The expanding search for a carbon price*

Le choc carbone : prendre en compte les coûts réels du changement climatique
Article Index
Collapse of European carbon prices
Chinese carbon markets
Carbon in international trade

The consumption of fossil fuels is the equivalent of a tax burden: huge sums of money will have to be taken from state budgets to deal with the consequences of climate change over the coming decades. How can this 'hidden' burden be made visible? The polluter pays principle points towards a carbon tax for fossil fuel-intensive industries. Would this be a successful approach?

BOX 1* Adapted from the book: Carbon Shock: A Tale of Risk ''& Calculus on the Front-Lines of the Disrupted Global Economy (Schapiro, 2014, Chelsea Green)

Chaos and uncertainty are the characteristics of the natural world under the pressures being wrought by climate change. Normal patterns of rainfall, temperature, and extreme weather are changing so rapidly that past baselines for these primordial forces are decreasingly relevant.

Scientists call this state of flux 'the end of stationarity'. We can no longer rely on past events to predict future probabilities.

Now it's becoming increasingly clear that the volatility we're seeing in our natural world is reshaping our financial world, too. The past provides fewer and fewer clues to our future. Just as the migration patterns of songbirds no longer correlate to the hatching patterns of their insect prey, or mountain snow-packs no longer store water for the dry summer months, the economy faces similar miscues borne of the interactive loop between tumult in the atmosphere and tumult on the earth. New risks are entering into the equation, and new costs are creeping onto the balance sheets of corporations and nations. The elusive cost of carbon, paid out and fought over in so many different forms -including as one of the world's newest and most unusual financial commodities - is in the process of becoming the greatest economic disrupter of the twenty-first century.

It's not that carbon hasn't always had a cost; it's just that, until now, carbon's costs have been mostly invisible. The current economic order, for the most part, does not account for them. Just as an optical illusion tricks the eye into seeing something that's not there, traditional accounting diverts our attention from invisible costs; we see only profits. Keeping these costs a mystery has been fundamental to our economic growth. Businesses benefit from a false ledger in which the environmentally corrosive impacts of the energy they use to produce, distribute, and dispose of everything from almonds to automobiles have been dramatically undercounted. The world's three-thousand biggest companies, according to the United Nations Environment Programme (UNEP), cause $2.15 trillion in annual environmental costs (UNEP Finance Initiative, 2011).

Most of those costs are the result of greenhouse gases (GHGs) emitted from the burning of fossil fuels, from which 82% of the world's energy is derived (International Energy Agency, 2013). In 2011, California Governor Jerry Brown shared his fears of climate change at San Francisco's Academy of Sciences. The governor cited Thomas Hobbes, the seventeenth century political scientist who saw government as an instrument of restraint upon mankind's 'brutish' self-interest. 'We want to avoid a Hobbesian situation,' Brown declared, 'the brutishness that happens as things get tighter' (California Academy of Sciences, 2011). What Brown feared the most were the multiple billions of dollars that would be drained from the state budget to deal with the accelerating consequences of climate change and the clashes that would occur between the myriad powerful interests.

Globally, finding Hobbes at play throughout our climate-stressed world is not difficult - we're already paying what amounts to a tax on fossil fuels in all the many ways in which the public sector fills the financial void left by climate change. These costs hit us sporadically in different places and at different times, which is why they aren't perceived as a 'tax'. But every time we use fossil fuels, we increase our tax burden, a burden that unfolds like a sequence of trap doors, just like climate change itself.

The world's two biggest economies, the US and the EU, estimate hundreds of billions of dollars in costs from heat waves, floods, and an accelerating flow of refugees fleeing lands in which they can no longer sustain themselves. Both classify climate change as one of the foremost challenges to political stability. The World Economic Forum has identified erratic water supplies as one of the primary challenges to economic stability (World Economic Forum, 2014). The Food and Agriculture Organization predicts rising food prices as conditions shift toward a perfect storm - lower rainfall in already dry areas, and more torrential rainfall in areas that are already wet. In the US alone, recovery efforts from the 2012 hurricanes - the severity of which was attributed at least partially to climate change - amounted to more than forty billion dollars. President Obama's Council of Economic Advisers foresees climate change costs rising forty percent for every decade that the level of GHG emissions continues on the current trajectory.

