The CO₂ prices of others

In Switzerland, in addition to a domestic emissions trading system, since 2008 there has also been a so-called incentive tax on heating oil, natural gas and coal. The Swiss started at around eight euros per metric ton of CO2; meanwhile they pay roughly 86 euros. Two-thirds of the additional revenues flow back to citizens through the health insurance system. The same amount is attributed to each insured person. And because people with lower incomes pay proportionally more on heating, the benefit to them is greater than for higher-earners. With the remaining third of the additional revenue, the country subsidizes energy efficiency-boosting building renovations. Incidentally, the decision to piggyback on the health insurance system was entirely pragmatic: the system is mandatory for all citizens of Switzerland and thus has all the personal information required for settlement purposes.

The story has parallels in the Scandinavian kingdom, where a price for CO2 doesn’t necessarily have to impose a cost. The country introduced its carbon tax in 1991 as part of a comprehensive tax reform. It thereby became the first country to apply a tax to fossil fuels as well as energy and industrial production. Subsequent years saw diminishing emissions in spite of economic growth. In contrast to France, there were no public protests as the government had simultaneously eliminated or lowered other taxes. When it was introduced, the carbon tax was the equivalent of 24 euros per metric ton; today the figure is 114 euros – the highest price in the world. Scarcely any Swedes still heat with fossil fuels today. Most residents get the lion’s share of their energy from hydropower and nuclear sources. The country is well on its way to achieving its environmental objective: CO2-neutrality by 2045. 

Based on revenues, France has the most comprehensive carbon tax worldwide according to the World Bank. The tax has risen incrementally since its introduction in 2014. While the so-called “energy-climate contribution” was just seven euros per metric ton of CO2 when introduced, by last year the figure was 44.60 euros. As the energy mix in France contains considerably more nuclear power than coal power, power from the nearly CO2-neutral energy source is barely more expensive. The tax does severely impact the pocketbooks of frequent drivers, however. French president Emmanuel Macron scrapped the latest planned increase after violent protests by the gilets jaunes, or yellow vests.

With the supplemental revenues, the government supports the expansion of renewable energy sources. Since 2018, low-income households have received energy checks to the tune of up to 200 euros. They can use the funds to pay energy bills or finance energy efficiency-boosting renovation measures. To avoid double-taxing the industrial facilities subject to the European emissions trading scheme, they are exempted from the climate contribution.

Last week France also announced plans for an environmental tax on airplane tickets. Starting next year, an economy-class ticket for a European domestic flight will be subject to a 1.50 euro fee, rising to up to 18 euros for non-European international flights in business class. The expected additional revenue of some 180 million euros will go to “financing the everyday transport” of French residents.

The UK introduced a so-called Carbon Price Floor (CPF) in 2013. With the CPF, the British government supplements the European Emissions Trading System (EU ETS) with a CO2 surcharge pegged at a minimum price, which so far has been above the CO2 certificate price set by the EU ETS. In view of concerns about the competitiveness of energy-intensive industries, in 2015 the CPF was frozen at the equivalent of roughly 20 euros through the year 2020. Although the price is relatively low compared to other countries, some coal-fired power plants went offline in favor of more environmentally friendly gas power plantUSA: Pioneering efforts in California

California became the first US state to implement a cap-and-trade program in 2013, launching the second-largest emissions trading system (ETS) in the world after the EU. And like the EU, the state caps emissions with certificates rather than a CO2 tax. California’s original target of reducing CO2 emissions by 17% by 2020 and thereby scaling back to 1990 levels was achieved four years ahead of schedule in 2016. The initial minimum price for a metric ton of CO2 was the equivalent of roughly eight euros. In 2018, the price was approximately 13 euros. Revenues generated by emissions rights amounted to some 2.7 billion euros last year.

California’s ETS program covers approximately 80% of greenhouse gas emissions in the state. For the sake of comparison: In the EU ETS the figure is about 45%. This includes CO2 producers such as cement factories, steel plants and refineries, which are obliged to keep their emissions below an individually defined level (“cap”) and buy CO2 certificates for each additional metric ton (“trade”).

China produces more than a quarter of CO2 emissions worldwide. The country officially launched its emissions trading system (ETS) in late 2017. The actual start is expected in 2020. Initially the carbon market will only include power plants that produce more than 26,000 metric tons of CO2 annually – a category encompassing 1,700 plants accounting for approximately 30% of China’s total emissions. In a simulated trading period for the ETS, the companies initially receive free emissions certificates. The auctions for the permissions could begin in the coming year.

Originally the emissions trading scheme was slated to cover eight sectors: chemicals, petrochemicals, aviation, iron and steel, non-ferrous metals, paper and construction. Data concerning emissions in these sectors is difficult to collect, however, according to statements. Although the Chinese emissions trading system only affects the energy sector, it will be the biggest in the world.

To establish best practices for the domestic market, China has been experimenting with seven ETS pilot projects since 2013: in the cities of Beijing, Shanghai, Tianjin, Chongqing, the Shenzhen Special Economic Zone and the provinces of Guangdong and Hubei. Though the pilot projects, the government has been able to test trading systems with different profiles. The cities, for instance, generally have high emissions in the areas of buildings and transport, while in Hubei province the biggest source of emissions is the segment iron and steel. The pilot projects will initially run in parallel with the national market in order to cover the sectors missing from the national emissions trading system. As soon as the Chinese ETS is fully functional, they are to be integrated.