How to Comply with the Paris Agreement Temperature Goal: Global Carbon Pricing According to Carbon Budgets

Martin Zapf, Hermann Pengg and Christian Weindl
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Martin Zapf: Coburg University of Applied Sciences and Arts, Institute of High Voltage Technology, Energy System & Asset Diagnostics (IHEA), 96450 Coburg, Germany
Hermann Pengg: AUDI AG, 85045 Ingolstadt, Germany
Christian Weindl: Coburg University of Applied Sciences and Arts, Institute of High Voltage Technology, Energy System & Asset Diagnostics (IHEA), 96450 Coburg, Germany

Energies, 2019, vol. 12, issue 15, 1-20

Abstract: Avoiding irreversible climate change as effectively as possible is one of the most pressing challenges of society. Carbon pricing that is uniformly valid on a global and cross-sectoral basis represents a cost-efficient policy tool to meet this challenge. Carbon pricing allows external costs to be allocated or internalized on a polluter-pays principle. It is shown that a global emissions cap-and-trade system is the most suitable market-based instrument for reducing global emissions levels, in line with the temperature goal set by the Paris Agreement. A proposal for its design is presented in this paper. This instrument encourages worldwide measures, with the lowest marginal abatement cost, according to a pre-defined reduction path. Thereby, it ensures compliance with a specified remaining carbon budget to meet a certain temperature limit in a cost-efficient manner. Possible reduction paths are presented in this paper. Weaknesses in the design of existing emissions trading systems (ETS), such as the EU ETS, are identified and avoided in the proposed instrument. The framework solves several problems of today’s climate change policies, like the free rider problem, carbon leakage, rebound effects or the green paradox. The introduction of a global uniform carbon pricing instrument and its concrete design should be the subject of policy, especially at the United Nations climate change conferences, as soon as possible in order to allow for rapid implementation. If a global ETS with a uniform carbon price could be introduced, additional governmental regulations with regard to carbon emissions would become obsolete.

Keywords: Carbon pricing; carbon law; remaining carbon budget; reduction path; policy framework; emissions trading; Pigouvian tax; global cap-and-trade system across all sectors (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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