How to Tackle Climate Change

How to Tackle Climate Change December 5, 2018

Climate change is on the agenda, and for good reason. Here is occasional contributor Ed Atkinson on creating an effective proposal to deal with the challenges ahead:

The photo introducing this blog need not alarm you too much because I originally found it on the Daily Mail website. Yes, sea level rise is a serious concern as our Climate changes over the next decades, but levels as high as shown here would be much further into the future. Impacts in low lying coastal areas such as large parts of Bangladesh are more serious than London and the damage to agriculture, livelihoods, public health, extreme weather events and the environment, in general, are massive concerns.

I like the photo, though, because it hints at the solution, policies enacted by parliaments and governments around the world. Individuals acting on their own will cannot have sufficient impact to drive carbon out of the economy, and we know that time is running out.

But what are the policies that will drive out carbon and how can we help politicians implement them? In this blog, I will seek to answer those questions from the point of view of a campaigning group I joined a few years ago – the Citizens Climate Lobby, CCL. I joined because I was convinced they had the best policies and approach.

There is so much to say on climate change so I will just take it as agreed that the following are correct:

  1. Climate change is real and overwhelmingly caused by human activities, mostly burning fossil fuels.
  2. Climate change will become extremely damaging to human populations, especially the already disadvantaged, unless we take massive action urgently, resulting in CO2 emissions virtually ceasing within the next few decades.
  3. The technical barriers to changing to a low or zero carbon economy are surmountable.
  4. Collective action led from governments is the only way to get carbon out of the economy.

The first thing to face is that action must be massive and pretty brutal if we are to keep global temperature within the 2 degrees target required. The second thing to face is that the general public is not that exercised on the issue and won’t want or vote for anything that makes their lifestyle less easy or enjoyable. With that in mind, let’s look at the policy options:

  • Regulation
  • Subsidy
  • Cap & Trade
  • Carbon Tax
  • Combinations of the above

 

Regulation

This is all those measures that would force people not to use carbon. Examples are banning non-electric vehicles, stringent building codes for insulation and making old-fashioned light bulbs illegal. Just imagine the host of laws and regulations required to actually drive carbon out of the economy? Imagine the chaos if it was decreed that no fossil fuels could be burnt in the UK from 2040? It is clear that regulation would either not be sufficient or would not be acceptable to the public. The Poll Tax riots would be mild in comparison and no government implementing this would survive, crashing along with their policy.

Subsidy

Governments have used subsidies to encourage a move to renewable energy. In the UK this has been policies like the Feed in Tariff and the Renewable Heat Incentive. It has been a success in developing new industries but has been expensive to achieve this. A major problem is that it can’t drive fossil fuel consumption away. If the UK stops using gas to make electricity then gas will become cheaper on the international markets. If it is cheaper, then it will become economic to use it in new ways and so consumption will only be marginally reduced.

Actually, this problem applies more widely than just to subsidies, any programme to reduce fossil fuel demand suffers from this effect, whether it is promoted at inter-government scale like the EU, right through to an individual seeking to ‘do my thing’ in reducing his or her carbon footprint. To keep the fossil fuels in the ground we need to do more than simply reduce existing ways that it is used.

Another killer for subsidies is where the money comes from to pay them. As brutal action is now needed to drive out fossil fuel use, the sums of money involved would be eye-watering. Who will be paying? Taxpayers you’d imagine. Good luck with that one.

Cap & Trade

This was the trendy way to go a couple of decades ago. The idea is to put a cap on fossil fuel use, say by the electricity generation sector, by issuing permits to pollute. These permits can then be traded so, as a power company works out how to generate the power with less carbon, it can sell some of its permits. This generates a market and puts a price on carbon, which in theory can generate effort and innovation to reduce CO2 emissions. The permits have in-built emission caps that gradually reduce, thus slowly forcing carbon out of the sector.

The history of these schemes generally confirms that they are a bad idea. For a start they can only cover about 45% of CO2 emissions in an economy at most, eg private vehicles can’t be covered. Next, they produce massive volatility in carbon price because permits are worthless when demand drops and can be met within the permits, and then suddenly prices leap as soon as companies are struggling to meet demand within the cap.  This volatility harms businesses and hence the economy in general, it also scuppers long-term planning and investment in low carbon technologies because no one knows the likely returns on such investment.

The graph of carbon price for the EU cap & trade scheme (ETS) shows the volatility. It also shows how it has failed to sustain a meaningful price on carbon. Since 2015 it still languished well below 10 euros per tonne, dropping to 4.4 euros last year. But it has now suddenly risen above 20 euros.

Imagine what would happen if a cap really did apply serious pressure to reduce carbon emissions massively, as the planet requires. Of course, the price would shoot up and then who would end up paying? Consumers of course, via things like electricity bills.  I can’t imagine that going down well. The money would not go to anything useful, but would go to corporations holding permits originally given away by government. Oh dear. (In theory permits become auctioned as the scheme matures, but still, the majority of EU ETS permits are given away with no change in sight.)

Carbon Tax

Taxing carbon is the obvious measure and always has been. The only trouble has been the political aversion to new taxes, which complex schemes like Cap & Trade avoid, at least when they are originally implemented.

Let’s just review why taxing carbon works economically. If the tax is applied as the fossil fuel comes out of the ground, in keeping with the CO2 released when the fuel is burnt, then the whole economy is covered. It is not just power stations or gas bills that are affected, every process in the economy would experience costs increasing and so have incentives to find low carbon suppliers and efficiency measures. A classic case of the invisible hand of the market. Innovation would flourish.

