Which is Better: Carbon Markets or Feed-In Tariffs?

Referring to how the world is currently addressing climate change, Angel Gurría says, "Cherry-picking a few easy policy measures is not enough. There has to be progress on every front, but notably with respect to carbon pricing, and we don’t have any time to waste. Unlike the financial crisis, we do not have a ‘climate bailout’ option up our sleeves."

Gurría is Secretary General of the Organization for Economic Co-operation and Development (OECD), the latest major organization to weigh in on the urgency of getting world emissions down.

OECD released a report that joins scientists in calling for a price on carbon.

Climate and Carbon: Aligning Prices and Policies finds that carbon taxes and cap-and-trade systems are much more cost-effective than direct subsidies like feed-in tariffs.

Limited government funds would be much better spent on carbon markets, which are 94% cheaper than paying power generators renewable energy subsidies.

Based on 2010 data, cutting carbon emissions from electricity generation costs about $13.50 per ton using cap-and-trade, compared to feed-in tariffs and power generator subsidies, which cost an average of $228 per ton and $238 per ton, respectively. 

Gurría praises British Columbia’s carbon tax as a textbook example of what’s needed. The simple system was implemented in just five months and has been positive for the economy and the environment.

"In our view, any policy response to climate change by any country must have at its core a plan to steadily make carbon emissions more expensive while, at the same time, judiciously giving non-fossil energy and energy efficiency an advantage at the margin. This is fundamental.  …without placing a clear and explicit price on emissions we are, as they say, just ‘pushing at a piece of string’ when it comes to changing consumer, producer and investor behavior," he says. 

Also, continuing to subsidize fossil fuels counteracts programs designed to cut greenhouse gas emissions.

Read our article, World Carbon Emissions Drop 13% With End to Fossil Fuel Subsidies.

OECD says it will score its 34 member countries on how well they are tackling climate change and will, going forward, include a climate scorecard in its regular surveys of economies.

Noting that negotiations for 20 years have yet to result in a zero emissions trajectory, Gurría says:

"We are on a collision course with nature, and we need to take bold decisions to change that path. We must help governments identify ambitious but achievable goals, and then to achieve them in the most cost-effective manner. Our efforts have so far been a fraction of what is required. We are neither on track to achieve internationally agreed goals nor managing to execute even the existing policies in a cost effective way. This is placing human well-being at risk." 

Carbon Tracker

Read Gurría’s speech:

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