A Nobel Prize winner at the planet's bedside
As Responsible Finance Week draws to a close, coinciding this year with l'X Sustainable Development Week, it is an ideal time to take a look back at the key points raised at the "RefleXions" symposium on 7 June by Jean Tirole, the Nobel Prize winner in economics.
We have 10 years to act
We are in a state of emergency. We only have 20 years left before we have exhausted the carbon budget which would keep the average temperature increase below 1.5°C compared to the pre-industrial era. Or, to put it another way, we have 20 years in which to reduce our net greenhouse gas emissions to zero and, in practice, 10 years in which to devise, test, develop and begin the roll-out of appropriate solutions.
The price of carbon must be imposed on everyone
Big declarations do not work, but incentives based on a carbon price do if they are fair and apply to all. In England, a very modest carbon tax has made it possible to reduce emissions greatly. Coal has been replaced by natural gas, which emits half as much CO2. A fairly low tax can have considerable positive effects. However, everyone, without exception, must be subject to it, otherwise the consent of the people will not be obtained. This measure should of course be accompanied by a flat-rate compensation, which must be linked to income tax: it will be necessary to compensate the losers, especially when they are among the less fortunate from the outset.
Carbon price provides short-term visibility
This tax, which would be better described as a price, makes it possible to aggregate all the information, to simplify an extremely complex problem: what does virtuous mean in terms of greenhouse gas emissions? With the price, everything will be internalised, everyone will pay exactly what they cost society in terms of carbon footprint. If we want to save the planet, we will have to make an effort. And the more we delay, the more effort it will take. Reducing their carbon footprint at low cost will be the primary objective of large companies, drawing the outline of a virtuous circle for which public policies will need to provide incentives.
Carbon provides long-term visibility
The carbon tax is essential for providing credibility to new entrepreneurs' low-carbon projects. Knowing the profitability in 5, 10, 15, 15, 20 or even 30 years makes it possible to secure investments. Authorities must make a long-term commitment to a stable price. In addition, the carbon price has the virtue of not choosing winners: we cannot predict which technologies will be the winners. The success and learning curve of the technologies currently being explored remain uncertain. A stable carbon price must be used to create a perspective so that entrepreneurs can confidently obtain the necessary financing to ensure the benefits of tomorrow in a low-carbon economy.
The GDP is not the be-all and end-all for economists
Economists have absolutely no mandate to decide on the choices of society. Climate scientists are calling for a limit of 1.5°C on global warming. It is a societal choice, based on scientific consensus. The corresponding efforts should then be made, irrespective of their impact on GDP growth. The real challenge is to ensure that the planet remains liveable.