Revenue from pricing carbon emissions can exceed loss for plant owners

Stabilizing global warming at around 2 degrees Celsius by cutting greenhouse-gas emissions from fossil fuels would mean to leave much of coal, gas and oil unused underground. Yet the instrument of pricing global CO₂ emissions could generate a revenue of 32 trillion US dollars over the 21st century, exceeding by far the 12 trillion US dollars reduction of fossil fuel owners' profits, according to a study now published by scientists of the Potsdam Institute for Climate Impact Research.

"Implementing ambitious climate targets would certainly scale down fossil fuel consumption, so with reduced demand their prices would drop," says Nico Bauer, lead-author of the study. "The resulting profit loss would be overcompensated by revenues from auctioning emissions permits or taxing CO₂, which are two of the possible instruments of climate policy."

The distribution of revenues from emissions pricing depends on how climate policies are implemented on a national and international level. "Moreover, revenues from pricing carbon cannot be simply seen as a compensatory fund for the loss of income from fossil fuels," says Bauer. "This is because climate policy results in higher energy prices for households and companies, which lead to a -- rather small -- reduction of economic output. So there might be many appetites for the money raised from CO₂ pricing."

We know that fossil fuel owners will lose out on profits, but the big question is who will benefit from the new revenues generated by climate policy? It will fall to policy makers and society at large to decide this, adds Elmar Kriegler, project leader and co-author of the study. "It would be interesting to ask for the effect of using the revenues from carbon pricing to finance infrastructure investments in developing countries."