At the beginning of 2027, the European ETS2, which aims to successively eliminate 40% of EU greenhouse gas emissions through higher fuel prices, will be launched. This July the European Commission already firmly reminded member states (except Austria) to implement ETS2 in national law. At the same time, uncertainties about future prices are high and governments seem unprepared to react to this uncertainty and ensure public support for ETS2. Enough reasons for Citizens’ Climate Europe to bring together a range of perspectives on possible solutions in a hybrid event (in Brussels and online) on 16th October.
We first heard from Michael Pahle, Head of Working Group “Climate & Energy” at @Potsdam Institut für Klimafolgenforschung, about ETS2 price evolution and the potential of rebates to cushion excessive increases. After a brief explanation on what sets prices, he showed scenarios (not predictions!) of prices ranging from EUR 71 to 261 per ton CO2 in 2030. He emphasised that in addition to price levels, volatility can be a concern. Stability mechanisms act with a delay, while higher prices for certificates would be passed on to consumers much faster. Together, this creates a case for rebates to citizens as a ‘social stability mechanism’ acting fast if prices increase ‘excessively’. Michael Pahle closed with recommended preparation for member states.
I was the next speaker, taking a wider view on carbon pricing, quoting OECD’s and IPCC’s recommendations as well as the FASTER principles for effective carbon pricing. This set the scene for comparing existing carbon pricing schemes, at €50/t or more, through the lens of these principles. The F in FASTER stands for ‘Fair’, a key criterion for public support, leading to a discussion of possible implementations of Climate Income (also known as Climate Dividends, Klimabonus, Klimageld) highlighting tools and a possible policy workshop for policy makers.
The final talk of the event was by Wolfgang Otter, Department Head Klimabonus at Austria’s Ministry of Climate Action, Environment, Energy, Mobility, Innovation and Technology, who took us behind the scenes of how a climate dividend, argued for by Michael Pahle and James Collis, got implemented in Austria under the name of Klimabonus. He outlined the main features, i.e., that everyone receives it, that amounts are regionally staggered taking into account increased costs for mobility in more rural areas, that since 2024 Klimabonus is taxed for high income households to increase fairness, and finally that Klimabonus is part of a larger group of measures. He emphasised the importance of simplicity, warning attendees of the trap of fake specificity and recreating social measures that already exist and that adding design complexity significantly impacts implementation cost and success. Finally, he outlined the surprisingly simple but logistically challenging process of paying Austrian citizens’ via bank transfers or vouchers sent by post. He closed his talk with giving us a behind the scenes insight into reactions by the public.
These talks were followed by a lively Q&A, ranging from detailed questions about the Klimabonus in Austria to more general questions on social and regional staggering and supporting citizens in investing to decarbonise their lives.
Taken together, the event provided a fascinating insight into the challenges the introduction of ETS2 will result in as well as possible ways to make carbon pricing not only effective, but also socially fair.
Many attendees requested further follow-up and we are excited to understand the specific reasons and see if we are able to support further in the coming weeks and months.
The next UK government must address the cost of living crisis. It’s also clear from public data that the climate crisis is an ongoing concern for 75%. Now there is the opportunity to kill multiple birds with one stone. The latest developments in the EU Green Deal are contributing to international momentum on the subject of carbon pricing. If the UK wants a closer relationship with Europe, aligning on this key environmental policy offers a number of additional social and economic benefits.
Carbon pricing, also known as carbon taxation, is overwhelmingly the fastest and most effective tool to cut greenhouse gas emissions. No one claims carbon pricing solves everything, other policies are needed, just that it’s the most important thing to do. Carbon pricing is a cornerstone of the EU Green Deal and improves the effectiveness of all other climate policies. The World Bank tracks international carbon pricing development both in terms of coverage and price level, i.e. how many emissions are covered and at what price.
Currently the UK prices 40% of carbon via the Emissions Trading Scheme (ETS) which applies to large scale industry (and is almost invisible to consumers). The UK carbon price floor legislation adds strength and has been effective in dramatically reducing coal from UK electricity production. The EU is extending the ETS to Buildings and Road Transport (ETS2) with further expansion under discussion. The same approach in the UK would increase carbon pricing coverage to over 80% and have a direct impact on all households.
Although most poor and middle income families use much less energy than the richest, it’s a higher proportion of their income. This form of taxation is inherently regressive, hurting the poor more than the rich. Climate Income, where the proceeds of the tax are given back equally to people, makes the vast majority of poor families and most middle income families better off. Making carbon tax popular and progressive in this way is well understood.
The challenges for politicians in implementing Climate Income are that the public are wary that “tax” means they will likely be worse off, and industry is concerned about international trade competitiveness. The information on these first two issues has improved considerably, though there remains pressure from the fossil fuel lobby, which is still more powerful and better funded than the emerging green industry.
