A carbon tax may not actually do a whole lot for emissions

There's a chicken/egg problem at work.

A carbon tax is most economists' favourite method of dealing with climate change. It is exactly the sort of simple, market-driven intervention that they tend to like: set a price per tonne of carbon emitted which is equal to the value of the damage that tonne does to the climate, and then sit back and what businesses and consumers react. Some may cut their usage; some may switch to low-carbon sources of energy, which suddenly become cheaper comparatively; and some may choose to just pay the extra cost (what happens in that last situation is debatable – some think the money should just count as general taxation, others that it should be put towards climate change prevention and mitigation).

The Washington Post's Brad Plumer suggests that it may not work as well as we would hope, however. He reports on a recent MIT study looking at the likely effect of a $20 a ton carbon tax in the real world – the value proposed by a pair of MIT researchers last month.

Plumer writes:

Sebastian Rausch and John M. Reilly of the MIT Global Change Institute recently put forward a proposal for a $20/ton carbon tax that would rise 4 percent each year, starting in 2013. (The funds would be used to offset taxes elsewhere.) Here’s what their economic model predicts would happen to U.S. greenhouse-gas emissions:

Blue line: MIT reference case with no carbon tax. Black line: EIA reference. Green line: Scenario with MIT carbon tax in place.

With a carbon tax in place, U.S. greenhouse gas emissions do start declining quite a bit (this is the green line). But by 2030, emission levels stall, even though the carbon tax keeps rising and rising each year. The United States wouldn’t get anywhere near the 80 percent cut by 2050 that the White House has envisioned.

One explanation here is that MIT’s proposed carbon tax just isn’t high enough. But Muro favors another possibility–that a carbon tax alone isn’t enough to drive deep reductions. The private sector tends to under-invest in energy R&D and key bits of infrastructure such as transmission lines. Without further policies, it’s unlikely that we’ll see a sweeping transformation of our energy system to give people alternatives to coal plants and gasoline-powered cars.

This echoes an argument I've heard several times from those on the more technical side of climate change prevention. For all that the economists and politicians like to talk about creating the conditions in which the private sector will be incentivised to help tackle climate change, those who are more keenly aware of the massive costs involved tend to be rather more pessimistic.

They point out that the carbon tax model provides a cash injection to providers of low-carbon energy – but only after the tax is already instituted. As a result, there's another weak link in the chain, which is the ability of those providers to secure loans to build the capacity required. That's possible for massive companies looking to get into a new area; and it's possible for smaller companies, provided they get enough certainty from the government to be able to convince bankers.

But the fear is that larger companies, already strongly embedded in the conventional energy infrastructure, have little incentive to devote money, which could be used to lower the cost of polluting fuels, to instead build new capacity; and smaller companies won't be left with enough time between when the government finally confirms a carbon tax, and when their new generation is actually needed.

At the same time, though, there is growing evidence that some companies really are going above and beyond the call of duty. Some of it may be greenwashing, and some may be token expenditure, but if there really is any sizeable investment in low-carbon infrastructure, then it makes a carbon tax that much more effective.

Carbon taxes can only lower emissions if they raise the price of polluting relative to an alternative. If that alternative isn't available, then they risk being simply another source of revenue for the state.

Wind turbines being prepared. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images
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What's to be done about racial inequality?

David Cameron's words on equal opportunities are to be welcomed - now for some action, says Sunder Katwala.

David Cameron made the strongest, clearest and most high profile statement about ethnic inequalities and the need to tackle discrimination ever yet offered by a British Prime Minister in his leader’s speech to the Conservative Party conference in Manchester.
“Picture this. You’ve graduated with a good degree. You send out your CV far and wide. But you get rejection after rejection. What’s wrong? It’s not the qualifications or the previous experience. It’s just two words at the top: first name, surname. Do you know that in our country today: even if they have exactly the same qualifications, people with white-sounding names are nearly twice as likely to get call backs for jobs than people with ethnic-sounding names? … That, in 21st century Britain, is disgraceful. We can talk all we want about opportunity, but it’s meaningless unless people are really judged equally”, said Cameron.
While the proof of the pudding will be in the eating, this was a powerfully argued Prime Ministerial intervention – and a particularly well-timed one, for three reasons.

Firstly, the Prime Minister was able to root his case in an all-but-universally accepted appeal for equal opportunities. It will always prove more difficult in practice to put political energy and resources behind efforts to remedy discrimination against a minority of the population unless a convincing fairness case is made that values cherished across our whole society are at stake. Cameron’s argument, that any party which tells itself that it is the party of the ‘fair chance’ and ‘the equal shot’ must have a response when there is such clear evidence of discrimination, should prove persuasive to a Conservative Party that has not seen race inequalities as its natural territory. Cameron argued that the same principles should animate responses to discrimination when it comes to race, gender and social class. Put like that, wanting job interviews to be fair – by eradicating conscious and unconscious patterns of bias wherever possible – would strike most Britons as offering as clear a case of the values of fair play as wanting the best baker to win the Great British Bake-Off on television.
Secondly, Cameron’s intervention comes at a potential "tipping point" moment for fair opportunities across ethnic groups. Traditionally, ethnic discrimination has been discussed primarily through the lens of its impact on the most marginalised. Certainly, persistent gaps in the criminal justice system, mental health provision and unemployment rates remain stark for some minority groups. What has been less noticed is the emergence of a much more complex pattern of opportunity and disadvantage – not least as a consequence of significant ethnic minority progress.

