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Putting A Price on Carbon: Nations Opt For Market-Based Solutions

Xueman Wang's picture

 Curt Carnemark/World Bank

Climate change is a threat to global development and to poverty alleviation. And yet, reducing greenhouse gas emissions is proving difficult because all players in an economy contribute to the problem. To make a difference, we must reduce our emissions in a coordinated manner.

This is no easy task. So where do we go from here?

One approach involves pricing the “externalities” that are contributing to climate change. Pricing externalities into the costs of production is nothing new. A classic textbook example is the paper mill that sits upstream from a fishing village.

Discharge from the mill pollutes the river, diminishing the fishermen’s catch. The mill freely uses the water of the river in its production of paper, but does not pay for the damage of the negative externality that it causes. To remedy the situation, regulations can be put in place to stop waste from going into the river – or the mill can pay a fine equivalent to the loss of the fishermen’s revenue.

The latter is an example of an externality priced into the cost of production. The same can be done to combat climate change.

In this case, carbon emissions are the externality that must be priced. Doing so provides a cost-effective and efficient means to drive down greenhouse gas emissions as the cost of such pollution goes up.

A port of call for climate change

Vladimir Stenek's picture

The subject of the usefulness of harbors is one which I must not omit, but must explain by what means ships are sheltered in them from storms.…But if by reason of currents or the assaults of the open sea the props cannot hold the cofferdam together, then, let a platform of the greatest possible strength be constructed...” (Vitruvius. 1st century B.C.E. De architectura)

“(Ports’) main purpose is to provide a secure location where ships can berth.” (Stopford, M. 2009. Maritime Economics. Routledge. UK)

More than two millennia passed between the two writings. Yet, some of the basic requirements for ports haven’t changed much. The assessment of their adequacy in the light of current and future climate change impacts requires new approaches. Rising sea levels, shortening return periods of storm surges and floods, increased intensity in storms – to name a few –  can have detrimental impacts on port facilities and equipment. Using only historic climatic records to plan for the future is likely to be inadequate, especially for assets that have long lifetimes.

However, port facilities are only a part of a bigger picture. Even if a port is planned and operated with considerations of climate change impacts, the inland infrastructure and supply chain that serves a port –roads, rail or inland water transport - that is not designed to withstand projected climate impacts may pose the weak link and interrupt a port’s operations. Finally, the supply cargo transported through a port can be affected by extreme events (as in recent interruption of mining operations in Australia due to heavy floods, or the ongoing impacts of heavy rains and flood on the roads of Colombia) or the gradual change in climatic conditions (for example, agricultural products).

More than 80% of globally traded goods are transported by the sea and through the ports, and climate risks analyses and subsequent climate proofing need to be incorporated to key elements. However, a recent survey of several hundred ports found that although almost all respondents forecasted expanding new infrastructure in the next few years, most were not planning for climate change. A possible reason identified in the study is lack of information that is specific to climate risks to the ports: although the vast majority of respondents felt that ports should consider adaptation, only one third felt sufficiently informed.