Firms that emit carbon dioxide could be charged up to $80 per tonne for the privilege if recommendations in a new report from the influential Intergovernmental Panel on Climate Change (IPCC) are adopted.
The IPCC report, published this weekend in Valencia, summarises the findings of the group's three most recent studies and is expected to provide the scientific underpinning for the upcoming UN conference in Bali to find a successor to the Kyoto protocol.
The report reiterates the IPCC's conclusions that climate change is " unequivocal", that it is over 90 per cent certain that man is the predominant cause, and that it could deliver "abrupt and irreversible" consequences for humanity.
It also claims that mitigation measures need to be urgently adopted if a temperature increase of up to six degrees by the end of the century is to be avoided.
To drive this decarbonisation of the global economy the report concludes that "an effective carbon-price signal could realise significant mitigation potential in all sectors", citing modelling studies that show that global carbon prices rising to between $20 and $80 per tonne of CO2 equivalent by 2030 are consistent with stabilisation at around 550 parts per million of CO2 equivalent by 2100.
It adds that technological changes may allow governments to lower these price signals to between five and 65 dollars per tonne of CO2 equivalent emitted.
Such a price on carbon would drastically increase the cost of all carbon intensive activities and products, ranging from flights to energy bills.
How such a price signal should be imposed remains the subject of intense political debate, with Europe and many US states favouring a cap and trade system, while some economists favour a simpler straight tax on pollution.
However, regardless of the mechanism used, the growing support for such measures is likely to further impact firms' long-term risk assessments and strengthen the case for investment in low-carbon technologies, such as renewable energy.
The report also endorses a number of further climate change policies as " environmentally effective", including a reduction in subsidies for fossil fuels; subsidies for renewable energy; mandatory transport fuel economy standards; building and appliance codes and standards; and financial incentives for forestry projects.
It argues that these policies coupled with the adoption of existing technologies could mitigate the risk of climate change at reasonable cost. It also claims that there is "much evidence that mitigation actions can result in near-term co-benefits (e.g. improved health owing to reduced air pollution) that may offset a substantial fraction of mitigation costs".
However, the report warned that mitigation measures alone would fail to protect the world economy over the next few decades because of the time lag between the release of emissions into the atmosphere and increases in temperature. Consequently, the IPCC recommended major investment in adaptation measures, such as flood defences.
Panel chairman, Rajendra Pachauri, warned that even if levels of CO2 in the atmosphere are stabilised at current levels, research showed that the sea level would rise by up to 1.4 metres because water would continue to warm and expand. "This is a very important finding, likely to bring major changes to coastlines and inundating low-lying areas, with a great effect in river deltas and low-lying islands," he said.
The findings should play a major part in firms' long-term risk assessments and begin to shape both private and public sector investment decisions.
Speaking at the publication of the report, UN secretary general Ban Ki-Moon said that he expected politicians to signal their support for the IPCC's findings at the Bali conference next month. "Today, the world's scientists have spoken clearly and with one voice," he said. "In Bali I expect the world's policymakers to do the same."
