Since November 17, 2018, tens of thousands of people in France have taken to the streets with yellow vests. The yellow vest protest shows French citizen’s complaint about recent tax increases in gasoline and diesel by the French government. There are some reasons to raise taxes, such as the real changes of oil price and increasing burden of carbon consumption. However, people have rejected the size of the increase of the tax, which can encroach incomes of the people.
At the COP24, I have been following up current issues related to carbon pricing schemes for mitigation such as carbon taxes and emissions trading schemes (or ETS, which is a cap-and-trade approach). In terms of trading, in the Korean Pavilion, onDecember 11, the Korea Exchange (KRX) introduced measures it is taking to stabilize Korea’s emissions trading scheme (KETS). In 2015, the Korean government launched the KETS on a national level, and now, in the second compliance period from 2018 to 2020, the government is working to keep the system healthy. The Korean scheme has seen a steady upward price trend that demands market stabilization measures – supplying reserves to drag down the market price – by the government. Although the KETS is in an early stage, the KETS compliance cycle, which uses an allocation-trading-surrender model, has been successfully settled. However, the imbalance between supply and demand has led to a lack of trading: the annual exchange trading volume is only 1~3% of annual allowances. Technically, it is quite a complicated topic, but the bottom line is that KETS is getting stabilized. This is good news, as it is the main carbon pricing tool to address reduction of emissions in Korea.
Regarding taxes, on December 13, I could learn about European carbon tax cases from France and Sweden. These countries have utilized a carbon tax as a complementary tool to cover non-emissions-trading-system sectors such as heating fuels and motor fuels. The French Ministry of Ecological and Solidarity Transition emphasized international cooperation to raise effectiveness of taxation. For example, for road freight transport, if a country has a carbon tax on gas for vehicles but its neighboring countries don’t, trucks could fill their tanks in the neighboring countries. This carbon leakage will have a negative social impact as national transportation companies lose their competitiveness with the risk of loss of jobs. The Swedish Ministry of Finance explained from its history in 1980s when the government levied energy taxes primarily for fiscal purposes. However, today, the Swedish government is imposing green taxes to address in earnest climate change issues. As a result, the taxes are expected to contribute to leading both GDP growth and emissions reduction together, which is a decoupling effect.
Lastly, on December 13, the UNFCCC organized a session on “International support for the design and implementation of carbon pricing instruments.” A Chinese professor shared China’s experience on adopting emissions trading. From his lessons learned, he stressed “do not copy and paste other countries systems” and “design a scheme based on the specific circumstances of the country.” Also, he pointed out political will at the top level is very important to start carbon pricing. A panelist from the Ukrainian Ministry of Environment agreed with the Chinese professor’s opinion that top level political will is a significant factor because most key decision-makers do not care about environmental issues as a top priority – this needs to change.
Putting this advice about country-specific solutions into practice is not easy, but it is critical. There are several pros and cons about carbon pricing, but most of the experts from governments, universities, and international organizations have found that carbon pricing can change human behaviors. Moreover, as I have seen at the COP24, for carbon pricing schemes, there are various cases, but there is no single advantageous solution for every country. For instance, the Swedish case may be one of the best practices in principle, but this case cannot be applied to other countries in different contexts. Today, the French government is facing political protest over its implementation of policies that are similar to Sweden’s. For developing countries, with low incomes of people, it is harder. So, policy makers of the countries should find a tailor-made carbon pricing scheme for each country. We need less carbon and less yellows vests.
