HPCA Hosts COP25 Side Event Focused on Reducing GHG Emissions through Carbon Pricing

As negotiators from around the world arrived in Madrid for the second week of the 25^th UN Climate Change Conference (COP-25), the Harvard Project on Climate Agreements (HPCA) hosted an official COP side event on Monday (Dec. 9) focusing on the potential for reducing greenhouse gas (GHG) emissions through the use of carbon pricing.

Moderated by Robert Stavins, A.J. Meyer Professor of Energy and Economic Development at Harvard Kennedy School and Director of HPCA, the discussion featured speakers from both academia and practice, including Daniele Agostini, Head of Low Carbon and European Energy Policies at the Enel Group; Joseph Aldy, Professor of the Practice of Public Policy at Harvard Kennedy School, who served as a Special White House Advisor for climate change and energy policy during the Obama Administration; Raffaele Mauro Petriccione, Director-General of DG Climate Action at the European Commission; Claudio Seebach, a member of the Advisory Commission to the President of Chile on COP25, and Executive Chairman of the Chilean Association of Power Generators; and Zhang Xiliang, Professor of Management Science and Engineering, and Director of the Global Climate Change Institute at Tsinghua University.

Stavins initiated the discussion with a review of his recent research paper comparing the effectiveness of carbon taxes versus cap-and-trade policies to achieve meaningful reductions in GHGs in the United States and elsewhere. Stavins explored similarities and differences between the two policy approaches, concluding that the design details of a particular instrument are at least as important as the differences between the two policies — and that through informed policy design, the merits of each approach can be combined to some degree in a hybrid instrument.

“For the long term,” Stavins stated, “ongoing research on carbon pricing is very much warranted, particularly if it can be carried out in the context of real-world politics and focus on policies that are likely to be politically feasible.”

In his presentation, Professor Zhang spoke on efforts to address climate change in China, including — most importantly — China’s new national carbon-pricing system. This system — at this early stage, a tradable performance standard rather than a cap-and-trade system — will begin with the power sector, though plans call for coverage of another seven manufacturing sectors, with the potential for eliminating up to one-half of the country’s total energy-related emissions. In addition, Zhang argued on behalf of a carbon tax for those sectors and emitters not covered by the national pricing system, such as the transportation sector and commercial buildings.

Aldy focused his remarks on his recent research on carbon tax review and updating, arguing that a pragmatic strategy for institutionalizing such policies would be through an “act-learn-act” approach, in which goals and tax schedules are consistently reevaluated and revised to keep up with the current science.

“This sort of [iterative] approach has been undertaken in a number of policy contexts,” he remarked. “I think it is important to recognize that with respect to climate change, where there are so many uncertainties, this is a thoughtful way to go. It will also be possible to build broader public support, if the public knows that we are going to take new information and update the policy as we get smarter about policy design over time.”

Petriccione recalled his frustration with early efforts by the European Union to institute a carbon tax, admitting that the political hurdles were simply too high, while also expressing optimism with current market-based efforts to achieve the same goals.

“The reason that we failed to enact a [carbon] tax is largely institutional. In Europe, taxation is mostly a national matter. Member states can decide on new EU-wide taxation, but must to do by unanimity, and so far, it has been extremely difficult to achieve any kind of unanimity on any kind of tax measure, and predictably we failed to find agreement on a carbon tax. Hence, we turn to markets, because in many ways, in many countries, you don’t actually have a choice,” he said. “It is important to show that if you have a clear objective, you can achieve it with either instrument.”

As Executive Chairman of the Chilean Association of Power Generators, Seebach has been closely involved in his country’s efforts to combat climate change. He credited the nation’s carbon tax with helping spark a remarkable boost in renewable energy sources and a significant decline in emissions. However, he noted that the tax was motivated by a need for additional revenue for education — not primarily because of concern about climate change. Seebach’s observation was consistent with the theme running through all of the presentations — that efforts to price carbon must be compatible with the political context if they are to be effectively implemented.

The Chilean Congress is now discussing plans to expand the tax base to other sectors and a broader range of emitters — and to allow offsets into the system, which would both reduce the cost of compliance and allow for revenues to be targeted to particular programs.

“Chile is also advancing on a new climate change goal — achieving carbon neutrality by 2050,” he said. “And we are moving forward with a phase-out of coal, which is something we announced last year, so that by 2040 at the latest…coal will be fully phased out.”

The COP25 side event, attended by approximately 250 participants, was co-hosted by the Enel Foundation and Tsinghua University’s Global Climate Change Institute.