. Part of the agenda in Madrid was to get things in order for a revised set of voluntary national pledges that will be submitted in 2020 under the Paris Agreement. Forged in 2015, the agreement calls for a “stocktake” and recalibration of pledges every five years.

Even though the national pledges are entirely voluntary, they’re meant to be a powerful lever for inducing action, as each country will have to account for its progress, or lack thereof, before the rest of the world. Still, there’s another question beyond the pledges themselves: how do you make sure they get met? The power of any pledge will be limited unless there are mechanisms to put a price on carbon, so that national and global markets can reorient themselves toward climate protection.

Figure 1. Swedish climate activist Greta Thunberg delivers a speech on Wednesday, December 11, 2019, during a high-level event hosted by the Chilean presidency during the COP25 meeting in Madrid. Thunberg was recently named 2019’s Person of the Year by TIME magazine. Image credit: Christina Quicler/AFP via Getty Images.

Some of these mechanisms can operate on an international level. For example, countries that mandate bolder emission cuts might implement carbon tariffs, slapping a fee on imports from nations that aren’t making efforts to keep their greenhouse emissions in check.  Such tariffs could lead to a “virtuous circle” that infuses the value of climate preservation into the web of global trading. The European Union is reportedly discussing such tariffs.

The Paris Agreement includes another mechanism, one that was part of the preceding Kyoto Protocol: carbon markets. These, in essence, allow one nation to subsidize emission reductions in another country, thus reducing the amount of cuts it has to make itself. In principle, this could steer emission reductions to wherever the most bang for the buck could be obtained. However, in practice, carbon markets can be gamed, and they are fraught with their own issues. For example, a particular project to cut emissions might get double-counted, once by the host country and once by the nation that funded the project.

Activists have pointed out that it would be more direct, and perhaps more effective, for each country to raise its own ambition, rather than buying what amount to emission offsets from other nations. They’ve also noted that large-scale offset programs such as reforestation can have an outsized impact on indigenous lands, and such programs may allow the offsettor to continue polluting in ways that stoke environmental injustice. Negotiators in Madrid spent much of their time working to finalize Article 6, the still-incomplete provision to the Paris Agreement that allows for carbon markets. Update (December 15): After two marathon nights of fraught negotations, the Madrid meeting ended on Sunday with no firm agreement on the rules governing carbon markets, thus kicking the can to 2020. “It is not adequate to just come back next year and say you are going to do more,” said Greenpeace International director Jennifer Morgan, as reported by the Financial Times. “Governments need to completely rethink how they do this.” UN secretary general Antonio Gutteras tweeted, "I am disappointed with the results of #COP25. The international community lost an important opportunity to show increased ambition on mitigation, adaptation & finance to tackle the climate crisis. But we must not give up, and I will not give up. I am more determined than ever to work for 2020 to be the year in which all countries commit to do what science tells us is necessary to reach carbon neutrality in 2050 and a no more than 1.5 degree [C] temperature rise."

Figure 2. Greenpeace activists unfold a banner reading "Climate is not a business" on Friday, December 13, 2019, during the COP 25 meeting in Madrid. Image credit: Cristina Quicler/AFP/Getty Images.

Along with carbon markets, another challenge is how progress against goals is assessed. Because each country is allowed to set its own goals under the Paris Agreement, the current set of pledges is a crazy quilt of timeframes, reductions, and asterisks. For example, Australia came under withering criticism at the Madrid meeting for suggesting that it be allowed credits going forward for “extra” cuts that it made against weak emission targets years ago as part of the Kyoto Protocol.

National mechanisms and the T word

Within a single country, there are more options to structure the playing field so that market forces lead to emission cuts. The classic dichotomy is between a cap-and-trade system—where the desired cuts are specified, and it’s left up to businesses to make those cuts, either directly or by horse-trading emission rights with other companies—and a carbon tax, where fossil fuels are taxed at some point between recovery and use at a rate designed to bring about the intended level of emission cuts.

In the United States, a cap-and-trade proposal brought to the Senate floor in 2003 by John McCain and Joe Lieberman failed by a vote of 55-43. See InsideClimate News for an excellent history of this ambitious, bipartisan proposal.

Of course, the T word (taxes) can be political suicide, especially in the United States, so carbon tax proposals have typically been crafted as some form of “feebate,” where the revenue goes back into taxpayers’ pockets one way or another.

At least nine nations have implemented some type of carbon pricing (see details at Carbon Tax Center). It hasn't gone smoothly everywhere. France’s plans to impose a carbon tax on gasoline angered rural residents who have few if any mass-transit options, and that helped trigger the “yellow vest” protests that have convulsed the nation. The gasoline tax was cancelled in December 2018, just before it was to take effect, but more general protests continue.

Figure 3. Yellow-vest demonstrators light a fire as they gather in the Bercy neighborhood in Paris on April 20, 2019, as part of a 23rd week of protests. Image credit: Jeff J Mitchell/Getty Images.

The most influential carbon tax in the Western Hemisphere has been the one successfully instituted in British Columbia in 2008. One analysis found the tax had more than tripled the rate of carbon reduction in B.C. compared to other Canadian provinces.

More recently, the Canadian government required in 2016 that all of the nation’s provinces adopt a carbon pricing scheme by 2018, or else one would be implemented by the federal government for them. Despite legal challenges in several provinces, Canada’s initiative has been so popular with voters that a CBC analysis declared in October, “The big election winner? The carbon tax,” after parties supporting the tax drew a majority of votes. The Canadian government estimates the tax will reduce greenhouse emissions by up to 60 million metric tons by 2022, thus helping the nation meet its Paris pledge.

IBM is among a number of major firms that support a U.S. carbon tax—specifically, the proposal put forth in 2017 and updated in September 2019 by the Climate Leadership Council. The plan calls for a fee on carbon dioxide emissions that would start at $40 per ton (2017 USD) and increase each year at 5% above inflation.

“If implemented in 2021, this will cut U.S. CO2 emissions in half by 2035 (as compared to 2005) and far exceed the U.S. Paris commitment,” the council asserted. Also part of the plan is a feebate-style carbon dividend for all Americans, equaling roughly $2000 for a family of four in the first year. According to the council, the vast majority of American families would receive more in carbon dividends than they pay in increased energy costs under the proposed plan.

“We are convinced this represents the most realistic and appropriate opportunity to get a majority of people to agree on a public policy towards carbon emissions that is mindful of both the environment and the economy,” said Wayne Balta, IBM vice president of corporate environmental affairs, in an essay keyed to the December 1 announcement of IBM’s support for the plan.

IBM is also a signatory to a December 2 announcement, “United for the Paris Agreement,” urging the United States to remain in the Paris Agreement. “There has been progress, but not enough,” the statement said. “This moment calls for greater, more accelerated action than we’ve seen.”

In 2017, President Donald Trump announced his intention to withdraw the U.S. from the Paris Agreement. That withdrawal process is now under way—but by coincidence, it does not become final until November 4, one day after the 2020 presidential election. Any nation that withdraws from the agreement can later rejoin within a 30-day period.

Australian climate scientist @BillHareClimate on @democracynow:
"I have seen more tears at this COP than I’ve ever seen in the previous 24 COPs. This is the crying COP."

So yeah, #COP25 is going well. pic.twitter.com/jlmUYOQfPy

— Dr. Lucky Tran (@luckytran) December 12, 2019