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Climate: an economist at l’X seeks the right carbon price

Anna Creti, researcher at École polytechnique’s Department of Economics and Professor at Paris Dauphine, studies the carbon markets as an economic tool to change current behavior. The aim is to help governments fight against climate change, a burning issue with the COP21 about to begin.

Four hundred and fifty billion euros per year in 2050: that is the cost of climate change according to the UN. To help public authorities reduce CO2 emissions, which contribute to global warming, Anna Creti, researcher at École polytechnique’s Department of Economics and professor at the University Paris-Dauphine, studies the way the market operates for carbon prices. This topic will be at the heart of discussions held at the Paris Climate Change Conference (COP21) held from November 30 to December 11, 2015.

The carbon markets, an economic tool to change current behavior

To encourage industrial businesses to pollute less and to change their current behavior, Europe has implemented in 2005 an emission trading system for greenhouse gases. The principle is simple: the emissions of carbon dioxide are charged to companies that reject them, while allowing those that emit less to sell their surplus allowances to manufacturers who fail to reduce their emissions. "The purpose of this tool is to give a prize to the dangers of global warming," says Anna Creti.

Looking for the right carbon price

If today a ton of carbon costs between five and seven euros on the European market, most experts believe that we need a higher price to bring about a real behavior change among industrialists.
Another difficulty is that there is currently a very large disparity between European countries, the carbon tax ranging from less than one euro in France to a hundred and thirty euros in Denmark. Studying the evolution of this tax is thus a crucial aspect of the research conducted by economists working for École Polytechnique’s Sustainable Development Chair sponsored by EDF group.

Towards a flexible and global carbon market

Despite a difficult start related to the 2008 financial crisis and the over-allocation of allowances that caused a general decline of the price of a ton of carbon, the carbon market raises great hopes. It remains one of the most effective tools to engage the transition to a low-carbon economy. "It is efficient, provided it is controlled by public authorities to correct and impose a coherent regulation in the long term," says Anna Creti.

If the average price of the carbon is still low in Europe (five euros per ton), the environmental impact is certain: in just eight years, carbon emissions were reduced by 19% between 2005 – when the system was implemented – and 2013. The rejection of approximately 1.2 billion tons of CO2 has thus been avoided.

"Many questions still remain open," admits the researcher. "What is the good geographical scope of carbon markets? Should we tend to a single carbon price on the international level?" Those are all questions that will be discussed at the COP21.