UK must reform climate policies to become global leader, say economists
A steep reduction in UK emissions over the last two decades disguises a number of ineffective government policies, argues a new report from the London School of Economics.
In a briefing on the key environmental policy issues ahead of the 7 May general election, three academics from LSE’s Centre for Economic Performance look at the policies that aim to reduce the UK’s emissions and examines their successes and failures.
The headline figures suggest an impressive record on tackling climate change in the UK, say authors Ralf Martin, Jonathan Colmer and Antoine Dechezleprêtre.
By 2012, the UK’s emissions had fallen by 25% on 1990 levels, meaning that it met its international target under the Kyoto Protocol, as well as its legally binding domestic target.
This makes the UK a leader in cutting greenhouse gas emissions among major economies, with countries such as the US and Japan still emitting more than they were in 1990.
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Greenhouse gas emissions trends for selected countries. Source: UNFCCC and Global Carbon Budget 2014/LSE CEP report
Innovation
But, globally, the UK has been lagging behind in many aspects of climate and energy policy, the report says.
In fact, without the recession in 2008 forcing down emissions as the economy shrunk, the UK would not have have hit its domestic target for 2012. This means there is “no room for complacency” in forming future climate policies, the authors write.
The UK’s record also looks less impressive when its reliance on emissions from overseas are taken into account. These are not included in the UK’s accounting.
Consumption versus production emissions for selected countries, where dashed lines represent consumption emissions. Source: Global Carbon Budget 2014/LSE CEP report
In research and development into clean technology, the UK is lagging behind other leading economies, and in particular losing ground to countries such as South Korea and China, the report shows. This is despite the fact that UK inventors are registering more patents than ever before.
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Left: Climate change mitigation inventions patented by UK-based inventors as a share of inventions in all technology areas. Right: Contribution of top 15 inventor companies in climate change mitigation innovation globally. Source: LSE CEP report
Government spending on research and development into energy is also lagging behind other countries, and has shrunk as a proportion of gross domestic product (GDP) over time.
In the early 1980s, spending amounted to 1% of GDP, with the majority going towards nuclear. This has been squeezed to a share of less than 0.02%, although the balance has shifted towards renewables and efficiency.
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Share of government spending on research and development for energy technologies. Source: LSE CEP report
Falling behind in clean technology could be bad news for the UK, the report says, as research has shown that there is a net social benefit from innovating in clean technologies, with the impacts concentrated in the country where the technology originates.
Carbon pricing
Another problem is that the UK’s web of climate policies has led to carbon being priced differently for different industries, the report says.
The first charge faced by emitters is the EU’s emissions trading scheme, which imposes a uniform carbon price on around 45% of Europe’s emissions.
In addition to this, the UK has had a Climate Change Levy (CCL) since 2011, which is a tax on the energy consumption of businesses, with rates varying according to fuel type. But companies in the most energy intensive sectors can get out of these charges if they agree to take on an overall emissions reduction target under another policy called Climate Change Agreements (CCA).
Meanwhile, there is a CRC energy efficiency scheme, which has worked in much in the same way as the CCL since the government withdrew an associated rebate programme in an attempt to reduce the deficit.
Energy suppliers have faced further costs from the renewable obligation, which forces them to source a certain amount of supply from renewables, and the carbon price floor, which is a levy on carbon emissions in addition to the EU’s emissions trading scheme.
Emissions from households are not explicitly priced, though they are indirectly impacted by policies such as the green deal.
The report sets out the implications of this mass of policies as follows:
“Many firms now pay a carbon price three times for the same amount of carbon: all firms pay for the electricity they consume via the EU ETS, as well as implicitly via the renewable support schemes; most firms also pay for the CCL, which nets out at about £10 per tonne of carbon; some firms pay in addition for the CRC allowances, which, at present prices, adds another £12 (£15 from next year onwards).”
But, it adds, some of the most energy intensive firms can end up paying £21 less per tonne of carbon thanks to the exemptions they receive from the CCL through the CCA scheme.
The chart below shows how this has led to different pricing across different sectors in the UK, and how this compares with the rest of the world.
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Estimated effective carbon prices in selected sectors by country. Source: OECD, 2013/LSE CEP report
Recommendations
The report offers a number of policy recommendations on how the government could improve in these areas.
The first is to introduce a carbon tax that addresses consumption-based emissions, with imported goods facing an additional charge to take into account the difference in the price of carbon between the UK and the product’s country of origin.
However, the authors quickly acknowledge that this is unlikely, as there is little appetite for such a tax among policymakers – not to mention that it could also potentially violate the rules of the World Trade Organisation by undermining efforts to liberalise global trade.
They also suggest creating a uniform carbon price by abolishing exemptions and increasing the amount paid by those currently facing lower prices.
This would reduce inefficiency and raise additional money that can then be poured into the research and development of clean technology, says the report. It points out that CCA exemptions alone lose around £360 million in tax revenue. It adds:
“If the CCA was abolished and the resulting revenue channelled towards R&D on renewables and hydrogen, the UK would become the world leader on R&D spending in this category.”
Political parties
So, what chance is there of the government elected on 7 May taking on these recommendations?
Conservatives, Liberal Democrats and Labour have all pledged to tackle climate change, but so far there has been little evidence of tangible policy commitments from the parties (see Carbon Brief’s grid of climate- and energy-related election pledges here).
Labour has offered the clearest commitment so far, say the authors, with a promise to make the UK’s electricity supply carbon neutral by 2030. It is not clear, however, how this would work alongside their pledge to freeze energy bills until 2017 and regulate to reduce energy prices, as carbon neutral generation is likely to increase costs, the report says.
They point out that the majority (18.4%) of the UK’s emissions reductions to date occurred after Labour came to power in 1997, introducing several important climate change policies. The report states:
“Most action on climate change is happening as the result of policies implemented by the last Labour government. Indeed, the Conservatives and Liberal Democrats have arguably been less committed to action on climate change since coming to power.”
The Conservative manifesto pledges continued support for the Climate Change Act, but also to remove subsidies for onshore windfarms.
The Liberal Democrats have said they will encourage innovation and spending on research and development. But the report questions whether such pledges are merely rhetoric, in light of a lack of enthusiasm regarding the green agenda while in power.
The Green’s approach to climate change “reads as idealism rather than practical policies”, says the report, while it is UKIP which has proposed the most “actionable policies”. These include repealing the Climate Change Act and scrapping the Department of Energy and Climate Change – the “complete antithesis” of what the other parties have proposed.
Despite the UK’s success in reducing emissions, a confusing web of policies and a lack of investment in clean technology is holding it back from becoming the global leader that it could be, the economists conclude. Their final hope is that the 7 May general election will lead to renewed commitment to tackling climate change.