Beyond carbon pricing: Five ways to green economies

Taxing or trading emissions will not solve climate change alone, says the World Bank, so what else is needed?

By Megan Darby

The World Bank is always going on about carbon pricing.

The notion of putting a price on each tonne of carbon dioxide emitted has an elegant simplicity.

It does not demonise or promote any particular sector but lets the private sector decide where and how best to cut emissions.

Forty countries and 20 sub-national governments have adopted some form of carbon price, whether through taxation or markets.

In its latest report on greening development, however, the World Bank admits “carbon pricing alone cannot solve the climate change problem”.

There are “many market failures and behavioural biases that distort economies” it says – not just the failure to price in climate damage from greenhouse gas emissions.

First and foremost is the disadvantage any innovative technology faces against a well established competitor.

Here are five policies it recommends to create a thriving low carbon economy.

1)      Performance standards

The design of cars and buildings impacts on emissions for decades.

China, India and South Korea have all used performance standards to make the automobile industry adopt efficient technology.

Vehicle emissions standards are a pillar of US president Barack Obama’s climate strategy and cars sold in Europe have got an estimated 20% more efficient since 1990.

Similarly, building codes – Germany’s (voluntary) Passivhaus being the most ambitious – can lock in low energy heating and cooling.

2)      Fees and rebates

Or “feebates”, if you will. This is the combination of a surcharge on inefficient cars, for example, with a rebate on better performing models.

Then there are VAT exemptions for energy efficient appliances or lighting, as used in China, Ghana and Tunisia.

3)      Clean energy mandates

Perhaps the most visible – and in places, divisive – low carbon sector, renewable energy is gathering momentum.

While plummeting solar prices get advocates very excited, in most parts of the world clean energy cannot yet compete on cost with fossil fuel generation.

Mandates on electricity providers to get a minimum share of generation from renewables help to scale up green power.

Such policies are used around the world, notably – the World Bank says – in Chile, China, Germany and many US states.

4)      Trade tariffs

A key tool to influence other economies, trade policy can smooth the path for green goods like wind turbines, solar panels and LEDs.

The World Bank praises members of the Asia-Pacific Economic Cooperation for cutting tariffs on such goods – a carrot for low carbon industry.

It doesn’t mention the stick approach, which is also possible.

Europe could slap a border tax adjustment on carbon-intensive imports from China, for example. That would force polluting producers to clean up, while silencing European industry concerns about “carbon leakage”.

5)      Law enforcement

In countries where climate policies are routinely flouted, law enforcement can be a good investment.

The World Bank highlights Brazil, which has deployed an environmental security force in the Amazon to crack down on illegal logging.

That has been critical to slowing deforestation across the region, although researchers say it has now started to rise again.