Somebody pays for those costs. Economists call these externalized costs - the costs borne not by the producer or the immediate consumer, but by society. Its primary characteristic is one of asymmetric risk - fossil fuel companies earn the profits while the public and public institutions (i.e. the government) bears the financial risks.

Climate geopolitics and the carbon price

Seeing climate change through the prism of its costs may be the only way to overcome the illusions that have constrained us from making an honest assessment of our options. Fossil-fuel-based production is favoured both through misleading accounting and an estimated $500 billion in annual global subsidies to the fossil fuel industries (International Energy Agency, 2014). Using public funds to subsidize the fuel source that is undermining conditions of life on earth defies logic, not to mention free market principles. The combined effects of hiding fossil fuels actual costs with the market-distorting impact of subsidies contribute to the misleading calculation that fossil fuels are the most economically viable form of energy. The risks of this misleading economics for development in a carbon-constrained world are becoming clearer.

The perception of risks and the disclosure of externalities

When it comes to risk, our brains are generally wired to see those right in front of us; we perceive patterns of threat that spur the fight-or-flight instinct. But the threat from climate change is of a different order - it's kaleidoscopic, occurring in dramatic and subtle forms, all over the earth simultaneously. 'Our risk management patterns are still wired to search for lions in the Serengeti', commented Mark Trexler, CEO of The Climatographers, a climate risk consulting firm. 'See lion - run. That's what we're still doing in the climate space.'

Interview with author, November 19, 2013.

But lions in the desert are not the threat. The Serengeti itself, that seat of human life that is a stand-in for the planet, is being transformed. The patterns we are now living through have never been seen before.

What we term a 'carbon footprint' can also be seen as the embodiment of financial risk. In 2013, the Geneva Association of Risk and Insurance Economics, an insurance industry research association, called for a new paradigm for assessing risk, because changes in weather and temperature are outpacing traditional actuarial calculations (The Geneva Association, 2013). Lloyds of London concluded in a report on climate risks: 'We foresee an increasing possibility of attributing weather-related losses to man-made climate change factors.' Add to that the potential disruption of production and supply chains; the reputational consequences of consumers and investors becoming more aware of the environmental underside of their favourite products; and regulatory moves by governments, which are fitfully but increasingly instituting penalties on GHG emissions - and the risks mount. Few of these looming triggers, however, is required to be reported to potential investors - though any one of them could seriously undermine the financial value of companies reliant on fossil fuels.

But these costs are for the most part off the official books of the companies most responsible because the public pays for them. 'Look at the discrepancies in financial disclosure', comments Pavak Sukhdev, former Special Adviser to the UNEP's Green Economy Initiative and senior banker at Deutsche Bank, who is now CEO of a the New Delhi-based consulting firm GIST, which consults with the UN and other clients on identifying environmental risks and costs. 'Companies have to disclose things like contingent legal challenges, directors' bonuses, new regulations, that might add up to millions of dollars in potential liabilities. But then you've got billions of dollars in externalities that they do not have to report because no one holds them to account for them. And those can add up to billions of dollars...Externalities have been the biggest free lunch in the history of the world.'

Interview with author, May 22, 2013.

The carbon economy and the 'quandary of the cup'

For almost two decades, negotiators have attempted to redress that free lunch - the imbalance between who creates the risk and who pays for it - by forging a price reflecting the differences in responsibility for damage to the global ecosystem caused by GHGs, and that is steep enough to trigger a shift away from fossil fuel based energy. But the withdrawal of the US from the Kyoto process in 2001 left the world to improvise a carbon price. Instead of one price we've had wild price variations and a widening division between countries that have at least a minimal price for carbon and those that do not.

In the process, the varied responses to climate change have been shaking up the geo-political order just as it is shaking up the natural and economic order. New powers are rising and other powers diminishing.

If the centre of climate change action has been Europe for the past decade or so, it's now expanding to many new centres such as Brazil and China, two rapidly growing developing countries that are outpacing both the US and Europe in their rates of economic expansion. This axis is ripe with kinetic power in the climate-induced shake-up underway. In 2010, Brazil was the widely recognized leader on climate policy among developing countries. The country's vast low-carbon resources of water, trees, and agricultural bio-wastes made it seem the environmental harbinger; Brazil generates more than 80% of its energy from renewable sources, including hydro, thermal and wind, and only about fifteen percent from fossil fuels.

