Saturday, February 18, 2017

How Not to Squander $130 Trillion - by Adam Whitmore

Carbon pricing should be used to establish wealth funds from which current and future citizens can benefit.

Potential annual revenue into carbon funds globally … (Credit: Click to Enlarge.
The world has a limited carbon budget.
Climate change depends on the cumulative total of emissions of greenhouse gases, so total cumulative emissions globally must be limited by the need to limit climate change.  This limited total of cumulative emissions is sometimes referred to as a global carbon budget.  Specifically, if global mean surface temperature rises are to be limited two degrees centigrade, as now mandated in the Paris Agreement, total cumulative CO2 emissions from now on must be limited to around 1600 billion tonnes of CO2.  From this perspective the atmosphere is a finite resource that can only be used once, rather like any exhaustible natural resource, with the important caveat that (unlike many natural resources) no more atmosphere remains to be discovered.

But currently the value of this resource is being squandered …
At the moment only a very small proportion of greenhouse gas emissions is priced adequately. Most emissions remain unpriced, and the growing proportion that is priced is mostly sold at well below both the cost of damages, and well below the value of an increasingly scarce resource.  A valuable scarce resource is thus being given away or sold below cost, subsidizing emitters.  Huge natural wealth is being squandered.  And once gone it can never be replaced.

It would be better to use revenue from carbon pricing to create a wealth fund to benefit both current and future generations …

So is there a better approach to managing this precious resource?  It seems to me that there is.  It would be much better to realize value of emissions in the form of a fund for citizens, with proceeds from carbon pricing (the sale of allowances or taxes) at adequate levels paid into the fund.  Carbon pricing should be comprehensive, with prices at adequate levels.  The finite volume of the resource implies it is best used to establish a wealth fund, where financial capital is built as natural capital is used up.  The fund would belong to all citizens.  Granting its value to citizens would surely encourage better management of the atmosphere, and thus the climate, and higher carbon prices than generally prevail at present.

Such a fund would be analogous to a sovereign wealth fund based on oil and gas reserves, of which the Norwegian fund is the leading example.  Wealth is invested in productive activity, with the income from this available to fund pensions and other expenditure.  So, how much might this resource be worth in purely financial terms?

Read more at How Not to Squander $130 Trillion

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