TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Carbon pricing is advancing despite Trump
Carbon pricing and other mechanisms like the CBAM have the potential to unleash a decarbonization wave across global industries, regardless of the current US stance.
Change text size
Gift Premium Articles
to Anyone
Share the best of The Jakarta Post with friends, family, or colleagues. As a subscriber, you can gift 3 to 5 articles each month that anyone can read—no subscription needed!
A worker oversees a production line on April 30, 2025, at a steel factory in Lahore, Pakistan. (AFP/Arif Ali)
M
any fear that the United States’ withdrawal from the Paris climate agreement will undermine the international consensus to reduce greenhouse gas emissions. Yet just in the last month, there have been two major steps toward widespread carbon pricing where it is needed most.
To be sure, carbon pricing is not always the best policy, and not all sectors need to be subjected to schemes that require international consistency. If India electrifies its vehicle fleet more slowly than Europe, European industry suffers no competitive disadvantage. But the situation is different in long-distance shipping and aviation and in heavy industries such as steel and chemicals, which account for around 25 percent of global emissions. Here, carbon pricing is key to cost-efficient decarbonization, and must be imposed on an internationally consistent basis.
Fortunately, the technologies needed to achieve net-zero emissions by mid-century in each sector already exist. For example, methanol or ammonia can be used instead of fuel oil in ship engines, and hydrogen can replace coking coal in iron production.
As matters stand, these technologies would impose a significant “green cost premium” at the intermediate product level, but with only a small impact on consumer prices. For example, even if freight shipping rates doubled, the price of a pair of jeans made in Bangladesh and bought in London would rise less than 1 percent. If making zero-carbon steel costs 50 percent more per tonne, that would add around 1 percent to the price of an automobile made from green steel.
Carbon pricing is essential to overcome the green cost premium, and it could drive cost-efficient decarbonization at a trivial cost to consumers. But in each of these sectors, inherently international products (long-distance shipping) or international trade in products (steel) make purely domestic approaches untenable. That is why the International Maritime Organization (IMO) agreed on April 11 to impose a carbon levy reaching US$380 per metric ton on ship operators whose emission intensity exceeds a defined threshold.
The IMO agreement is not perfect. The organization aims to cut global shipping emissions by 20 percent by 2030, but the new pricing scheme would achieve only an 8 percent reduction. Still, concluding a new multilateral agreement despite a US boycott of the negotiations is a big step forward, and China, India and Brazil were among the 63 countries in favor.
Carbon pricing could also drive decarbonization in heavy industry, but if it is only imposed in some countries, production and emissions will simply move to others. Though the ideal solution would be common carbon prices worldwide for these energy-intensive sectors, there is no international rule-making body like the IMO. The second-best solution, then, is for individual countries to impose domestic carbon prices combined with border carbon tariffs.
