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…