Lessons from the pandemic for COP26

As we approach the 26th UN Climate Change Conference (COP26), the emissions gap has come into sharp focus. Sadly, it is hard to avoid the conclusion that the Paris Accord is significantly off target, and putting the Paris Accord back on track will clearly be the underlying theme of COP26.

Lessons from the pandemic

The creation and roll-out of a successful vaccine has increased faith in science and governments to deliver solutions to complex problems. However, there are two key differences which make it harder to solve the climate problem.

The first is the incentive to act.  The pandemic was a crisis which required an immediate response as fatalities rose. Climate change can bring periods of massive disruption, but is a more gradual process. Our political systems are more suited – and arguably motivated - toward solving the former.

The second factor, which has also been lacking in the response to the pandemic, is international cooperation.

Despite the need to bring Covid-19 under control everywhere before it is truly over, developed countries have been reluctant to help their poorer counterparts with vaccine provision, preferring to prioritise their domestic population.

Returning to climate change, the success or otherwise of COP26 will hinge on the ability of countries to overcome this and erate internationally. 

As Nobel prize-winning economist, William Nordhaus, recently commented: “countries have strong incentives to proclaim lofty and ambitious goals… and then to ignore those goals and go about their business as usual”. In other words, left to their own devices, countries will catch a free ride on the actions of others.

It is possible that there will be a technological break-through in renewable energy, which would solve the problem and make the free rider problem irrelevant, but it would seem to be wishful thinking that it will solve the problem on its own.

Two key steps: tax and enforcement

Alongside support for technology, there are two measures which will increase the prospect of meeting emissions targets.

The first would be to introduce a global carbon tax on the carbon content of fossil fuels, or on their CO2 emissions.

To limit global warming to 2°C, it is calculated that a tax of $75 per ton would eventually be needed. This would represent a significant jump as today’s average carbon tax per tonne of CO2 is just $3.

Carbon taxes could be made more palatable by other incentives. For example, recycling the proceeds from the tax into subsidies for low emission heating and transport, or direct transfers back to poorer groups in society. Such an approach would also help mitigate concerns over the impact of the tax on the economic recovery.

There would also need to be allowances and compensation for poorer countries, many of whom see the use of cheap fossil fuels as essential in the path to the higher income levels found in their developed market counterparts.

However, this is probably not sufficient as there would still be powerful incentives for nations to free ride by delaying or simply not implementing the tax. So, a second measure is needed.

At present, the Paris Accord is a voluntary agreement with no teeth to enforce compliance. The idea of an enforceable agreement may sound authoritarian, but there are examples of such arrangements which have worked in the past. One would be in international trade, where the World Trade Organisation (WTO) has imposed penalties on those who flout agreements or dump products into overseas markets.

The risk of a breakaway

Frustration with a lack of progress and an ever-widening gap on climate emissions mean that there will be continued pressure to step up action. Some of these frustrations may well surface at COP26.

Consequently, one potential outcome is that we see a group of countries break away and form an agreement of their own where they keep their commitments on reducing emissions.  

To overcome the disadvantage of higher energy costs versus their competitors, they could introduce a tax on imports of products with higher carbon content. 

Clearly, such an outcome is less preferable to a global agreement, but as we have seen and continue to see with the pandemic, we should be prepared for tensions and fractures between the parties, particularly developed and emerging, and a less erative outcome from COP26.

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