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February 2, 2009 / Mridul

Europe Plans $200 Billion Climate Tax on Developed Nations

With eyes on the Copenhagen talks for discussion on the next climate policy, the European Union plans to propose a tax on the carbon emissions of the developed nations, a move which could generate more than $200 billion by 2020. These funds will be used in helping developing and poor nations move from fossils fuels based energy systems to those based on renewable sources.

The European Union proposes that carbon offsetting through the trade of carbon credits under the Clean Development Mechanism be phased out and replaced by a scheme under which the developed nations would commit to cut their but would also pay taxes for extra emissions. The proposal also calls for a similar scheme for the ‘advanced developing nations’ like India and China but fails to clarify its nature.

Carbon offsetting cannot be pursued as a long term solution to mitigate the global carbon emissions and thus the Clean Development Mechanism should be seen only as a transformational step and not the solution to the problem. Replacing carbon offsetting with binding emission reductions seems to be the obvious next step but one has to ask if the world can afford a climate tax at this time of economic meltdown.

Developed and developing countries must understand and ready themselves, and their economies, for binding emission reduction goals as they are unavoidable. But the world needs to get the timing right. No government would dare put extra burden on its citizens by agreeing to taxes on emissions produced by its power utilities or other essential industries. The governments would find it difficult to convince their citizens to pay higher for essential commodities so that other countries can reduce their emissions by setting up clean energy projects. There is a big possibility that people around the world would oppose such a step even if there is a global sympathy for the poor and developing nations.

The sharing of common but differential responsibility for reducing emissions is another problem. China is now the world’s biggest emitter, having overtaken United States last year and India’s carbon emissions are increasing too. So how much would they contribute as far as binding emission reductions are concerned? The governments of both these countries have so far ignored all calls to take bolder steps in curbing their emissions by saying that their per capita emissions are much less as compared to those of the developed nations like the United States. The US, on the other hand, says that since the current system does not include the developing nations it is unfair and hence it refuses to be a part of any international agreement.

The solution could be to improve the current emissions trading mechanism and use it until the global economic conditions improve. The world leaders should be given time so that they could convince their governments and citizens for the mandatory emissions reductions and taxation system. It seems highly unlikely that the tax system would be incorporated in the next climate treaty therefore refining and updating the resources at hand would be the obvious solution.

Emissions trading under the Clean Development Mechanism should continue during the post-Kyoto phase but the emphasis must now be given to the developing and poor countries and not the countries like India and China which sell more than 80% of the carbon credits. Both these countries are forecasted to register healthy economic growths of 6-8% while almost all developed countries are in recession. Many developed nations are struggling to find investors for renewable energy projects and therefore its now time that the advanced developing nations shoulder more responsibility to reduce carbon emissions.

Under the next climate treaty, binding emissions reductions for advanced developing nations must be included but they should either be given an extended deadline or softer emission reduction targets as compared to the developed nations – a similar policy was adopted under the Montreal Protocol for phasing out ozone depleting substances and was successful. In addition, the United Nations must make radical changes in the CDM so that real progress in reducing carbon emissions and promoting renewable energy could be achieved.

At this time of global economic recession a climate tax would be too much to ask from the developed countries but at the same time the task of reducing carbon emissions cannot be taken lightly therefore this responsibility must be shared by all as contribution from all sides is required to counter this global challenge.

This article was first posted on Red, Green and Blue.

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