How a global carbon price would weaken Eastern European and Asian economies
Although seen as the fastest and cheapest way to global climate protection, a uniform global carbon price would have major consequences for the economic competitiveness of countries. Hauke Ward, who recently joined Leiden University, showed in the journal Energy Economics that modern western countries would strengthen their economic position, while the position of Eastern Europe and Asia would be weakened.
Why a global carbon price?
Charging a uniform price for carbon dioxide (CO2) emissions around the globe: This idea centres on providing global climate protection at minimal cost, by encouraging polluters to reduce the amount of greenhouse gases they emit. This solution would circumpass so-called carbon leakage: a situation where energy-intensive, trade-exposed industries could relocate to countries with laxer climate policies or less efficient production technologies. However, a global carbon price poses a higher cost burden on more carbon-intensive producers, thereby influencing economies worldwide. Hauke Ward studied these effects at the Berlin-based Mercator Research Institute on Global Commons and Climate Change (MCC).
Effects on competitiveness
Ward and his colleagues looked at the impact of a global carbon price on wealth and jobs around the world. ‘Our results show that Brazil, Japan, the US and advanced economies of the EU are likely to improve their competitiveness, as they have less carbon-intense supply chains,’ Ward says. ‘Brazil, with its climate-friendly energy from hydropower, would also be among the winners. On the other hand, newly industrializing Asian economies and Easter European are likely to experience substantial adverse impacts because of their highly carbon-intensive production.’ The study mentions India and China, of which the overall effect on production and jobs would be negative, with 3 and 2 percent of jobs coming under pressure respectively, in case of a global carbon price of 50 USD.
What about poorer countries?
The study also states that the most severe impacts would likely affect low-skilled workers and therefore probably the poorest segments of societies. How should we deal with that? ‘We are not fundamentally refuting the idea of a uniform carbon price as a long-term perspective for global climate policy,’ stresses Jan Steckel, head of MCC’s ‘Climate and Development’ group and co-author of the study. ‘But our calculations highlight that poorer countries are likely to need compensation if they participate. Less carbon-intensive energy sources and more efficient manufacturing technologies can reduce or even avoid negative wealth effects. The rich countries can help.’
Hauke Ward has worked for almost 7 years at the MCC, but decided to leave Berlin and come to Leiden. He started at the Institute of Environmental Sciences (CML) as an assistant professor in industrial ecology. ‘Leiden has extraordinary experience in environmental accounting, input-output data and corresponding analysis. That is part of the reason why I came here and started as an assistant professor.’
- Hauke Ward, Jan Christoph Steckel & Michael Jakob, Energy Economics (2019) - How Global Climate Policy Could Affect Competitiveness
Text: MCC and Bryce Benda