In that year I visited Brazil's national environmental authority, IBAMA, and spoke to Biancha Bastos Americano, one of the government's lead climate negotiators during the presidency of Luiz Inacio Lula da Silva (2003-2011). She commented on how Brazil would fare in a world in which carbon has a price.

Pointing to a ceramic coffee cup, she said: 'See that cup. Brazil beats any country in a world in which carbon has a price. Including China! The energy used to process the clay for that cup was obtained from water-powered hydro dams in the Amazon. The cup was manufactured in a ceramic factory that is fuelled with biomass. It was transported here by a truck using bio-diesel. We will beat China every time in a world in which carbon has a price.'

The cup she referred to was a typical plain white espresso cup, much like any other espresso cup used the world over. Except that most of those cups are made in China, and this one was made in Brazil. It was a tiny bit more expensive than the cheap coffee cups imported from China, from factories most likely powered by coal.

The idea that this plain white Brazilian cup would become comparatively less expensive than its imported Chinese counterpart if the latter had to include the price of the energy used to make it seemed to encapsulate the central financial question posed by the climate conundrum: how does the coffee cup made with more renewable energy become at least equally competitive with cups made from more destructive sources of energy? This 'quandary of the cup' is a tiny microcosm of the central challenge that has bedevilled the world for two decades. It was a surprise to the Brazilians when, some three years later, a response to that economic quandary came from one of the most unexpected of places.

BRIC shuffle

In September 2013 in Rio de Janeiro, a group of Brazilian, Latin American and other developing country officials gathered for a climate conference co-sponsored by the World Bank and the state of Rio de Janeiro. During the conference, Wu Delin, the vice deputy mayor of the Chinese city of Szenzhen, gave a talk that rocked the proceedings. The government in Beijing, he announced, had decided to start penalizing the producers of fossil fuels, asking the country's most industrialized provinces to create their own cap and trade systems.

Delin described Szenzhen's plan to be the first province to require the most fossil-fuel intensive industries to purchase GHG emissions allowances. His city was positioning itself to be a test run for a national programme. Two hundred of the province's largest emitters would be subject to emission caps, and they would be expected to buy allowances on the new carbon market being created in Szenzhen. The aim was to reduce the carbon intensity of Guangdong industry by 25% by 2015.

'We were stunned,' said Walter Figueiredo De Simoni, Secretary of Environment for Rio de Janeiro state: 'Our response was, "Wow! Just like that they're going to have a carbon price".'

Interview with the author, October 17, 2013.

De Simoni, an economist by training, had spent the previous year negotiating with businesses in the state of Rio de Janeiro to kick-start a market or implement a minimal carbon tax. But he'd been foiled by industry opposition. Businesses claimed that such a move would put them at a competitive disadvantage with their global competitors, namely China. Now China was announcing it would unilaterally accomplish what De Simoni had been trying to do unsuccessfully for more than a year. 'You look at the two countries,' he said. 'Brazil is seen as the greener one, but we're not as prepared to act. China is seen as the dirtier one, yet they are preparing much more aggressively for this greener economy.' Brazil, the 'environmental powerhouse', blessed with an abundance of 'green resources' had been upstaged by China, long seen as the global villain of climate change.

It was a remarkable moment involving two of the most important countries in the evolving climate dynamic. Other markets were launched in 2014, in Shanghai, Beijing, Chongqing, and Tianjin provinces. The world's biggest manufacturer and user of fossil fuels was beginning to give a price to carbon. Of equal significance, for the first time industries in these provinces will have to keep a running inventory (although not yet publically available) of their GHG emissions. Practically overnight, the Chinese carbon markets became the second largest in the world after the European Trading System. Global consumers are starting to pay that price, as small as it is, in their Chinese imports.

China's initiative came just months after the Chinese Academy of Environmental Planning proclaimed that the cost of environmental degradation to the Chinese economy had by 2010 rocketed threefold since 2004, to about 3% of the nation's GDP. (One year after that, China would sign a historic climate accord with the US). And though carbon markets thus far have had a troubled history in actually leveraging a price high enough to trigger large-scale investments in renewables, they begin the process of lifting the lid on the accounting sleights of hand that have long kept the actual costs of fossil fuels out of sight.