The recent OECD report International Attitudes Toward Climate Policies surveyed 40,000 citizens from 20 countries. It found that people want to know that the policy works, is fair, and how it will affect them. The report showed that 5 minute videos can build public support, showing fairness by redistributing revenue equally protects poorer households. For the UK, confidence in public support for Climate Income is reinforced by the Scottish Climate Assembly with 77% support for this specific policy.
Industry fears about “carbon leakage”, when trade and jobs are lost to companies in other countries with lower pollution costs, have often been highlighted as an economic risk. The EU has now taken on this issue directly with the Carbon Border Adjustment Mechanism (CBAM). It is prompting action in relation to carbon pricing from the US, China and India. Evidence from US industry implies that the UK not only has nothing to fear, but in fact has much to be gained. Energy intensive UK industry is highly competitive and is effectively leaving money on the table by not pricing international emissions.
Whatever the UK’s desired trading relationship with Europe, there are proven examples of Climate Income. Canada and the UK today have similar trading structures with the EU. Canada introduced The Greenhouse Gas Pollution Pricing Act in 2019 rebating 90% to households. Expert consensus is growing that this is the best solution for Canada. Switzerland is in the European Free Trade Agreement and outside the EU. In addition to an aligned EU ETS, as the UK has, Switzerland prices domestic fuel at €120 with 67% returned to households. Austria is in the EU, in the Customs Union and the Euro Zone. Specifically in preparation for the ETS2 Austria introduced KlimaBonus (Climate Bonus) returning 100% to households.
Being outside the EU may have advantages, EU member states have concerns about legislative complexity and price volatility. Especially when simpler alternatives like a national carbon price are encouraged by Sweden and considered in Germany, where civic society is demanding the government deliver the manifesto promise for KlimaGeld (Climate Money). The UK carbon price floor legislation has the potential to provide harmonised and less volatile pricing than either the ETS or ETS2. Predictability is very helpful to the longer term planning and certainty needs of industry highlighted in the FASTER principles for successful carbon pricing.
Climate Income is a zero cost policy that addresses two of the top concerns of the public. With the prevailing international winds blowing in support, it does more to reduce emissions than anything else. It’s good for international trade, the economy and jobs. Most households are better off. And it’s endorsed through the biggest statement by economists ever, including every living Nobel Laureate Economist. Time to act on the advice of experts.
N.B. This article argues for a similar policy advocated by the Young Liberal Democrats described as “A Progressive Carbon Tax” in their Policy Book from 2021. There is an updated European Young Liberal (LYMEC) policy “6.11 The Adoption of C02 Taxes and Tariffs by the EU” in their 2024 Policy Book that shows further support.
Article published in the Green Liberal Democrat Website and Challenge magazine, May 2024.
I am the Chair at Citizens’ Climate Europe and a Member of the EU Climate Change Expert Group for ETS2 Implementation. (Front left in photograph of Citizens’ Climate Europe members from CCL members from France, Germany, Belgium, Sweden, Finland, Poland, UK, Portugal and the Netherlands).
A recent report discussed research on attitudes towards climate change and solutions which included Climate Income. The research covered 40,000 respondents from 20 countries representing 72% of global CO2 emissions. The results show climate policy support hinges on three key beliefs:
• effectiveness – does it work ? • inequality – is it fair ? • household self-interest – will we be better off ?
Good News:
Over 80% of people agree that climate change is important and that their country should take measures to fight climate change.
Bad News:
Informing people about the impacts of climate change, with climate impact videos, has little effect…..(to quote a much loved TV character ‘We’re doomed’!)
Good News:
Addressing these concerns, with more positive climate policy videos, can substantially increase the support for climate policies. In particular, for carbon tax with transfers (Climate Income), policy support grew more than double any other policy type. Showing just the policy video, support increases on average by ~10%. In Europe that varies between 8% in France to 15% extra support in Italy. Showing both videos raised the average support across European countries by over 14%.
It is interesting to note that, even before the video viewing, the concept of a carbon tax with the proceeds returned to household garnered wide support in high income European countries. Among those who expressed an opinion support for the policy ranged an average of 54% to 71%.
We tested the video in Brussels with NGOs who have their own priorities for revenue and thus are often the most resistant to citizen rebates. It prompted interest and one particular quote:
“Now I see why the citizen dividend is needed !”
I heartily recommend sharing these videos with NGOs, public, etc, I suspect legislators will also be interested.
In short: 5 minute videos can persuade most people to support Climate Income because it offers a solution to climate change rather than just making people feel either helpless or guilty.
Exposure to information on solutions is persuasive.
Additional exposure to information on climate impact helps, but only marginally.
I recently wrote this article about Climate Income for the John Ray Initiative Website. (their strapline is : Connecting Environment, Science & Christianity). I was asked to reproduce it here and I hope you all find it useful and inspiring!
