Global carbon pricing: too important to leave to governments

We know a pound is worth about €1.17. Gold costs about $1,800 an ounce. But the price of carbon dioxide, a commodity of greater importance to the fate of the planet, is anybody’s guess. A group of fund managers who manage $6.6tn has called for governments to adopt global benchmark prices. Without parallel indices backed by private sector investors this would be no more than hot air.

The group, which includes Allianz and Aviva, has a simple proposal and a wordy name: the UN-convened Net-Zero Asset Owner Alliance. It believes nations should set a common, rising “corridor” for the carbon price. Governments would impose that trading range via taxes and issuing or withholding emissions permits.

At present, the scheme is as hypothetical as the $100 per tonne Lex identified as a realistic carbon cost earlier this year. In the EU, the price of carbon has jumped to €58 for power generation in anticipation of stricter emissions caps. Mexico, via taxation, prices carbon at just $3.

For the scheme to work, two conditions must apply. The first is that developed economies would have to adopt national trading schemes that covered most industries — and stop handing out emissions certificates gratis to their chums. Free traders understandably distrust border tariffs. But these would be needed to forestall offshoring of pollution via higher imports.

The second requirement would be an independently compiled global price index. No such benchmark is mentioned in the report. But it is hard to see how the scheme could work without the visibility this provides. Its allied function would be to support futures trading of a world carbon price.

Intercontinental Exchange and IHS Markit are among the data and exchange groups that have already set up global carbon indices. These are a good start. The problem is a lack of big national emissions trading markets to include.

Both indices heavily reflect an EU scheme and two regional US counterparts. US-led co-ordination is needed, of the kind that is imposing a minimum international corporate tax rate of 15 per cent after years of self-serving tax competition. Over to you, Joe Biden.

The Lex team is interested in hearing more from readers. Is a global carbon price a utopian vision or an inevitability? Please tell us what you think in the comments section below.