IMF - World Bank: Minimum CO2 price of $US32 needed: study

The IMF and World Bank have called for the introduction of a universal price on carbon. A global carbon price of at least $US32 ($A34.60) per tonne is needed by 2015 to apply an effective brake on global warming – almost five times today’s European market rate, a study says.

Co-authored by British economist Nicholas Stern, an authority on the costs of climate change, the report reviewed a widely-used model for assessing risk and found it led to a ‘gross under-assessment’ of danger.

This beefs up the case for strong cuts in greenhouse gas emissions, helped by a carbon price ‘in the range of $32-103 per tonne of CO2 (tCO2) in 2015′, said the study carried by The Economic Journal.

‘Within two decades, the carbon price should rise in real terms to $US82-260/tCO2,’ it added.

Such a price should limit the concentration of greenhouse gases in the atmosphere to 425-500 particles per million, the level required to contain global warming to 1.5-2.0 degrees Celsius, said the report.

The study was co-authored by Stern’s colleague, Simon Dietz, at the Grantham Research Institute on Climate Change and the Environment.

It was released a day after the close of UN talks in Bonn on concluding a deal to curb greenhouse gas emissions.

The pact is expected to be signed in Paris in December 2015.

In April, the UN’s expert Intergovernmental Panel on Climate Change (IPCC) said the world can still limit global warming to relatively safe levels, provided annual emissions are cut by 40-70 per cent by 2050.

The panel listed a global carbon price as one option for tackling the challenge. It warned temperatures could rise by up to 4.8 Celsius this century and sea levels by 26-82 centimetres on present emissions trends.

The International Monetary Fund and World Bank have also this year called for the introduction of a universal price on carbon – the most common greenhouse gas blamed for climate change.

For the moment, carbon prices are determined by national or regional systems – either as a tax on emissions or as a cap-and-trade scheme that allows companies to sell unused allotments.

The European Union Emissions Trading Scheme (ETS), the most ambitious cap-and-trade system in the world, has seen prices drop drastically from a peak of about 30 euros per tonne eight years ago to $US7.7 today – partly due to countries issuing too many allowances.

The Stern-Dietz report said the standard DICE model used to calculate economic risks from climate change, also by studies included in the IPCC’s latest report, used unrealistic values and underestimated the potential damage.

The updated model, ‘strengthens the case for strong cuts in emissions of greenhouse gases,’ Dietz said in a statement.