What does the perfect carbon price look like?
climate change. It is efficient, allowing society to identify the cheapest unit of carbon-dioxide equivalent to forgo. It is fair: polluters pay; the proceeds can be redistributed.
And it aids other forms of decarbonisation: complying with a carbon price forces companies to track their emissions and investors to work out which of their assets are the dirtiest. According to the World Bank, there are now 73 carbon-pricing schemes across the world, covering 23% of global emissions. That is up from just 7% a decade ago.
The bank’s tally includes both emissions-trading schemes, where polluters can trade permits in a market, and carbon taxes, where a government sets a price directly. The largest scheme is in China and was launched in 2021. It covers the country’s energy industry, and therefore 9% of global emissions.
Even in America, which is immune to the charms of carbon pricing at a federal level, an increasing number of states are setting their own prices. Washington state, the latest convert, launched its emissions-trading scheme in January. Yet a growing number of centre-left economists, who might be expected to be vociferous supporters of carbon prices, have soured on the policy.
These critics focus on two points. The first is that carbon prices are not aggressive enough. The EU’s emissions-trading scheme, one of the most comprehensive, nevertheless excludes buildings and transport.
Allowances are given to airlines and heavy industry in the name of competitiveness. Prices are relatively high in Europe, reaching a record €100 ($107) a tonne of carbon-dioxide equivalent in February, but too low elsewhere. The World Bank reckons less than 5% of emissions are priced at or above the level that would be required, by 2030, in
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