What if there was a single ‘silver bullet’ policy that would bring down emissions of CO₂. Would you support it?
‘Of course!’ you say.
Ah, but would you really?
It turns out many people find it quite challenging when shown what this might involve. No, I am not talking hair shirts for everyone. The policy I want to introduce is gentle, yet has terrific leverage. You don’t need to buy the idea I am offering. At most I am asking you to give it a test drive for a few minutes. Then you can decide if you want to follow up on it and find out more, following the links.
My starting assumptions are uncontroversial: our industrial society was built on the use of fossil fuel; now we must transition to renewable energies. Yes we have very many other severe environmental challenges – but this one underpins all the others. The great carbon detox will take decades and we are behind schedule. There is no more time to waste. Personal lifestyle changes by those who are climate concerned will not be enough; some things only governments can do. Yet governments face many other crises – cost of living and economic turmoil, not to mention mass migration, famine and war. The challenge is to tackle the climate crisis in a way aligns with other pressing priorities.
Here is where the test drive begins: ask yourself “What conditions would a climate policy have to satisfy for us to say “Yep, this is the silver bullet we have been looking for”? Its not an easy question so here are my seven conditions and you can decide whether they are adequate. The policy would:
Bear down steadily but relentlessly on the use of fossil fuels. It would mean that fossil fuel extraction and use shrank and shrivelled over the next couple of decades.
Be dead simple – transparent, easy to administer, no scope for dodging or special pleading by vested interests.
Protect the less well-off and be seen to be fair.
Be business-friendly, working with the grain of economic life, not paralysing or disrupting it.
Provide a long-lasting stimulus to the demand for renewable energy, thereby encouraging investment and innovation, scaling up supply, and bringing down the cost of renewable energy.
Assist efforts to de-carbonise in other countries.
Be popular with the public (even those who are climate-confused or uninterested) and ‘lock-in’ support on a cross-party basis, long-term.
Take a bit of time to consider the list. Is anything missing? Would you be willing to support such a silver bullet policy? How do you feel about the list?
My guess is you are feeling incredulous, sceptical and now saying, more cautiously, “Well Yes, I suppose I would support it – but what is the policy, for goodness sake?!”
Here’s the answer: the silver bullet is variously known as Climate Income, or Carbon Fee & Dividend. It is comprised of three elements:
1 Carbon pricing, achieved through a steadily rising levy on fossil fuels, which funds….
2 A Climate Income, paid at a flat rate direct to all adult citizens. In Canada this is called a Climate Action Incentive Payment and in Austria it is calledKlimabonus – and it is paid direct to each citizen’s chosen bank account in both cases. Yes, you read that right: the policy has been already been adopted elsewhere.
3 A ‘Border adjustment mechanism’ to prevent fee-dodging, to avoid our exporters being disadvantaged, and to make it advantageous for those who sell to us to adopt a similar approach (for those who know about it, the EU’s Emissions Trading Scheme also involves a Border Adjustment Mechanism).
This policy satisfies all seven conditions for a silver bullet. The chart below gives some indications of how the ‘magic’ is worked, and what underpins that bold claim.
REQUIREMENT
HOW IT WORKS
1 Drive the use of fossil fuels down – and out.
The levy raises the price of carbon, year on year. Over time, carbon is simply priced out of the market.
2 Dead simple to implement
Levy collected at source from the (relatively few) owners of coal mines, and oil & gas wells, and on imports of the same. Child’s play compared to existing tax regulations (and subsidies!) affecting fossil fuels.Making regular flat rate payments to all UK residents (based on National Insurance and/or NHS numbers) requires a large capacity, very simple system.
3 Protect the least well-off; seen to be fair.
‘Polluter pays’ is well understood. Flat rate – everyone treated the same. Redistributive – most households are better off (and that’s before they switch to lower carbon products and services).The poorest households receive a significant increase in disposable income.
4 Business-friendly – eases the transition off carbon
Business associations call for it – it gives them a degree of certainty and a level playing field. Economists love it!
5 Sustained stimulus for investment & innovation in renewable energy systems
Rising demand for ‘greener’ products, services and infrastructure creates investment opportunities. Little need for the government to ‘pick winners’.
6 Assist de-carbonising in other countries
‘Border adjustment’ has this effect providing an incentive for a similar levy in countries that export to the UK, including coal, oil & gas exports
7 Popular, ‘locking-in’ cross-party support
Climate Income ensures support, including from waverers, and ‘don’t knows/don’t cares’.
I don’t expect you to take my word for any of this. To check out the claims these websites may help:
□ Regarding the importance of carbon pricing, visit the EN-ROADS site, a wonderful climate policy simulator devised by a team of climate scientists and policy analysts at MIT. You will have an array of thirty different policy levers – can you combine them to bring down carbon emissions fast enough to prevent catastrophe? It’s a powerful educational tool. If you find a way to get a good result without making assertive use of carbon pricing, and in a way that is half-way credible, politically – then please let me (and the world) know.