As for the Brazilians, they've become a powerhouse in promoting renewable energy technologies in Latin America and Portuguese Africa. President Lula committed to reducing emissions by 39.1% from 1990 levels by 2020 - a goal accomplished largely through significant cuts in rates of deforestation, though those reductions have been partly offset by increased CO2 emissions from transport and other sectors as the government embarked on an aggressive economic development plan under Lula's successor, Dilma Rousseff. The country commissioned its own mini-Stern report, which concluded that if current climate trends continue the country's GDP could drop by from five hundred billion to two trillion dollars by 2050.

Finally, climate change is registering in the language that politicians and industrialists understand - money. As our knowledge of the economic costs of climate change increases, the rigid Kabuki dance, in which each side behaves predictably along long-established lines, is being broken - as the 2014 accord between the US and China suggests.

GHG accountability and the polluter pays principle

But this new opening also comes with a new set of (surmountable) challenges. The polluter pays principle at the heart of the approaches thus far raises a fundamental question in a global economy in which goods are produced in one place and consumed in another: is the producer or the consumer accountable for the GHGs associated with that production?

'You cannot decouple production from consumption,' commented Cindy Isenhour, an Associate Professor of Environmental Studies at the Climate Change Institute at the University of Maine in Portland, Maine.

Interview with the author, January 3, 2013.

The world may be 'flat' when it comes to production, but when it comes to GHGs it is definitely round - and the circle comes round to the world's consumers.

A brief portrait of three cities that are key players in this emerging dynamic offers a glimpse into the multiple ways of understanding the challenge of GHG accountability:

Who's responsible?

The city of Pittsburgh, Pennsylvania runs like a muscle through the industrial history of the US. Long the centre of American industrial production, Pittsburgh produced the steel that became the backbone to America's twentieth-century industrial might.

Then in the 1980s and early 1990s, the steel started leaving. Today, Pittsburgh has been transformed into a different kind of symbol - that of the modern 'green' city. Municipal brochures feature a glittering downtown skyline with one of the highest concentrations of 'green buildings' in the US. Alongside the Allegheny River, a route that once hosted a tramline carrying workers to the factories, there is now a tree-lined 'Greenwalk' for pedestrians. Just blocks off the Greenwalk the hulks of those steel mills are still visible. They, too, have been transformed - into condominiums with a river-view, gourmet restaurants, music clubs and boutiques. Where there were once generations of families reliant on forging heavy metals, there is now an intellectual and creative class firing up innovations in the city's burgeoning high-tech and bio-med industries, backed by an assortment of world class universities.

A coalition of businessmen, city planners and environmental engineers staked out a development plan that positioned Pittsburgh as a hub of innovation in ecologically oriented design. The 2.3 million residents of 'greater' Pittsburgh were together found to be responsible for 6.8 million metric tons of GHGs let loose into the atmosphere; roughly 2.3 tons per capita. By 2013, the city was on the way toward its goal of reducing emissions by 20% by 2020 from 2005 levels, and aims for progressively steeper declines in the future. Pittsburgh is considered among the leading urban climate innovators.

Downtown, the skyscraper windows are angled to maximize natural light, heat is piped in from thermal pools deep underground, and solar panels line the roofs far above the bustling sidewalks. Public transit has been expanded, subsidies for solar and thermal energy have promoted an expansion of small and large-scale renewable energy for residents and businesses, and waste disposal services have been improved to enhance recycling and other energy-saving measures. Major property developers agreed to halve their 2003 carbon footprints by 2050; the city now has the highest concentration of LEED-certified buildings in the country. Even the US Steelworkers, one of the country's first industrial unions, now has a huge banner draped from its downtown headquarters promoting 'GREEN JOBS'. The city's transformation has been so complete that the G20 held its yearly conference there in 2012 and highlighted the city's 'green' strategy as a post-industrial model. Pittsburgh, once home to the industrial empires of Andrew Carnegie and Andrew Mellon, is now one of the 'greenest' midsize cities in America, according to the Economist's Green City Index (Economist Intelligence Unit, Siemens AG, 2011).

Court Gould, Executive Director of Sustainable Pittsburgh, a coalition that helped with the city's transformation, commented that in the old days, 'a father would take his son out to their yard, look back toward the mills and the smoke rising over them, and tell him, "Look there, that's my job. That smoke there, that's money".'

