At present, the scheme is as hypothetical as the US$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 US$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.
- Lex is a premium daily commentary service from the Financial Times.
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