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Carbon Pricing: A Development and Trade Reality Check
This document focuses on carbon pricing as one policy strand used to tackle global GHG emissions. It gives an overview of implemented and forthcoming domestic and cross-border carbon pricing mechanisms as well as their implications for GHG emissions international trade and development. It lays out the characteristics of various approaches including the potential pitfalls and unintended economic and environmental side effects which need to be addressed for these approaches to work.
Conclusion
Achieving SDG 7 in the Arab region requires much more implementation and impact from policies than in the past. While substantial progress has been made in past decades in the areas of electrification and access to CFTs large populations are still being left behind in the Arab LDCs. Furthermore meeting SDG targets will require significantly scaled-up progress in integrating renewable energy into Arab countries’ energy mix and in decoupling regional growth from energy consumption through improved energy efficiency. SDG 7.2 and 7.3 concerning renewable energy and energy efficiency form a critical part of the region’s response to climate change. But they can do so only once policy clarity is developed into implementation momentum building new capacity investment and technology markets for sustainable energy.
Introduction
Climate change is usually associated with the climatic consequences of accumulations of greenhouse gases (GHGs) in the atmosphere. Carbon dioxide (CO2) has been the most prominently emitted GHG since information on emissions started being collected.
SDG 7 outcomes that contribute to 2019 focus SDGs
In this annex the relationship between SDG7 energy efficiency renewable energy and improved access and the outcomes and multiple benefits they deliver to the 2019 focus SDGs is developed.
Renewable Energy
SDG 7.2 tracks progress in the share of renewable energy in total final energy consumption (TFEC) towards the ultimate goal to substantially increase by 2030 the share of renewable energy in the global energy mix. This chapter presents main findings for the Arab region looking both at the share of renewable energy and actual consumption dynamics in modern renewable energy use.
Putting a price on carbon: What is at stake?
This chapter briefly reviews the scope and objectives of carbon pricing from a conceptual point of view. It then discusses the framing of carbon pricing principles at the international level and describes their national counterparts.
Non-market-based approaches to carbon pricing
This chapter reviews major non-market approaches to carbon pricing. As discussed in chapter 2 a non-market approach can be any approach provided it does not generate some tradable units of emissions. Non-market mechanisms include fiscal measures such as putting a pre-determined price on carbon or applying taxes to discourage emissions. Non-market approaches can also be implemented in the context of cooperative actions between countries to achieve mitigation and adaptation and possibly other sustainable development objectives such as poverty reduction.
Energy Access
Energy access is measured as the proportion of a country’s population with access to (a) electricity and (b) clean fuels and technology for cooking (CFTs). SDG 7.1 tracks aggregate change in these two variables towards the effective goal of ensuring by 2030 universal access to affordable reliable and modern energy services. This chapter presents the main findings for the tracking period up to 2017.
Market-based approaches to carbon pricing: Theoretical assessment
This chapter presents a theoretical assessment of the effects of the two major carbon pricing instruments based on market mechanisms: carbon taxes and emissions trading. Domestic carbon taxes and emissions trading are both expected to negatively affect economic activity. Importantly a negative impact on production is necessarily associated with a reduction in GHG emissions which remains the main objective of carbon pricing. This trade-off between economic activity and environmental conditions would result in an increase in domestic welfare only once the true social cost of carbon is considered. However carbon pricing may not affect all agents in an economy equally. Moreover in a multi-country context a reduction in domestic emissions may not result in a reduction in global emissions if some countries do not adopt or adopt only loose environmental policies. Complementary policies should be envisaged. At the domestic level distributional schemes can be implemented and financial support provided to firms to reduce their abatement costs. At the international level if coordination among countries cannot be achieved the implementation of measures at the border may help contain negative spillovers whether economic or environmental.
Acknowledgements
This publication is a product of the Trade Analysis Branch Division on International Trade and Commodities (DITC) United Nations Conference on Trade and Development (UNCTAD). Marco Fugazza was responsible for the writing of all chapters under the general supervision of Ralf Peters Chief (OIC) of the Trade Analysis Branch.
Energy Efficiency
SDG 7.3 tracks progress in the rate of improvement in energy efficiency. It is measured through energy intensity as an imperfect but workable proxy indicator which is calculated as the amount of energy used per unit of GDP. SDG 7.3 targets a doubling of the world’s rate of improvement in energy intensity by 2030 implying energy intensity should fall continuously. This chapter examines progress in reductions in energy intensity in the Arab region.
CO2 Emissions equivalences
As discussed extensively in Vallero (2019) different GHGs can have different global warming effects. GHGs differ from each other in terms of energy absorption (“radiative efficiency”) and in terms of permanence in the atmosphere (“lifetime”).