LSE report concludes UK carbon tax would do nothing to reduce European-wide greenhouse gas emissions
The introduction of a carbon tax would help the UK meet its greenhouse gas target, but make no difference to emissions of greenhouse gases across Europe, according to research by the Grantham Research Institute on Climate Change and the Environment and the Centre for Climate Change Economics and Policy, at the London School of Economics and Political Science (LSE).
The report—“Combining Multiple Climate Policy Instruments: How not to do it”, points out that a Europe-wide cap on emissions under the EU Emissions Trading Scheme means that the rest of Europe will continue to emit up to this capped level whatever policy instruments are introduced at a national level.
The UK Government is currently consulting on a carbon floor price or tax which would mean that UK electricity companies would have to pay extra for the carbon they emit. Until now power generators have been exempt from the Climate Change Levy, the closest thing that the UK has to a carbon tax.
A carbon tax would undoubtedly encourage UK companies to reduce their greenhouse gas emissions since they would have to pay two sets of costs for every tonne of greenhouse gas they emit – for the carbon tax and for EU ETS permits.
And while any cuts in emissions are welcome, we have to look beyond the UK. A lower demand for EU ETS permits from UK companies would cause the price of carbon to fall, encouraging other countries to emit more. As long as there is a European cap on emissions, anything we do unilaterally merely moves greenhouse gases around. The accounting may look good, but the reality isn't.—Dr. Samuel Fankhauser, one of the research’s authors and Deputy Director of the Grantham Research Institute
One of the UK Government’s objectives in considering a carbon tax, or a carbon price floor, is to set a strong and predictable carbon price which would be an effective penalty for pollution and encourage investment in renewable energies and Carbon Capture and Storage.
A strong, long-term carbon price is a good thing, so the tax has its merits. But an even better approach would be for the UK to work with its EU partners to tighten the EU emissions cap from a 20 per cent to a 30 per cent target. This would send a long-term price signal and lead to immediate EU-wide emission reductions.—Dr. Fankhauser