'Not any more. Pollution no longer has the smell of money. Now it's the smell of costs. It's the smell of someone not paying attention to the bottom line. It's a sign of inefficiency.'

Pittsburgh's GHG emissions plunged from the days when the sky was filled with waste gases that would, according to accounts of the time, turn entire afternoons into twilight. The city lost its manufacturing base, and it's a far nicer place to live as a result. It re-tooled its efficiencies, cast off the harmful by-products of manufacturing and refashioned itself as a city far more reliant upon brains than on brawn.

So whatever happened to all those inefficient pollutants that once came spewing from Pittsburgh? Where did the GHGs go?

The producers

Guangzhou is a city of ten million people on China's southeast coast. The freighters that come into the ports here and in the surrounding Guangdong province are loaded with a container about every second - some forty million crates a year of goods exported around the world. Industrial clusters throughout the province are home to more than a thousand steel manufacturing and trading companies. They produce the skyscraper girders, auto parts, appliances, ships, refrigerators, and even American bridges - all those steel products that once were made in Pittsburgh and other Midwestern cities.

Guangdong is also, in the UN's estimation, one of the top-ten carbon emitting provinces in a country that is itself the leading emitter. Some ten thousand miles from Pittsburgh, the CO2 that used to come from that city now fumes into the atmosphere from Guangzhou. As industry migrated, so went their GHG emissions. The Chinese manufacturers are producing the emissions that would otherwise have been produced in Pittsburgh and, more broadly speaking, by all those factories that have either outsourced their production from the US or been crushed by Chinese competition. Between 1990 and 2010, reports the Center for International Climate and Environmental Research, the emissions embodied in products imported by developed nations from developing ones - which for the most part means China - grew by an average of 10% annually.

The World Bank estimates that about a quarter of all the production in Guangdong province, and indeed throughout China, is destined for export to the US, Europe and Japan. The resulting GHGs are, in economists' terms, known as 'embedded emissions'. They are the pollution back-story to the goods we consume.

Guangdong's residents have a per capita annual footprint of 7.8 tons (Wang, Zhang et al., 2012) - quite a bit more than the average Pittsburgher. But while only 6% of Pittsburgh's emissions come from industrial sources, the Chinese industrial sector accounts for 56% of the emissions in China - almost ten times higher, as a percent of the total, than those of Pittsburgh.

The discrepancy between the industrial emissions of Pittsburgh and Guangzhou, which started trading places as centres for steel production in the 1980s, suggests that the lifestyle choices of Pittsburghers have not changed as much as the economic support system, based on GHG intensive manufacturing, changed all around them. Urban Chinese residents, some of them people who have literally replaced those American steelworkers, have a far smaller personal footprint as a percent of the overall total than do their Pittsburgh counterparts. The Chinese, in short, are producing GHGs on our behalf.

The Carnegie Foundation estimates that Americans' per-capita footprint would jump by 2.4 tons annually if their consumption - mostly of goods made in China - is taken into account. Virtually every developed country, according to the Stockholm Environmental Institute, has seriously under-estimated its emissions by twenty to thirty percent because they have not accounted for increased consumption.

Globalization has flipped the calculus on the central question of who is accountable for GHGs. Richard Feldon, a San Francisco-based urban planner, worked with the US branch of the International Council for Local Environmental Initiatives (ICLEI) to design a set of emission reduction protocols. These protocols, adopted by American cities in 2012, are aimed at more than two hundred cities around the world. Feldon said that deciding how to include consumption in GHG calculations was the most controversial issue faced over the three years it took to identify the primary GHG sources in US cities, because it blurs the line between our contribution as consumers and industry's contribution as producers. It gives a new understanding to the 'greenness' of cities.

'Lets say Pittsburgh still had its industrial base, and that steel from Pittsburgh was being used in a city like San Francisco,' Feldon explained. 'Well, it would be unfair to say that San Francisco, under that scenario, is a greener city than Pittsburgh.' The same equation, he said, applies to Pittsburgh and Guanghzhou - or, say, the US and Europe, jointly the world's biggest consumers, and China, the world's biggest producer. It also means that when you do the numbers, the US goes from being the second biggest GHG emitter to the first; Europe goes from third to second; and China flips from first place to third.

