Could carbon pricing deliver the goals of the Paris Agreement?
The Paris Agreement has sent a signal, but could society do enough to achieve the goals of this landmark climate agreement?
Shell’s Sky scenario illustrates a pathway for the world to meet the goals of the Paris climate Agreement. The scenario starts with an ‘energy transition’ that is already underway, driven by new technologies, sharp cost reductions for roll-out of those technologies and changing business models. It’s a scenario that reinvents the global economy in just 50 years to achieve the goals of Paris.
Technology on its own may not be enough to reduce global emissions.
Technology change is critical but may not be enough to reduce global emissions from some 40 billion tons of carbon dioxide (CO2) per year, to net zero during the second half of the century. Rather, the energy system fifty years from today might see large-scale use of wind, solar, electric transportation and even hydrogen powered planes, but with significant global emissions from certain activities still driving up CO2 levels in the atmosphere. Outpacing fossil fuel use with new energy sources will not be enough to achieve the goals of the Paris Agreement. Rather, fossil fuel use should decline—but even more importantly—emissions must trend towards net zero to ensure a halt in the rising level of carbon dioxide in the atmosphere.
The world could benefit from policy that offers a clear economic incentive to net-zero emissions.
In addition to the promotion of new energy technologies such as wind and solar, the critical policy shift required for the coming decades is to place a cost on carbon dioxide emissions. The policy instruments required to do this are well understood and have been implemented by many governments. For example, the UK placed a price of £18 per ton of CO2 and has seen coal almost vanish from its electricity system, with natural gas and offshore wind filling the gap, and emissions declining as a result.
A cost on CO2 emissions imposed through taxation or allowance-based trading systems could shift the energy mix in favour of lower emitting sources and encourage the use of critical emissions management technology, such as carbon capture and storage. In the Sky scenario, carbon pricing policies are widely adopted by governments in the 2020s, such that by 2030 all regions have an active policy framework in place. The cost on emissions rises over the ensuing decades, plateauing at around $200 per ton by 2070. This price provides the level of incentive required to enable removal of CO2 from the atmosphere, given the ongoing use of fossil fuels will still be required in certain applications, such as aviation or cement production.
Placing a cost on CO2 emissions has been a political and economic challenge.
Some governments have fallen, at least in part, because of the effect carbon pricing policies can have the cost of energy for households and industries. In some instances, incoming governments dilute or repeal climate-related policy even when these policy structures have been demonstrated to deliver a lowest cost transition pathway for society as a whole. The policy framework within which they sit is an important consideration [https://blogs.shell.com/2018/08/22/the-role-of-the-eu-emissions-trading-system/].
With good practice to see in jurisdictions such as the European Union (EU) and California, and a clear understanding of the economics behind carbon pricing approaches, the world can be confident on the effectiveness of implementation, but the societal and political challenge of doing so remains.
Read the Sky publication to see how the goals of the Paris Agreement could be met through a combination of technology, government policy and societal actions.
Could society achieve the goals of the Paris Agreement? What do you think? Share your thoughts on social media tagging @Shell and using #ShellScenarios.
This post is part of Shell scenarios ‘could the world achieve Paris’ series.
The Sky scenario illustrates a technically possible, but challenging pathway for society to achieve the goals of the Paris Agreement.
Discover the Sky scenario through our latest content series, twelve questions addressing key topics found within Sky.
For over two decades Shell scenario thinking has incorporated the issue of climate change. The Sky scenario joins two previous Shell scenarios, Mountains and Oceans that saw rapid decarbonization but fell short of the goals of the Paris Agreement. To achieve the goals of the Paris Agreement, the Sky scenario relies on a complex combination of mutually reinforcing actions by society, markets and governments. It adopts an approach grounded in current economic and policy development mechanisms, but then progressively becomes ‘goal-driven’ to achieve society’s ambition for net-zero emissions by 2070. At Shell, we hope it’s a helpful contribution to one of the world’s toughest challenges. You can explore all three scenarios at www.shell.com/Scenarios