Fiscal climate policy

11 November 2009 By Martin Hutchinson

The IEA has set out targets to reduce emissions and the carbon price hikes needed to get there. The focus on price is helpful, and underlines the virtues of a carbon tax. As well as being a marketfriendly way to tackle climate change, taxes would also boost government revenues.

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The International Energy Agency's World Energy Outlook, published on November 10, set an atmospheric carbon dioxide target of 450 parts per million in 2030, necessary to reduce to 50% the probability of a global temperature increase of 2 degrees Celsius by 2100.

To achieve this, carbon emissions would need to peak at 30.8 gigatonnes annually in 2020, reducing to 26.4 gigatonnes by 2030, 38% less than in the IEA's reference case scenario which assumes no change in practices.

The IEA said that achieving these reductions would require the cost of carbon emissions in developed economies to rise to $50 a tonne in 2020, and the emerging markets price to $50 by 2030. Currently carbon permits trade at $21 a tonne in the European Union and the carbon price is capped at $48 in 2020.

In its reference case the IEA expects fossil fuels to account for 77% of the energy demand increase by 2030, with oil demand increasing by 24%, coal demand by 53% and natural gas demand by 42%.

IEA report

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In its reference case the IEA expects fossil fuels to account for 77% of the energy demand increase by 2030, with oil demand increasing by 24%, coal demand by 53% and natural gas demand by 42%.

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