The Price of Carbon Emissions Plunged in 2022, and That’s Not Good

This chart, which hasn’t been published elsewhere, is disappointing. It shows a steep drop in 2022 in the global weighted average price per metric ton of carbon dioxide emissions:

Making it more expensive to put greenhouse gases into the atmosphere is the market-oriented way to keep the planet from overheating. A high price tag on emissions gives emitters the incentive to switch to cleaner energy sources. It also raises the prices of energy-intensive products, encouraging consumers to choose ones that are friendlier to the environment. And so on.

From a low in 2012, the world was making steady progress toward raising the price of emissions — still low, but at least headed in the right direction. Then came 2022. Energy prices soared, partly because of Russia’s invasion of Ukraine. Governments scrambled to protect their citizens from the price spikes. European nations, for example, shielded citizens from the rising cost of electricity and natural gas. So that year, the global average carbon price tumbled to $4.08 a ton from $18.97 in 2021.

A subsidy for consumption of fossil fuels is actually a negative price for carbon dioxide. The way for a country to make its price positive is to tax fossil fuels, or tax carbon dioxide in general, or enact an emissions trading system in which there’s a cap on total emissions and those who want to emit more have to buy a permit from someone who agrees to emit less.

The above chart’s data come from Gro Intelligence, which gathers and analyzes agricultural, climate and economic data. Gro just completed work on 2022 data for the Gro-Kepos Carbon Barometer — a measure of the price of carbon dioxide emissions by metric ton across countries — and gave me an early look at the results.

Here’s that price for 2022 for 26 countries that account for 85 percent of global emissions. (Gro doesn’t have detailed data on the remaining 15 percent.) This chart also hasn’t appeared elsewhere.

Notice that China’s carbon price was higher than that of the United States in 2022. It was the first time that had happened since at least 2008, when Gro’s records begin. The main reason is that China began an emissions trading system in 2021.

China is now the world’s largest emitter of carbon dioxide, so its $19-per-ton price dragged up the global weighted average significantly. In fact, the weighted average for all countries excluding China was actually a negative $4.50 per ton in 2022, according to Gro.

“That’s the headline,” Robert Litterman, a former top executive at Goldman Sachs, told me. (Sorry for not making it the headline, Bob.) Litterman is a founding partner and risk manager at Kepos Capital, a New York-based investment company with $2 billion under management that has a partnership with Gro. Gro’s barometer is built on initial research by Kepos.

Economic theory says that the price of carbon dioxide emissions should, for efficiency’s sake, be set to equal the social cost imposed by those emissions in terms of rising sea levels, destruction of habitats and so on. In 2022 in the journal Nature, a group led by Resources for the Future put the social cost of carbon emissions at $185 a ton.

Scientists and economists disagree over whether the social cost is higher or lower than $185 a ton, but just about everyone agrees it’s way higher than the $4.08 a ton that Gro Intelligence estimates for 2022.

International agencies have been harping on this problem. “Differences between efficient prices and retail fuel prices are large and pervasive,” an International Monetary Fund working paper in August said. The Organization for Economic Cooperation and Development — a key data source for the Carbon Barometer — said in December that “the fiscal cost of government support for fossil fuels almost doubled in 2022” to more than $1.4 trillion.

The 2022 decline in the global carbon price didn’t happen because world leaders suddenly stopped caring about climate change. It was mainly a mechanical result of the rise in energy prices. When the government has a cap on prices or a price-related subsidy, and then the underlying price shoots up, the amount of the government’s subsidy automatically jumps. That’s “a big kick in the gut” for efforts to curb climate change, Litterman said.

Oil and natural gas prices have fallen from their 2022 peaks, so the subsidies probably shrank and the world price of carbon dioxide emissions probably rebounded in 2023, Sara Menker, the chief executive of Gro Intelligence, said in an interview.

Menker said she understands why governments want to protect their citizens from sharp increases in energy prices, even though doing so results in more greenhouse gas emissions. “Ultimately this is what makes transition to a cleaner fuel economy difficult and complicated,” she said. “I don’t take views on policies. The governments were reacting to a reality. Whether that’s right or wrong, I have less of a view.”

Litterman agreed. “It’s a tough political problem,” he said. “I understand that. If it was easy it would have been solved a long time ago.”

The Readers Write

Regarding your piece on the Boeing 737 Max 9 accident, as a native Seattleite I totally agree with your conclusion that “the company has work to do.” I also have an additional suggestion, one that will never happen, that Boeing be broken up into four or more independent companies specializing in whatever the current divisions are producing. Commercial airplane headquarters should return to Seattle and an engineer be made the chief executive. The company is too big and complex, just like General Electric became.

Robert Dunn

How you can write an article on debt without once mentioning money printing is beyond me. There are three ways a government can pay for services — taxes, borrowing and money printing. Taxes are fraught politically and bonds are becoming less attractive. Why? Because the No. 1 way the United States and most other governments get money is they print it out of thin air.

Bill Aronson

Quote of the Day

“Remember that you are blessed. Remember that in exchange for those blessings, you must give something back. You must reach back and pull someone up. You must bend down and let someone else stand on your shoulders so that they can see a brighter future.”

— Michelle Obama, commencement address to the University of California, Merced (May 16, 2009)

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