Note how the simple measure of taxing at source (mine or oil/gas well) makes collection straightforward and corruption difficult as there will be relatively few locations involved. Unlike VAT for example. The simplicity also makes clever avoidance measures difficult, unlike VW diesel emissions regulations or those City traders exploiting carbon trading schemes

Another advantage is that the carbon price would be announced in advance, usually rising from a base level in annual increments. This would enable planning and investment immediately the policy was agreed.

Things get more complex as a carbon footprint is imported into an economy. A worldwide agreed carbon price would avoid this, but during transition stage at least, some countries or trading blocks would apply such a tax before others. The embedded CO2 emissions in the imported product would need to be taxed at the border and such tax rebated for exports. Imagine fridges made in China imported to the UK after we implement a carbon tax. Some Chinese fridge manufacturers have great design and source low carbon energy, making the tax applied at the UK border low, while others are less careful and the tax is high. UK consumers then find the low carbon fridges cheaper and so buy them more. Thus a UK policy drives low carbon measures in China. If the rest of the EU (as we hope we’ll be saying in 2019!) join in, the impact will be greater. This is the reverse of most policies, such as regulation, which push carbon emissions into other economies.

In the fridge example, the same process applies to making fridges more efficient: UK consumers will not want fridges with high running costs and so manufactures, inside the UK and outside, will innovate to maximise efficiency.

Let’s take a typical villain … out of season mange tout peas flown in from Africa. They would leap in price after a carbon tax but be unaffected by other options (unless it was made illegal).  You might say that some Waitrose customers would be too well off to care and the mange tout would keep flying. But the race would be on to find a low carbon way of getting them to Waitrose. Maybe a special atmosphere controlled container system with innovative faster shipping. Maybe locally grown mange tout using renewable heat and genetic engineering. Let the market decide.  Only a predictable carbon price achieves this.

 

There is just that massive problem of political acceptability of a Carbon Tax. Hold that thought …..

Combinations

Of course, there is a place for combinations of policies. Subsidies can help new technologies develop and become established, or help the poor with insulating homes. Regulation can force products to be labelled for carbon impact and estimated running costs (‘Buying and running this fridge for 5 years will cost £550’). Such policies work together. Perhaps only Cap & Trade and a Carbon Tax are incompatible.

But even with combinations, we must ask which policy will do the heavy lifting. The measures required to keep us well below a rise of 2 degrees C must be pretty brutal. Which can achieve that?

Fee and Dividend – the CCL Policy

I hope that we have arrived at this conclusion: only a pre-set steadily rising Carbon Tax can deliver the brutal intervention required without trashing the economy.

We are left with the issue of popularity. I have explained how massively unpopular each option would be if it delivered the carbon reduction required. There is no way round that as events in Paris show. But let’s look again at a Carbon Tax. The government would be holding the tax and so has the money to make the policy acceptable, even popular.  The CCL policy is to dividend all the funds collected straight back to citizens. It would be equal per citizen. Suddenly the game has changed:

  • Most people would be equally or better off, about 2/3, only the richer high-carbon minority would see costs rising more than their dividend payments.
  • The dividend does not at all take away the incentive to seek out zero carbon products and services
  • The worst aspect of a consumer tax – its greater impact on poorer citizens – is reversed.
  • We don’t even need to call it a Tax as it is not government revenue. It is a ‘Fee’.

This approach has already been tried, in British Columbia. Right back in 2008 a rising carbon fee was implemented with most dividended back to citizens. It allowed for the carbon price to rise to a ceiling of $30 per tonne by 2012. It was popular, it reduced emissions, especially when compared to other Canadian provinces where it rose, and it had a positive impact on GDP & jobs.  The current Canadian government has adopted the approach and the carbon price will rise to $50 over the next few years.

The CCL policy is not to have a ceiling on the carbon price, it can steadily rise until carbon is driven out of the economy and the price level is irrelevant.

What is happening here is the dividend allows the carbon price to rise to levels that could never be politically sustained in any other way. Remember John Major’s fuel escalator? Once it started to bite the politicians were all too eager to get off the escalator, claiming they had reached the top. Instead, a higher carbon price means a higher dividend, with control over how to avoid much of the higher prices. People can choose low carbon luxuries like locally brewed beer and services, or they can invest in insulation and buy electric vehicles.

REMI Study

The CCL Carbon Fee and Dividend policy has been modelled by independent agency REMI for its impact on the US. It was found to: “strengthen the economy and create jobs while slashing CO2 emissions and improving Americans’ health.”

The CCL Political Approach

A wonderful feature of Carbon Fee and Dividend (CF&D) is that there is appeal across the political spectrum. For the right, there is a market solution and a measure that businesses find predictable which allows for planning the adjustments required. Indeed the right-leaning UK think tank the Policy Exchange has recently announced its support in its report  “The Future of Carbon Pricing.” Meanwhile, for the left, there is robust action on climate change with a progressive intervention.

Note too how a Dividend to citizens is politically neutral. In contrast, choosing to spend the money on government programmes such as reducing Corporation Tax on the one hand (right-handed) or subsidising renewable energy on the other (left handed) is politically divisive.

The wide political appeal enables cross-party support for the policy, which CCL UK is seeking to build. CCL have achieved just that in the USA.

This sets the approach used by CCL, to work with politicians, praising their work, building a positive relationship and not hectoring. We don’t condemn campaigners glueing themselves to Downing Street gates rather we see ourselves in a ‘good cop bad cop’ synergy with them. Yes, politicians and people all need to realise how desperate the situation is becoming. But also politicians need support, people covering their backs, as they make the bold decisions the planet requires.

Invitation

I shamelessly invite you to join CCL UK. Visit our website, have a look round, and click the large blue ‘JOIN CCL  >’ button a few pages down, on the right side.

Please too invite one of us to talk at your event where we can explain more and answer questions. Sceptical, green, political or social events would all be great or anything really. We are keen to get the message out. Email us at ccl.info@gmail.com


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