Most strikingly of all, in educational outcomes, historic attainment gaps between ethnic minorities and their white British peers have disappeared over the last decade. In the aggregate, ethnic minorities get better GCSE results on average. Ethnic minority Britons are more likely, not less likely, to be university graduates than their fellow citizens. 

As a result of that progress, Cameron’s intervention comes at a moment of significant potential – but significant risk too. Britain’s ethnic minorities are the youngest and fastest-growing sections of British society. If that educational progress translates into economic success, it will make a significant contribution to the "Great British Take-Off" that the Prime Minister envisions. But if that does not happen, with educational convergence combined with current ‘ethnic penalties’ in employment and income persisting, then that potential could well curdle into frustration that the British promise of equal opportunities is not being kept.  Cameron also mirrored his own language in committing himself to both a ‘fight against extremism’ and a ‘fight against discrimination’: while those are distinct challenges and causes, actively pursuing both tracks simultaneously has the potential, at least, depolarise some debates about responses to extremism  - and so to help deepen the broad social coalitions we need for a more cohesive society too.

Thirdly, Cameron’s challenge could mark an important deepening in the political competition between the major parties on race issues. Many have been struck by the increase in political attention on the centre-right to race issues over the last five to ten years. The focus has been on the politics of representation. By increasing the number of non-white Conservative MPs from two to seventeen since 2005, Cameron has sent a powerful signal that Labour’s traditional claim to be ‘the party of ethnic minorities’ would now be contested. Cameron was again able to celebrate in Manchester several ways in which his Cabinet and Parliamentary benches demonstrate many successful journeys of migrant and minority integration in British society. That might perhaps help to ease the fears, about integration being impossible in an era of higher immigration, which the Home Secretary had articulated the previous day.

So symbolism can matter. But facial diversity is not enough. The politics of ethnic minority opportunity needs to be about more than visits to gurdwaras, diversity nights at the party conference fringes and unveiling statues of Mahatma Gandhi in Parliament Square. Jeremy Corbyn’s first speech as Labour leader did include one brief celebratory reference to Britain’s ethnic diversity – “as I travelled the country during the leadership campaign it was wonderful to see the diversity of all the people in our country” – and to Labour bringing in more black, Asian and ethnic minority members - but it did not include any substantial content on discrimination. Tim Farron acknowledged during his leadership campaign that the Liberal Democrats have struggled to get to the starting-line on race and diversity at all. The opposition parties too will no doubt now be challenged to match not just the Prime Minister’s rhetorical commitment to challenging inequalities but also to propose how it could be done in practice.

Non-white Britons expect substance, not just symbolism from all of the parties on race inequalites.  Survation’s large survey of ethnic minority voters for British Future showed the Conservatives winning more ethnic minority support than ever before – but just 29 per cent of non-white respondents were confident that the Conservatives are committed to treating people of every ethnic background equally, while 54 per cent said this of Labour. Respondents were twice as likely to say that the Conservatives needto do more to reach out – and the Prime Minister would seem to be committed to showing that he has got that message.  Moreover, there is evidence that ethnic inclusion could be important in broadening a party’s appeal to other younger, urban and more liberal white voters too – which is why it made sense for this issue to form part of a broader attempt by David Cameron to colonise the broad centre of British politics in his Manchester speech.

But the case for caution is that there has been limited policy attention to ethnic inequalities under the last two governments. Restaurateur Iqbal Wahhab decided to give up his role chairing an ethnic minority taskforce for successive governments, unconvinced there was a political commitment to do much more than convene a talking shop. Lib Dem equalities minister Lynne Featherstone did push the CV discrimination issue – but many Conservatives were sceptical. Cameron’s new commitment may face similar challenges from those whose instinct is to worry that more attention to discrimination or bias in the jobs market will mean more red tape for business.

Labour had a separate race inequalities manifesto in 2015, outside of its main election manifesto, while the Conservative manifesto did not contain significant commitments to racial inequality. The mid-campaign launch in Croydon of a series of race equality pledges showed an increasing awareness of the growing importance of ethnic minority votes - though the fact that they all involved aiming for increases of 20 per cent by 2020 gave them a slightly back-of-the-envelope feel. 

Prime Ministerial commitments have an important agenda-setting function. A generation ago the Stephen Lawrence case opened the eyes of middle England to racist violence and police failures, particularly through the Daily Mail’s persistent challenging of those injustices. A Conservative Prime Minister’s words could similarly make a big difference in the mainstreaming of the issue of inequalities of opportunity. What action should follow words? Between now and next year’s party conference season, that must will now be the test for this Conservative government – and for their political opponents too. 

Sunder Katwala is director of British Future and former general secretary of the Fabian Society.