Lecture Talk
Carbon pricing works like this: one entity pays another for the right to emit gases that cause the greenhouse effect, such as carbon dioxide (CO2). The recipient of this money, in theory, invests it in renewable energy sources and stops deforesting. Each credit is equivalent to global warming caused by a metric ton of CO2. The talk at Teale Lecture focused on the topic of pricing climate risk. Form Robert Litterman, the speaker, it is evident that the introduction of carbon levy can be an effective deterrent measure against excess carbon emissions, especially in industrialized nations (Collalti et al. 2449). The speaker noted that such a move would also go along towards setting an equilibrium to the Federal budget. Moreover, excess use of fossil fuels can be addressed through well-established policy instruments from the local to Federal governments.
From the above lecture, it is evident that the primary approach towards cutting down the use of fossil fuels is by instituting a carbon tax. While such a policy guideline may work, it is not sustainable. Introducing carb tax implies that industries will be compelled to downsize their operations, especially if they do not have alternative sources of energy. It is also arguable that the need for a cleaner global energy matrix is becoming increasingly urgent to reduce carbon emissions (Collalti et al. 2445). The “Past, Present, and Future of Fossil Fuels” course, the transition from coal, oil, and natural gas for renewable energies is fundamental in this dynamic, but it should take at least two decades to happen. Nobody can sincerely say that the complete transition from oil to cleaner energy will occur in ten years.
Is the global economy closer to cutting dependence on fossil fuels? We are not very close. For instance, the transport system is almost entirely dependent on fossil fuels. Electric vehicles are arriving, but their penetration is extremely low in the world, especially in developing countries. If that is the case, when will oil consumption start to fall? I feel that as economies grow, especially in developing countries, there will be a need for more energy resources. Where will this energy come from? At least for the next 20 years, the consumption of resources like coal, for example, will not change that much. On the other hand, the demand for natural and renewable gas, such as solar and wind, will grow considerably. The credit market is attractive to highly polluting industries, such as airlines, and industrialized countries that signed the Paris climate agreement, because offsets can serve as a cheaper alternative than actually reducing the use of fossil fuels.
The lecture also addressed the aspect of risk such that:
- Worst case scenarios are required in risk management
- A growing risk is a key priority area
- Pricing risk should be done appropriately.
- Risk is measured