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
Show Hide image

The campaign to keep Britain in Europe must be based on hope, not fear

Together we can show the world a generous, outward-facing Britain we can all be proud of.

Today the Liberal Democrats launched our national campaign to keep Britain in Europe. With the polls showing the outcome of this referendum is on a knife-edge, our party is determined to play a decisive role in this once in a generation fight. This will not be an easy campaign. But it is one we will relish as the UK's most outward-looking and internationalist party. Together in Europe the UK has delivered peace, created the world’s largest free trade area and given the British people the opportunity to live, work and travel freely across the continent. Now is the time to build on these achievements, not throw them all away.

Already we are hearing fear-mongering from both sides in this heated debate. On the one hand, Ukip and the feuding Leave campaigns have shamelessly seized on the events in Cologne at New Year to claim that British women will be at risk if the UK stays in Europe. On the other, David Cameron claims that the refugees he derides as a "bunch of migrants" in Calais will all descend on the other side of the Channel the minute Britain leaves the EU. The British public deserve better than this. Rather than constant mud-slinging and politicising of the world's biggest humanitarian crisis since the Second World War, we need a frank and honest debate about what is really at stake. Most importantly this should be a positive campaign, one that is fought on hope and not on fear. As we have a seen in Scotland, a referendum won through scare tactics alone risks winning the battle but losing the war.

The voice of business and civil society, from scientists and the police to environmental charities, have a crucial role to play in explaining how being in the EU benefits the British economy and enhances people's everyday lives. All those who believe in Britain's EU membership must not be afraid to speak out and make the positive case why being in Europe makes us more prosperous, stable and secure. Because at its heart this debate is not just about facts and figures, it is about what kind of country we want to be.

The Leave campaigns cannot agree what they believe in. Some want the UK to be an offshore, deregulated tax haven, others advocate a protectionist, mean-hearted country that shuts it doors to the world. As with so many populist movements, from Putin to Trump, they are defined not by what they are for but what they are against. Their failure to come up with a credible vision for our country's future is not patriotic, it is irresponsible.

This leaves the field open to put forward a united vision of Britain's place in Europe and the world. Liberal Democrats are clear what we believe in: an open, inclusive and tolerant nation that stands tall in the world and doesn't hide from it. We are not uncritical of the EU's institutions. Indeed as Liberals, we fiercely believe that power must be devolved to the lowest possible level, empowering communities and individuals wherever possible to make decisions for themselves. But we recognise that staying in Europe is the best way to find the solutions to the problems that don't stop at borders, rather than leaving them to our children and grandchildren. We believe Britain must put itself at the heart of our continent's future and shape a more effective and more accountable Europe, focused on responding to major global challenges we face.

Together in Europe we can build a strong and prosperous future, from pioneering research into life-saving new medicines to tackling climate change and fighting international crime. Together we can provide hope for the desperate and spread the peace we now take for granted to the rest of the world. And together we can show the world a generous, outward-facing Britain we can all be proud of. So if you agree then join the Liberal Democrat campaign today, to remain in together, and to stand up for the type of Britain you think we should be.