The US, China and the EU could create a ‘climate hub’ to globalize the CO ₂ market

The European _CO2 market (ETS EU) is generating a controversial debate about its usefulness if prices are inflated speculatively. In less than six months, the price has more than doubled and does not seem to have a ceiling. A problem that translates directly to the electricity bill of households and the competitiveness of European industry with respect to third countries.

In addition, the European Union is about to approve a CO tax₂ to third countries or a Carbon Border Adjustment Mechanism (BCAM) to prevent business leakage and because it would not be equitable for what is produced in European territory to comply with environmental measures but what is imported from other countries is not.

But what if that European market was the beginning of another global one? In just a few months, US climate policy has taken a 180º turn with the entry of Democrat Joe Biden. Not only has it boosted the development of renewable energies and a whole plan to reduce greenhouse gas emissions, but it has promoted China to resume its climate ambition.

A high altitude climate club

In fact, the climate agenda of the new Biden presidency talks about creating a climate club where the three great world powers are integrated: the United States, the European Union and China.

It is an opportunity to realize a long-discussed approach to global warming because between the three of them they emit half of the world’s greenhouse gases together, although China’s situation is much more dramatic because it pollutes more than all developed countries combined.

They could come together to reduce domestic emissions and impose a carbon tax on imports. That would incentivize all nations to reduce their emissions.

Nobel Prize-winning economist William Nordhaus proposed the idea of the climate club in 2015. He suggested that one group of countries should agree to manage emissions at a strict level and coordinate tariffs on imports from others. Nations would like to join the club to avoid trade sanctions, and now it is a topic that is being debated and that could be taken to the COP26 (Climate Summit) in Glasgow next November.

A global CO2 tax

And it would be possible because, for the first time, the EU, the US and China share a common climate ambition, and there is a way to do that. World Trade Organization (WTO) rules allow for ‘carbon border adjustment’ charges – taxes on carbon emissions that are released during the manufacture of imported goods.

A carbon tax on imports from the world’s three largest economic blocs could catalyze tough climate action globally. Without it, free profit is inevitable: too many countries will wait for others to act instead of going ahead with costly reductions.

To support this, researchers must develop an internationally recognized methodology for measuring the carbon content of complex goods.

The EU aims to become ‘climate neutral’ by 2050. It has pledged to tighten its carbon pricing system, strengthen environmental regulations and introduce adjustments to carbon boundaries.

These actions were not feasible previously due to fears of a trade war and political clashes with the United States under President Donald Trump, but with Biden, the rules of the game have changed and for the good of the future of the planet.

Petersberg Dialogue

This week the Petersberg Dialogue organized by the German and British government was held virtually, two days of sessions where the Vice President and Minister for the Ecological Transition and the Demographic Challenge, Teresa Ribera, and the director of the Spanish Office of Climate Change, Valvanera Ulargui, participated.

During these two days, ministers discussed some of the major milestones to be presented in Glasgow. On the one hand, they have resumed the ministerial discussion on the implementation of international carbon markets, one of the topics of the Paris Rulebook and whose agreement has been pending for more than two years.

In these meetings, ideas have been exchanged to move towards an agreement that allows the launch of international carbon markets based on common and robust rules that ensure the environmental integrity of the system.

Source: The Spanish