Why do people keep saying carbon prices are too low?

Time and again we hear about calls for more agressive price on the right to emit a tonne of CO2 (or reduction of an equivalent amount) in order to have the dramatic transition of low carbon economy the climate change philanthrophists always wanted. An article published in the Independent mentions that many actors in the energy industry insist "low price of carbon is one of the biggest issues it faces as it ponders whether to invest in low carbon electricity generation facilities". 


Lets not debate the economics of having a Euro 15 or Euro 100 for an energy company. Clearly, they need a reliable number to put in their financial model being developed by an analyst for their upcoming energy generation asset - be it a coal power plant or a gas fired plant. When they don't have it, they don't know how to play with the excel model and are left in a limbo - I mean their projects. Fair point. This is how the project finance modelling works - and decision for big investments are made.


However, to argue, just because that they don't have a high enough price to justify a low carbon investment that the carbon prices are going in wrong direction is flawed in logic. Carbon prices are just reflective of what the price should be to achieve climate objectives - that is to keep the emissions below the cap in a cap and trade system. They are high when emissions far exceed the cap and low when there is a surplus due to lower emissions. The European Union Emission Trading Scheme, a pioneer in numerous aspects, reflects this logic and prices have hovered anywhere between sub Euro 10 to more than Euro 30 basis markets understanding of supply and demand. Yes, markets are short sighted - but that is a problem with our model of Capitalism. Look at the volatility in oil or power prices. Learn to live with it. Why make carbon the scapegoat? Lower carbon prices mean that the cap is too high. Well, if that is what the world needs and thinks its enough to mitigate climate change, so be it. Enjoy building fossil fuel fired power plants!


The real problem in the debate is the philosophical dilemma between "coal vs green". Policy makers tend to present an utopian picture of clean green economy in front of the world. Green's criticise coal as being dirty and want entire power generation to be green. Neither openly supports the fact that what we need is a "mix" of coal and green and the percentage of each being determined by our resolve to fight climate change. Zero coal doesn't exist. Carbon Capture and Storage (CCS) may exist - time will tell. Anyway, its too costly and needs a Euro 100 price that we don't need to pay out unless we decide otherwise. 


By presenting a simplistic view of coal vs green we do more harm to the climate change debate than good. Climate change is complex. Climate change and global warming are not synonymous. Lets get are knowledge and education right so that people make rationale choices. Lets stop playing with words and confusing people with half baked carbon concepts. Lets tell them the reality and facts - even if its more complex and takes more time to understand. Climate change won't be solved by Euro 100 per ton of CO2 price. It needs a massive low carbon lifestyle in which being low carbon means being smart. Its something people like to do out of their free will. Its like the habit of driving safely of roads or brushing your teeth every morning. We do it because its good for us and our surroundings. Its the right thing to do. This transition needs time and education. It wont be achieved by asking for high carbon prices or misleading the public to believe that carbon trading doesn't work.