MAKINGCLIMATE

POLICYWORK

Danny Cullenward jd, phdCarbonPlan and Stanford Law School

David G. Victor phdUC San Diego and Brookings Institution

23 February 2021 Payne Institute for Public Policy

Colorado School of Mines

World Bank (2020a)

2

CARBON PRICING TRENDS

Based on World Bank (2019); Jenkins (2019)

86.4%

6.7%

6.4%

0.4%

0.1%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

No price

P < $15

$15 ≤ P < $40

$40 ≤ P < $65

P ≥ $65

3

CARBON PRICING TRENDS

WHY ARE CARBON PRICES LOW, EVEN WHEN AMBITION IS HIGH?

QUESTION ONE:

4

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$0 $20 $40 $60 $80 $100 $120 $140 $160 $180

Wei

ghte

d av

erag

e ca

rbon

pric

e (U

SD p

er tC

O2)

Highest nominal price (USD per tCO2)

Highest nominal price

Economy-wide average price

Sweden

Finland

Norway

Switzerland

Ireland

DenmarkAustralia

Based on Dolphin et al. (2020);2014 prices shown in figure

NOT ALL SECTORS ARE COVERED

5

POLITICAL BARRIERS AND RESPONSES VARY BY SECTOR

6Range of tools that policymakers can use to respond

Dem

and

for p

olicy

resp

onse

Small toolkit Large toolkit

Low

: Vot

ers l

ess a

war

eIn

dust

ry n

ot tr

ade-

sens

itive

High

: Vot

ers h

ighl

y aw

are

Indu

stry

trad

e-se

nsiti

ve

Electric Utility

Service

Transportation Fuels

Trade-sensitive industries(e.g., refining, food processing, steel)

Trade-insensitive industries(e.g., services, software)

GLOBAL CARBON MARKET PRICES

7

ICAP (2020)

WHERE DOES THE MONEY GO?

QUESTION TWO:

8

GLOBAL CARBON REVENUE USE

9

Based on World Bank (2020b);Institute for Climate Economics;

2018 data shown in figures

Units: million USD per year

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

Carbon Markets Carbon Taxes

EU ETS

CaliforniaOther

Markets

Fran

ce

Sweden

Japan

Finland

Norway

United Kingdom

SwitzerlandBC Canada

Other Taxes

Carbon Taxes

Carbon Markets

Green spending

General funds

Revenue recyling

POTEMKIN MARKETS AND GREEN PORK

10

Units: $/tCO2e

Based on Cullenward (2020)

$0

$100

$200

$300

$400

$500

$600

Cap-and-Trade Renewable PortfolioStandard

Low Carbon FuelStandard

2017 Scoping Plan Cap-and-TradeSpending

Average: $478

$10-18

$60-70

$22-200 –$300 to $200

Max: $16,300

Min: $21

WHY DO CARBON OFFSETS ALWAYS END UP WITH LOW QUALITY?

QUESTION THREE:

11

12

OFFSET QUALITY PROBLEMS

Elgin (2020); Allen et al. (2020); TFSVCM (2020)

IMPLICATIONS FOR CLIMATE POLICY STRATEGY

• Focus on industrial policy, not carbon prices

• Focus on carbon taxes, not carbon markets

• Focus on sectoral policies, not economy-wide programs

• Focus on effective public spending, not revenue recycling

• Focus on direct reductions, not offsets

13

“I have spent my career trying to answer the question posed by Cullenward and Victor

– how to make climate policy work. This book provides a compelling answer: the deep

decarbonization the world needs will only be achieved when governments commit to a

vision of transformation that all actors can work towards.”

Laurence Tubiana, CEO of the European Climate Foundation (ECF), Founder of IDDRI

“This is a must-read for policymakers, especially the climate intelligentsia who believe

that market-based policies are a panacea for the existential threat of climate change.

Cullenward and Victor shatter that myth and chart a better course based on proven

models that achieve tangible results.”

Kevin De León, California Senate President Emeritus, Policymaker-in-Residence at UCLA, and Distinguished Senior Fellow at USC

REFERENCES

Allen et al. (2020), The Oxford Principles for Net Zero Aligned Carbon Offsetting

CARB (2017), California’s 2017 Climate Change Scoping Plan

Cullenward (2020), Testimony to the California Budget and Fiscal Review Committee

Dolphin et al. (2020), The political economy of carbon pricing: a panel analysis, Oxford Economics Papers

Elgin (2020), These Trees Are Not What They Seem, Bloomberg Green

ICAP (2020), Allowance Price Explorer

Jenkins (2019), Why Carbon Pricing Falls Short, Kleinman Center for Energy Policy, University of Pennsylvania

Task Force on Scaling Voluntary Carbon Markets (TFSVCM) (2020), Consultation Document

World Bank (2020a), State and Trends of Carbon Pricing 2020

World Bank (2020b), Using Carbon Revenues, Partnership for Market Readiness, Technical Note 16

World Bank (2019), State and Trends of Carbon Pricing 2019

15

A SIMPLE MODEL OF POLITICS

16

Actors Institutional rules

✱ Voters and the general public Adoption rules

What kind of vote or action is needed

to make a policy legally binding?

✱ Emitting industries

Emerging low-carbon industries

Organized civil society Administrative capacity

How effectively can government

accommodate powerful interests?

✱ Political leaders