Urban dwellers will represent 70% of the world's population by 2020 - so reducing city emissions is one of the fundamental challenges of devising a new energy system that keeps GHGs to at least liveable levels. Just because emissions aren't happening in our backyard doesn't mean that they're not ours. This is a reality that at least one of the world's cities is facing head-on.

Accounting for consumers

Welcome to Manchester, birthplace of the industrial revolution. This city has experienced a trajectory similar to that of Pittsburgh. What steel was to Pittsburgh, textiles were to Manchester. Also like Pittsburgh, Manchester has dropped from being one of its nation's leading GHG emitters to a centre for high-tech innovation, and is host to a cluster of leading universities conducting cutting-edge research into renewable energy. The legacies of both cities are interwoven deeply into the evolution of GHGs and their contribution to climate change.

Manchester was home to the world's first coal-fired factory, ground zero in the historical allocation of responsibility for GHGs. In the eighteenth century that coal-fired energy was put into the service of processing the vast amounts of cotton that Britain was obtaining from its colonies in Asia and North Africa. Indeed, one can see Manchester as having assumed the industrial GHG contribution on behalf of the British colonies, which were expected only to send raw materials to the mother country for processing and manufacture. By 1850, Manchester was widely considered a model for the modern industrial city.

'From this foul drain,' wrote Alexis de Tocqueville of his visit to Manchester, shortly before his legendary foray to the US, 'the greatest form of human industry flows out to fertilize the whole world. From this filthy sewer pure gold flows.'

Today the textile companies are long gone - many returned to India and China. By the 1990s the city had rocketing unemployment. Practically an entire generation of workers were compelled to live on state benefits or leave Manchester. Their GHGs went with them.

Then in 1996, the IRA carried out a powerful bomb attack that injured more than 200 people and decimated the downtown neighbourhood. It was then, according to Sarah Davies, head of environment strategies for the Greater Manchester Combined Authority, that the city was compelled to decide how it wanted to rebuild itself.

There was a 'shift in the mind-set,' she said. Manchester would return to its role as a centre for technological innovation, but this time that innovation would be adapted to the emerging vision of the new low-carbon economy. 'There's the sense,' she said, 'that we created the energy-hungry economy. And now we have some responsibility for finding our way out of it.'

Pittsburgh and Manchester's industrial history may be similar, but the way they deal with their GHG accounting is not. Pittsburgh's Climate Inventory, a blueprint for emission reductions, states: 'Emissions resulting from many personal and business-related activities and decisions that might be evaluated in an individual, carbon-footprint-style inventory are excluded from a city-level GHG inventory approach.' In other words, the city is not counting the carbon embodied in the goods and services its residents consume, or generated by their travel.

By contrast, the long-term plan published by the Manchester City Council calls for accounting for, and reducing, emissions by city residents 'wherever those emissions take place.' These embodied emissions include the energy needed in the growing and transport of food; the extraction and processing of oil used by the city's automobiles and factories; the emissions generated through the manufacture of electrical devices; and estimates of aviation emissions. Adding these consumption-based emissions adds roughly 30% to each citizen's GHG contribution, according to a 2012 estimate by the Greater Manchester Combined Authority.

The Authority, representing some three million people in the city and surrounding communities, launched an initiative to reduce the city's footprint not only at home, but also in the countries producing the goods consumed by its residents. Its room to manoeuvre is limited; cities do not generally have a foreign policy. But within that limited space, Manchester's procurement policies favour imported goods with lower GHG impacts than their competitors, and the city has embarked on an effort to educate employers and homeowners on precisely why purchasing goods closer to home, and reducing energy usage, is good for the city's economy, as well as for the planet.

Davies' office sponsors the city's Carbon Literacy Project, which aims to educate residents on why reducing carbon emissions makes economic as well as environmental sense. 'People want to earn more, pay less, have a decent quality of life, that's what people aspire to,' she said. 'So carbon literacy must be put through these channels. They need to see "prosperity" as "green".' Manchester's long-term aim is to reduce emissions 41% from 2005 levels.

