According to the Intergovernmental Panel on Climate Change (IPCC), unless global carbon emissions are halved by 2030, the Earth will face global warming of 1.5 °C above pre-industrial levels (Allen et al., 2018). While this figure may appear negligible, it actually could spell devastation for all life on Earth. For humanity, more extreme weather patterns will affect the livelihoods of many, particularly the poorest, despite the fact that most of the damage has been inflicted by rich nations. This inequity is one that must be dealt with, spearheaded by those nations that have contributed so greatly to this global crisis.
In assessing the best solution we must consider which policy or which combination is the most cost effective i.e., which approach achieves the target of halved global emissions by 2030 at a minimum cost to society. One way to illustrate how effectively we deal with climate change is through the use of Kate Raworth’s (2017) model of the ‘Doughnut Economy’ (Figure 1). ‘Doughnut Economics’ considers the ‘safe and just space’ for an economy to be working within, in which it satisfies two conditions: essential social foundations are being achieved whilst not overshooting pressure on environmental systems. Given that, globally, we are currently producing over 37.1bn tonnes of CO2 each year (Muntean et al., 2018) - that's over 400% of what it was in 1950 (Committee on Climate Change, 2019) - it is fair to say we have burst through the ‘ecological ceiling’, causing a considerable overshoot which needs correcting. As the IPCC has emphasised, “the window of opportunity to limit global warming and its dramatic consequences is closing fast” (IPCC, 2014).
A primary method of carbon pricing, carbon taxing is a widespread policy which begins to internalise the external costs of carbon emissions. Worldwide there are already 29 (primarily national) carbon taxing schemes (World Bank Group, 2019) which all essentially aim to shift the burden for the damage inflicted, to those which the market deems the most responsible. Acting as an alternative to a strictly regulated market, in which the specifics of where the burden is shifted to is dictated by a powerful regulatory body, the carbon tax gives producers vital flexibility. This flexibility allows production to reach its most efficient level as it sends a signal to producers, allowing them to decide if they are willing to stop polluting entirely, innovate to reduce emissions whilst still producing or to continue polluting the same amount however paying the price set by the tax. Favouring productively efficient, low-carbon firms, a carbon tax drives out high-carbon producers in the long run. In the UK in 2013 a minimum price for carbon was implemented which is, in effect, a carbon tax. After just 3 years of the price floor, total carbon emissions produced in the UK had fallen 25% from that of 2010 and in the electricity sector, carbon emissions had dropped a mighty 50% from 2010 (Carbon Tax Center, 2018). This therefore would appear to be a great success and a step towards environmental sustainability.
The problem however, is that carbon taxes don’t necessarily lead to a desired level of carbon emissions. In other words, they lead to an unspecified outcome wherever the market resolves what the optimal quantity produced should be. Furthermore, in relation to the supply of household energy, which in the UK makes up 40% of total carbon emissions (Committee on Climate Change, 2016), most of the tax burden is shifted on to the consumer due to the inelastic nature of household energy consumption. Lower income households spend a larger proportion of their total income on energy than those of higher income, we would therefore assume the tax to be regressive. It is then worth considering whether we are breaching the essential foundations of social equity in order to achieve environmental sustainability which, as stated earlier, would mean the economy is working outside of the ‘safe and just space’ of ‘the doughnut’.
Thankfully these are not unavoidable issues:
Carbon taxing is a policy often used alongside an emissions trading system (ETS) which works on the principle of cap and trade. Cap and trade systems set a limit on total emissions, distribute emissions permits and allow low-carbon firms to sell their extra allowances to over-polluting firms. The EU ETS, initiated in 2005, is a cap and trade system comprising of 31 European countries which regulates 45% of total EU greenhouse gas emissions (European Commission, 2016). This is a costly, although effective scheme that ensures compliance across the board by demanding firms’ annual emissions reports which are checked by an accredited verifier. It has already seen a 20% fall in total EU emissions from 2005 and this is forecasted to reach 40% by 2030. These impressive figures are also however a result of the EU ETS accompanied by national carbon taxes in several European countries. Therefore a cap and trade system can work alongside carbon taxes to effectively meet a desired level of emissions.
