Jamaican Economy Panel post-summer discussion focuses on carbon pricing

This month, the panellists contemplated carbon pricing in the Caribbean. This focus is in response to the International Energy Agency's call for net-zero emissions of greenhouse gasses by 2050 and the most recent Intergovernmental Panel on Climate Change (IPCC) report that once again confirmed the worrying trends of the last few decades with regards to human-induced climate change.

Carbon pricing is an effective instrument in reducing greenhouse gas emissions. Carbon pricing means making emitters pay for the costs that the public purse currently absorbs, such as those in the form of damage to crops, health care costs from heatwaves and droughts, and loss of property from flooding and sea-level rise. The two primary ways to administer a carbon pricing regime are through an emissions trading scheme (where the limited amounts permitted are traded between emitters) and a carbon tax, where regulators set a fixed tax per amount of greenhouse gasses emitted.

The panellists showed a mild preference for carbon taxation over emissions trading, mainly because it appears to be more easily implemented and would probably have a more immediate effect. However, the vast majority of respondents support the concept of carbon pricing as a whole.

There are some things that the respondents see as potential challenges for the implementation of a carbon pricing regime. First, knowing that producers will probably pass on some (or most) of the costs of such a pricing regime, this would lead to higher costs and the poorest in society may not be able to countenance such higher costs. Second, implementing a carbon pricing regime can be complicated. It would be essential to make sure that the administration costs are not too significant, as this would reduce the regime's effectiveness and reduce public support for it. Finally, some panellists were also afraid of carbon leakage because production may move away from the region if the region were to increase production costs.

Thankfully, carbon pricing administrators can use some solutions to address these potential objections. The most important one, receiving majority support from the JEP respondents, focuses on the redistributive aspects of any form of carbon pricing. A redistribution of carbon pricing revenues to the population would alleviate fears about the poorest being at a disadvantage from such a regime. It would be especially appealing if those with small carbon footprints could come out ahead financially, while those with giant carbon footprints end up with substantial costs.

The full results of this month's discussion are available HERE.