Also this winter, the price per ton of Carbon Emissions exceeded €100 in the EU emission trading system for the first time - presumably triggered by a shift in electricity generation from gas to coal, which is more carbon intensive per MWh of electricity generated.
Oil and gas prices have surged last year far beyond the levels which for example the CO2 tax on fossil fuels rejected by Swiss voters in 2021. This might have provided an unintended stress test of what the social and economic impact would be if we were serious about decarbonisation and has spurred a level of attention and investment into "alternative energy" (now called renewable or green energy) not seen since the oil crises in the 1970ies.
In order to keep the momentum of decarbonisation, the price for CO2 (and equivalent GHG) emissions likely needs to remain higher than before 2021, but how high is high enough?
There are several approaches or mental models that could be use to determine what should be the "right" cost for CO2 emissions.
In classical economic thinking, CO2 emissions are an externality that should be priced in for example by imposing a Pigou tax. Most carbon taxes or emission trading schemes like the aforementioned EU ETS seem to operate on this basis.
There have been scientific attempts to determine the externality or social cost of CO2 emissions. These estimates only work over a somewhat stable range of assumptions and break down completely under asymptotic conditions: after all, what would be the cost of the end of civilisation as we know it that would even mean the end of concepts like "economics" or "cost"? Even with more bounded assumptions, estimates range from tens to thousands of dollars per incremental ton of CO2 emissions depending of the source.
Another approach would be to treat carbon emissions like other harmful emissions that need to be regulated and ultimately banned. This approach has worked well to combat air pollution and acid rain (at least in industrialised countries) and the degradation of the ozone layer globally.
This approach would be well aligned with the current thinking about "net-zero" goals which is equivalent to ban all net CO2 emissions from human activities by a certain date. At this point, the cost of further CO2 emissions would then be equal to the cost "cleanup" in the form of removal and long-term storage of the same amount of CO2. Stable and long-term removal of CO2 from the atmosphere is currently very limited in capacity and costs between hundreds to thousands of dollars per ton.
There is a larger market for voluntary compensations that are much cheaper, but largely not ensured to last over geological time periods and are prone over-statement, fraud or even to mafia style protection rackets like: "I have a pretty little forrest here - wouldn't it be a shame if something were to happen to it...".
Using long-term, geologically stable carbon removal as a pricing benchmark for CO2 emissions might make sense, but might mis-direct resources into scaling negative emission processes beyond what makes sense in the long term.
Another approach might be to price CO2 emissions based achieving certain levels of reduction in CO2 emissions, similar how central banks set interest rates to achieve certain price stability or employment objectives. Many of the carbon trading systems around the world have introduced market stability measures, for example the Market Stability Reserve (MSR) of the EU ETS. While these measures might not be formally linked to effectiveness, they could certainly evolve in this direction. But as central banks around the world have political independence to shield them from being ousted after taking unpopular measures, any governing body with carbon pricing power would likely require a similar level of political protection.
It is not clear how high the price for CO2 emissions would have to be under this model, but given the current state of progress against stated goals of decarbonisation, it would likely need to be significantly higher than today.