Social inequity resulting from a carbon tax can be combatted by returning the carbon tax revenue to those on lower incomes whilst maintaining the price incentive to minimise emissions. The revenue could be allotted either by adjusting the distribution of income tax proportionally to the amount of carbon tax revenue raised or through increasing public spending on welfare for example. Both options aim to effectively mitigate the regressive effects of the tax rendering it more equitable.
Carbon taxing has the potential to be a powerful monetary disincentive, motivating producers to shift to more eco-friendly methods of production, provided the tax is set high enough. However it is possible to conclude that without an ETS ensuring a specific target level of emissions is met and a redistribution policy ensuring social equity is adequate, a carbon tax alone is insufficient.
Even the UK, a highly developed country, which only makes up 1% (364.1MtCO2) of global CO2 emissions (Department for Business, Energy & Industrial Strategy, 2018a) would struggle in meeting its target of ‘net-zero’ emissions by 2050 using just carbon pricing. Despite a resulting fall in pollution from industry through carbon taxing, sectors such as aviation and shipping are harder to decarbonise. Making up 6% of UK total emissions (Committee on Climate Change, 2011), the aviation sector is forecasted further growth in coming years due to the expansion of the UK’s largest airport, Heathrow. This is just one example that leads us to believe that in order to achieve this specific climate change goal in the UK, not only would there need to be substantial drop in emissions from carbon pricing, we would actually need to draw CO2 out of the atmosphere.
The answer to such problems can be addressed through investment in new technologies:
Renewable energies are currently on the rise, as of 2018 making up 30.1% of UK electricity generation (Department for Business, Energy & Industrial Strategy, 2018b). The more renewable energy is subsidised, the less we rely on fossil fuels for power. Moreover, investment in new forms of renewable energy such as nuclear-fusion-energy, which is currently being pioneered by General Fusion, could find the answer to this puzzle of supplying the world with sustainable power.
Canadian start-up ‘Carbon Engineering’ have developed technology capable of drawing in CO2 rich air and using it to harvest clean, synthetic fuel. Carbon Engineering are already removing one ton of CO2 from the atmosphere each day from their single plant in British Columbia. This technology has the power to be commercially upscaled however this requires significant investment.
Such levels of innovation need to be encouraged globally through government spending, whether that means temporarily cutting national defence budgets or using carbon tax revenue. In addition to government spending, the Breakthrough Energy Coalition (BEC) has already pledged $1bn to investment in new technology (Gray, 2017) and we must encourage this type of philanthropy from the world’s richest to continue driving innovation. This approach is more equitable than cutting public spending as it does not hit the lowest earners as hard however we cannot rely on the generosity of a few people at the top; governments must take control.
Canadian start-up ‘Carbon Engineering’ have developed technology capable of drawing in CO2 rich air and using it to harvest clean, synthetic fuel. Carbon Engineering are already removing one ton of CO2 from the atmosphere each day from their single plant in British Columbia. This technology has the power to be commercially upscaled however this requires significant investment.
Such levels of innovation need to be encouraged globally through government spending, whether that means temporarily cutting national defence budgets or using carbon tax revenue. In addition to government spending, the Breakthrough Energy Coalition (BEC) has already pledged $1bn to investment in new technology (Gray, 2017) and we must encourage this type of philanthropy from the world’s richest to continue driving innovation. This approach is more equitable than cutting public spending as it does not hit the lowest earners as hard however we cannot rely on the generosity of a few people at the top; governments must take control.
To effectively reduce emissions, all countries must move from fossil fuels to new and exciting, carbon-free nuclear-fusion-energy and move away from unsustainable meat production, which accounts for 25% of total global emissions (Gray, 2017), to new prospects of plant-based, lab-grown substitutes. These transitions do not happen without investment in these new technologies, and without these transitions we face a dying planet.
In the same way that countries invested in their own industrial revolutions, whether boosting the development of the steam engine or the process of drilling and refining oil, countries must commit the same effort in commencing their own environmental revolutions. While this process may begin with carbon taxing, it certainly does not end with it. Unfortunately we cannot ensure that investment in new technology is always cost effective however the mix between both policies is most likely to lead humanity into the ‘safe and just space’ of ‘the doughnut’ hence successfully dealing with the challenge of climate change.
Ben Walldock
References
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