'Having this target makes us more attractive to investors,' Davies explained. European, Japanese and other companies have been pursuing greenR&D - drawing on the rich talent pool from local universities - and textile companies are being lured back to the city, attracted by new fuel-efficient ink and dye technologies. This creates jobs and shortens GHG-intensive transport costs. Between 2007 and 2012, the 'green' sector of the city's economy grew by thirty-seven thousand new jobs, representing $7.5 billion in money passing through Manchester that would otherwise have gone elsewhere - an 'elsewhere' that likely would have been using far less energy-efficient technology. The Greater Manchester economy grew 4% in 2012, fed largely by the infusion of green investments, Davies said, at a time when growth in the UK was flat.

Of course, cities, as well as nations, are circumscribed in their ability to influence the production practices of other countries: governments are accustomed to acting within the traditional confines of national jurisdiction.

But just as climate change is altering the fundamental conditions here on earth, it is also altering our sense of the limits to those traditional concepts. Pittsburgh and Manchester are both signatories to a commitment signed by more than three hundred cities worldwide that have committed to reducing GHGs. Both are largely unheralded leaders among the world's cities in facing the challenges of climate change. But Manchester is one of the few cities attempting to leverage its limited influence to ensure that dirty, GHG-intensive industries are not simply moved off our ledger books and onto others. Its approach suggests a way forward as urban areas around the world wrestle with the underlying inequities involved in the fight to slow their GHG emissions.

A carbon price for an accountable economy

Ultimately, climate change is the single most effective eye-opener to how globally connected we all are - the corrosive effects of climate change unite us across national frontiers, as does the fight to slow the rate of change down. Compel fossil fuel intensive industries to include their actual energy costs, and you create a far more level playing field on which renewables can compete. A uniform price for carbon would ensure that cities like Manchester are not outliers but in the mainstream. It could ensure that major production centres would also benefit; solar and wind energy in China and India are expected to account for as much as two-thirds of new power additions by 2030 (Bloomberg New Energy Finance, 2014).

The World Bank reports almost 25% of the world's GHG emissions are now subject to a carbon price- ranging from the Kyoto signatories, to several US states, two Canadian provinces, Korea, Mexico and the seven industrialized provinces of China, as well as various forms of carbon taxation in Sweden, the Canadian province of British Columbia and elsewhere (World Bank, 2014). It's a diverse spread that is nevertheless sending a signal that GHG pollution henceforth comes with a price. That price is nowhere near enough to generate the funds necessary to aid the transition from fossil fuels and to shift investment patterns. But we can plausibly consider this a floor for a trend that will begin to erase the false accounting that has dominated until now.

You could inject a black dye representing carbon into the circulatory system of the twenty-first century economy and see it appear behind every major economic calculation by governments and by companies from here on out, rising with intensity and focus. Questions, then, will rise around the pivotal issue: Who pays? And how do we ensure that those costs are borne substantively by the fossil fuel companies and not by the society that has borne the burden of those costs for the past two hundred years?

The Danish Energy Agency's yellow balloon

During the 2009 Copenhagen climate negotiations, the Danish Energy Agency helpfully installed a huge yellow balloon over the city's main square that stated in bold black letters etched into the outline of a globe: this is the size of one tonne co2. The installation was enormous - about two stories high and a block wide, the size of a hot-air balloon that could carry you into the atmosphere. It would take fifty billion of those balloons - filled with the gases generated primarily by utilities and oil refineries, coal-powered manufacturing, transport, agriculture, and decaying and dying trees - to see what the GHG threat actually looks like. The balloons hang invisibly above our heads, altering the atmospheric balance and thus the balancing act of life here on earth. And every year there are more balloons. Those balloons full of CO2 might as well contain cash, depleted from the world's coffers with each new ton. Up go balloons full of money.

Collapse of European carbon prices

The European carbon market is the most advanced initiative in terms of including the economic cost of CO2 emissions. It remains, however, overly dependent on external factors (economic crisis, location of activities, technological change) and institutional ones (fixing the volume of tradable credits) to maintain an incentivizing carbon price.
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Chinese carbon markets

Seven Chinese local carbon markets have emerged since the end of 2013. They are field trials for a possible future national market. Together they represent the second largest market after the European Union's and help integrate carbon value into exported products.
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Carbon in international trade

The exchange of goods accounts for 20% of global carbon emissions. The proportion of developed and developing countries engaged in international trade is very important in terms of these 'hidden' emissions.
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