“If we want to limit global warming, we have to spend trillions”

Table.Media: Mr. Edenhofer, an important topic at the COP was how more money can be mobilized for adaptation, financial aid and investments. And this issue will dominate the next COP. But they only talk about raising money in the short term, and never about a systemic approach, such as the introduction of a global price for CO₂, something you have been asking for for a long time.

Ottmar Edenhofer: The term carbon price is avoided. Rather, the narrative is: CO₂-free technologies must become cheaper, and to do so, we must subsidize them. Then the transition will be successful. But why don't we talk about carbon pricing? Because the CO₂ price has several functions: It makes CO₂-free alternatives profitable. But carbon pricing also taxes fossil capital and causes its depletion. And that was very controversial at the COP. Everyone wants to increase green capital, no one wants to dismantle brown. This is worrying.

Now you also say: We have to organize and pay for the global collection of CO₂ waste. What do you mean by that?

Edenhofer: It is always said that we are committed to the 1.5 degree goal. However, it is actually no longer possible to maintain this warming limit, if that means we are not allowed to exceed it. The best we can achieve is the so-called overshoot: temporarily exceeding 1.5 degrees and then falling below 1.5 degrees. But to do this we have to eliminate CO₂ from the atmosphere.

These negative emissions need a new type of climate finance. So, a kind of payment for waste disposal through negative emissions. If the world wants to achieve net zero emissions by 2050 and maintain the 1.5 degree limit in the long term, then, on the one hand, we have to compensate for residual emissions that are difficult to avoid, for example from the cement sector or the agriculture, with natural emissions. or technical options. On the other hand, in the second half of the century we will have to remove more emissions from the atmosphere than we emit to reduce the excess.

How is it supposed to work?

Edenhofer: There are two fundamental principles. One thing: whoever issues has to pay. The other thing: anyone who provides carbon sinks should be compensated for it. This applies to farmers who, thanks to their work in the Horn of Africa, permanently fix carbon in the soil, as well as people who use technical filters to remove CO₂ from the atmosphere and store it in geological formations.

And how should this be paid? We are talking about billions of dollars.

Edenhofer: Yes, because if we want to limit global warming to 1.5 degrees in the long term, we will have to remove between five and 15 billion tons of CO₂ from the atmosphere each year until 2050. At prices of 100 to 300 dollars per ton of CO₂ , this means that we would have to spend between half a billion and almost four billion dollars on this waste collection. This is a gigantic sum, between 0.3 and three percent of global gross national product, and roughly as much as the $2.2 trillion in military spending worldwide in 2022. A gigantic economic sector is being created. But no one is still talking about this type of climate finance at the COPs.

Why isn't this debate happening?

Edenhofer: Because the policy is not consistent. If you look at the national climate contributions of governments, you can see an improvement. But for now this is just on paper.

But if we then look at what governments are actually doing and compare it with what their ministers promised at the COP, then the promises become incredible. They are literally doing the opposite: at conferences they talk about phasing out coal and oil, and at home they make plans to expand production.

But all of these would be stranded costs if politics prevails.

Edenhofer: I think the markets are betting that climate policy will not be implemented effectively because they do not consider the government's promises credible. That is why I do not believe that we are heading towards peak oil and gas production, as the International Energy Agency (IEA) says. So far, markets have shown no willingness to say goodbye to fossils.

Do you think markets are unimpressed by a passage requiring states to “transition away from fossil fuels”?

Edenhofer: If governments want markets to react differently, they need to make more credible decisions now. This credibility does not come from ever-new goals, such as tripling renewable energy, which has now been decided in Dubai. The commitment to move away from fossil fuels in the COP final document sends an important signal. What is important now is that this change becomes a reality, for example, through the implementation by the European Union of its European Green Deal.

If, for example, the second emissions trading scheme, which will be introduced in the EU in 2027 for the construction and transport sectors, were to increase oil and gas prices and decrease imports to the EU, this would have a effect on the markets. To prevent these savings from leading to increased consumption in Asia, for example, the United States would also have to participate.

How is it supposed to work?

Edenhofer: The EU could form a kind of demand cartel together with the US: if the EU Green Deal and the US Inflation Reduction Act are successful, demand for fossils will fall sharply. credible. Other countries could join carbon pricing. A look at the Europeans' Carbon Border Adjustment Mechanism (CBAM) shows how effective it can be: just the announcement of this CO₂ border adjustment regulation has already had a significant impact.

India is considering a national CO₂ tax, Turkey is considering national emissions trading, and in the United States even Republicans are thinking about it. In the countries of the global south, some want to talk to the EU about it. You will see reactions in the markets as soon as the instruments are credibly applied.

But why is it so difficult to introduce a CO₂ price? He has argued before that politicians really couldn't come up with anything better: reducing emissions and generating revenue that can then be used to fund social benefits. Why is this still not popular?

Edenhofer: You can look at the climate problem in two ways. You could say we've known since Nicholas Stern's 2006 climate report that acting is cheaper than not acting. While that is true, the benefits of climate policy are seen in the future and elsewhere; The costs are here and now. This applies to groups that are very powerful.

Whoever wants to immediately tax the stock of fossil capital has all fossil sectors against him: the automobile industry or the construction sector, for example. He will only be able to overcome this if he is willing to compensate potential losers, such as home or car owners. The government should have immediately started to compensate for the heating law, when it affected most of the national economic capital.

That's what climate money should be for. Except he's not coming.

Edenhofer: Even. The government did not do it. Ultimately, this is a political decision. But we, as scientists, have also not sufficiently pointed out that climate policy places a greater burden on poorer households than on richer ones. We need to communicate much better about what that relief might look like for those on lower incomes.

We also had a very good experience with this: with the so-called gas price brake last winter. In my opinion, this was not appreciated at all. The name is completely incorrect, because we did not reduce the price, but rather transferred it entirely to households and then compensated them based on their consumption. And we reduced consumption in Germany by 23 percent in the second half of 2022 and maintained social peace.

Do you also propose compensation of this type on an international level?

Edenhofer: In my opinion this is essential. We need mechanisms to help countries raise their carbon prices. A developing country cannot have the same carbon price as the EU. There must be funds for this. And aid to climate development would have to be linked to countries introducing a CO₂ price. It is clear to me that these conditional aid payments are taboo. But this type of load balancing would be necessary and effective.

Would that mean that industrialized countries would pay many billions for developing countries to have a CO₂ price as high as ours?

Edenhofer: We would benefit from it. Because? First of all, because others also pursue climate policy. And second, we protect our industry from competitive disadvantages. This can be used to eliminate opportunists. It would be a win-win cooperation.

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The original of this article “If we want to limit global warming, we have to spend trillions” comes from Table.Media.