Cost of many approaches to CO2 reduction 10x too high

The price paid for abatement of CO2 is far too high according to the Organization for Economic Co-operation and Development (OECD). By more directly pricing carbon, reducing fuel subsidies and avoiding direct stimulation programs a much lower cost per avoided tCO2 can be achieved. The price of some direct measures can be more that 10 times higher than the lowest cost measures.

As a general economic view this is very important: the price of CO2 is far too low in the EU to drive any investments in CO2 output reduction in many sectors. But there are some downsides to CO2 price only stimulus that should not be ignored, e.g. drive to relatively short term, modestly sustainable and contested CO2 avoidance efficiency measures like wood chip burning and the high level of non-transparency of  international programs involving developing countries. The report does indicate alternatives for some sectors where a price only stimulus does not work well, but it has modest detail.

The question is: can this report help change the tide. The report mentions industry competitiveness and income distribution as the two main issues. Both can be addressed with some difficulty however. But when regarding the political process through which such “objectively efficient” measures need to be reached, the picture looks not so optimistic. At best this report puts arguments in the hands of organizations in the political process that prefer an economically rational approach to CO2 abatement – typically industry, ministry of economic affairs. But in real society such “interest-free”organizations cannot be found; there is practically always a more specific agenda that is more powerful: an interesting result can be observed in the Netherlands where a energy accord was reached between various stakeholders. The result is far from rational; more a compromise blend of individual agendas. I.e. the real bottleneck to coming to a more rational approach may lie in political decision making processes that are so intrinsic in the required governmental interference in the market that is required by CO2 as an economic externality.

Link to the OECD report:

Bloomberg news item on this report:

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