The real barrier to zero carbon

Carbon charges—taxes if you wish—are the most effective market mechanism for shifting the pattern of energy use away from hydrocarbons such as oil and gas and towards sustainable alternatives. Many of the alternatives are already available at a reasonable cost, while others are the subject of promising research and development work. As a new study shows, charges, accompanied by targeted regulations, can incentivise the change. The energy transition is emphatically possible. The problem is that the while the government has committed to achieving net zero by 2050, it has lost the capacity to engage in long-term thinking about getting there. Covid-19 has sucked the air away from every other government activity.

Emissions will be lower this year thanks to the recession caused by the lockdowns imposed around the world. But the reduction is temporary. Chinese economic growth has resumed and is being fuelled by coal—a trend evidenced by the sharp revival of coal prices. At a moment when major investment is needed to provide the infrastructure necessary for the move away from fossil fuels, the recession has sharply reduced the capacity and the willingness of both companies and individuals to invest for the future. The economic upturn, when it eventually comes, will continue to be fuelled by hydrocarbons.

In such circumstances, shouting about the risk of extinction is pointless because no one is listening. Better then to focus on the practical steps which can be taken to encourage the transition. That is the thinking behind the independent Zero Carbon Commission, which has just produced its conclusion. The commission, of which I am a member, includes the head of Greenpeace and some of the most serious climate academics, but also individuals who approach the issue from an economic and commercial background. Perhaps surprisingly, the commission’s discussions were consensual and the conclusions were agreed unanimously.

Charges are one crucial step towards changing the ways in which carbon is consumed and produced. They must reflect the potential for individuals and businesses to make new choices. If alternatives exist then a well-designed charge, in most cases escalating over time, can change behaviour. If no alternatives exist, the possibility of future charges encourages providers to develop alternatives. If no other choice is possible, carbon charges are simply a way to raise tax revenue. As the accompanying research into public opinion makes clear, people are not willing to see households and businesses burdened with charges they can’t avoid, but where alternative choices are available they would accept the fairness of a charging system.

Different sectors pose different challenges. It is easier to induce changes in behaviour when it comes to driving or home heating than it is to transform heavy industries such as cement production or our long-term use of aircraft. Some sectors need specific regulation, others need dedicated infrastructure such as charging points or upgraded grids. Supportive regulation—such as air quality standards—are part of the story, as is targeted research funding into areas such as energy storage and the production of zero-emission hydrogen fuel. Charges in themselves are insufficient, but they are a powerful tool for altering behaviour and driving all the other policies which are necessary.

The timetable for change is variable between sectors, but the overall direction could be entrenched by establishing a degree of consensus and therefore long-term confidence that adjusting to a new system is economically rational for both household and businesses. As of now there are numerous different charges on products which generate emissions, from petrol to household heating fuels, but they are uncoordinated and disconnected from from the potential for substitution. The new study brings them together in a single coherent approach.

The revenue raised from the charge (which would amount to some £27bn in 2030 from a charge levied at £75 per tonne of CO2 produced) could be allocated in different ways—to support economic renewal, to fund research into the next generation of low-carbon alternatives or to cushion the rise in household bills, particularly for those in greatest need. Future governments could vary the balance while retaining the charges as confirmation of their determination to move to a low-carbon economy.

The only problem is that the government is not listening. The time when think tanks and commissions made a difference has passed. Ministers are exhausted by their inability to manage coronavirus, civil servants are marginalised and cowed by the removal of their senior colleagues, and the No 10 Policy Unit, which in my own day we sought to make a source of objective expert analysis, has lost all relevance. The cultural war against the BBC seems to matter more than any substantive long-term policy challenge.

The best hope is that politics, like economics, works on a cyclical basis. Covid-19 may help people to see that their lives and livelihoods are more vulnerable than they believed and that to restore some measure of security, longer-term thinking is necessary. The value of experts and rationality might be revived. It would be naïve to be optimistic but if that happens, carbon charges will offer one practical way forward.