Agreement is a new entry this year
As such, the main means for cutting back on greenhouse gas
emissions are forms of carbon pricing, which can either come
down to taxes or trading.
The accord sets out a clear target for cutting carbon
dioxide (CO2) emissions and a new mechanism for
international cooperation on climate policy. The target is to
keep the global temperature rise below 2°C and pursue
efforts to limit the increase to 1.5°C. Achieving this aim
will require the decarbonisation of the global economy by the
second half of the 21st century.
As the precursor to Paris, the Kyoto Protocol laid out the
basis for countries to reduce greenhouse gas emissions through
carbon trading and the 2015 agreement is aimed at expanding the
scope for carbon pricing around the world. But this is not a
one-size-fits-all approach for its signatories.
Learning from the flaws of the Kyoto Protocol, the Paris
Agreement has taken a 'bottom-up' approach, rather than the
'top-down' strategy, for prescribing how to best tackle climate
change. The UN decided to take this approach in recognition of
the differences between countries in terms of how they are
contributing to climate change and what they should do to
The advantage of the UN's 'bottom-up' approach is that it is
open enough to allow national governments to pursue their own
strategy, taking into account local circumstances.
The domestic approaches to meeting the Paris Agreement
commitments have become increasingly apparent throughout the
past year and many more countries are set to announce similar
measures in the coming months. France and Canada, among others,
are taking steps to change their carbon tax rates to curb
emissions, while countries such as South Africa plan to
introduce a carbon tax.
"France's 2018 budget bill plans to increase carbon taxes to
raise prices not covered by the European trading system," Kurt
Van Dender, head of environmental tax at the OECD, told
International Tax Review. "France introduced a carbon
tax in 2014, which started at a modest rate of €7 per
tonne, but this will increase to €86 per tonne in
The tax increase would hit the sectors of the French economy
outside the EU's emissions trading system (TS). This would
leave out electricity and industry, while transport,
construction, agriculture and waste would be directly targeted
by the higher rate.
The discussions are not just at federal level for some
countries, however. Van Dender notes that in Canada, there are
a couple of provinces moving forward with carbon tax. "For
example, British Columbia has a tax, Quebec has introduced a
trading system, and other provinces are now following suit.
Under the Trudeau administration, there is a big initiative to
introduce a backstop at the federal level," he says. "The idea
is that the provinces are free to introduce what pricing system
they prefer, but there will be a minimum approach set by the
federal government," he adds. "This is a major
Moreover, India and China, which are two of the highest
global emitters of carbon, are on board with the initiative.
China is already making efforts to reduce its carbon footprint
and is investing heavily in renewables. India, meanwhile,
accounts for about 4.5% of global greenhouse gas emissions.
However, under the Paris Agreement, it has committed to
generate at least 40% of the country's electricity from
non-fossil sources, showing its desire to adapt.
Nevertheless, the IMF and World Bank recommended that the
tax on emissions should be set at $100 per tonne by 2030 to
ensure the climate commitments are achieved – a rate
many critics say is too high.
Much like the Kyoto Protocol, the Paris Agreement faces the
same threat of non-compliance. The decision by the Trump
administration to withdraw from the Paris Agreement has been
widely condemned. Many multinational companies have joined a
campaign for revenue-neutral carbon taxing in the US. These
companies include General Motors, ExxonMobil, Royal Dutch Shell
and BP. It may seem counterintuitive that big businesses would
want higher taxes, but there is logic in this.
"The primary benefit of Paris and other [climate] agreements
is that they can provide a roadmap for business investment
decisions," Chris Lenon, former head of tax at Rio Tinto, told
International Tax Review recently. "As these decisions
are often longer term, a roadmap can help plan and also can
help justify investment in new technology to move towards a low
carbon economy. Being able to plan longer term is crucial."
At the same time, there are doubts that the target of less
than 2°C of temperature increase compared to pre-industrial
levels is the best goal. Avoiding a global increase of more
than 2°C could prevent the most catastrophic scenarios of
climate change, but it does not guarantee the world will avoid
terrible consequences. Climate change has been linked to the
rise of extreme weather events, such as droughts and
A recent study published in Nature Climate Change has warned
that the Earth's temperature will surpass 3°C if the world
does not wean itself off of fossil fuels soon. The planet is
likely to surpass 2°C by 2100, even if fossil fuels were
completely cut out today. But whether it is too late or not,
there can be no doubt that action is urgently needed –
taxation plays a large part in this.