□ Regarding the Climate Income itself – giving the money back to citizens – this is what makes the rising fuel levy socially and politically acceptable (instead of causing riots). To get an idea of the redistributive effect it would have in the UK, visit Citizens Climate Lobby UK – one of a family of CCL websites which are stacked full of expert endorsements and campaign testimony. There is even a recent UK report on how it could work in the UK in in the face of the cost of living crisis.
Image credit to Mini Grey from whom this version is adapted with permission
So now, how are you feeling? And have you spotted why many ‘greenies’ are uncomfortable with the idea of Climate Income? One of its great strengths – having support right across the political spectrum – seems also to cause unease.
“What? I’m supposed to march shoulder-to-shoulder with… [insert here the political grouping you love to hate].”
“ Don’t kid me that we should give-the-money-back-to-citizens-and-rely-on-the-market / allow-that-sort-of-state-interference…” [cross out the one that does not apply].
In this country we have a particularly adversarial version of democracy: things have to be done the way we, or our preferred political leaders, think is best. So discussions of climate policy easily slide into arguments between rival political philosophies – market versus state, woke against traditionalists. It’s one of several ways of taking our eye off the carbon ball. An adversarial stance leads us to thinkwe must get othersto think in the way we do, to share a large part of our world-view. We are right (and on the side of the angels); they are mistaken and need winning over.
How likely is that to happen? That’s the question I ask that when giving talks – after explaining what is known about the spread of public opinion. Basically, the research is clear: about 30% are firmly climate concerned. We would need another 20% to become the majority – and then hold that support for, say, twenty years… I say “Hands up if you believe that will really happen.” Only a few hands are raised (would you raise yours?)
And then: “Thank you. Now keep your hand up if you believe that much additional support can be won over fast enough to avoid catastrophe?” I’ve yet to have a single hand remain up.
Adversarial politics has another flaw. We greenies like to say we follow the science. Too often though, we ignore one absolutely solid finding from years of psychological research:uninvited efforts to persuade are the best way to get others to dig in their heels!
Politics doesn’t have to be adversarial. Sometimes we may need to listen more and talk less, to sympathise a bit more with others, and allow that there may be some truth also in what they say. I find it’s rare for anyone to be completely wrong. The implications are profound – and they bring us the idea of relational campaigning, a very different way of ‘doing politics’. It’s beyond the scope of this post to go into this. You can find out more on the websites of Citizens UK, and Citizens Climate Lobby.
Meanwhile a growing number of people are quietly ploughing this furrow under the radar as a way to bring in a Climate Income. Perhaps you might consider joining them…? Remember, you do not have to give up on any of your existing campaign commitments. Climate Income turbo-charges other climate initiatives; it doesn’t undermine them.
Rob Paton is a Quaker. Before retirement he was Professor of Social Enterprise at the Open University. He is active in the Thames Valley chapter of Citizens UK.
Note to see more CCL UK articles by and about Rob Paton and the brilliant work he is doing with Citizens UK please type Rob Paton into the website Search function .
A Guardian reporton the 5th October examines the predictions of a chapter in the current IMF half yearly World Economic Outlook report. It has a chapter titled Near-Term Macroeconomic Impact of Decarbonization Policies. The chapter models the cost of delaying the tackling of climate change until ‘conditions are right’ and current global inflation has lowered; an IMF blog about it is titled.. ‘Further Delaying Climate Policies Will Hurt Economic Growth…The transition to a greener future has a price—but the longer countries wait to make the shift, the larger the costs’.
The blog argues that concerns about current cost have been perceived to be more real than the nebulous future threat of climate change, causing decades long procrastination …’despite overwhelming evidence that any short-term costs will be dwarfed by the long-term benefits (with respect to output, financial stability, health) of arresting climate change (October 2020 World Economic Outlook; IPCC 2022).
The current crisis has heightened the fear that climate mitigation would just raise inflation further and led to the claim that we need to double down on fossil fuels for energy security (as in the UK). Concurrently a Global Energy Monitor report states that…
New oil and gas development in the North Sea could produce up to 984 megatonnes of CO2 equivalent and contribute to the United Kingdom exceeding its carbon budget for 2023-2037 by a factor of two.
The IMF’s modelling uses the revenue from gradually rising greenhouse gas taxes returned in part to households to drive the transition….
To assess the short-term impact of transitioning to renewables, we developed a model that splits countries into four regions—China, the euro area, the United States, and a block representing the rest of the world. We assume that each region introduces budget-neutral policies that include greenhouse gas taxes, which are increased gradually to achieve a 25 percent reduction in emissions by 2030, combined with transfers to households, subsidies to low-emitting technologies, and labor tax cuts.
It argues that the policy, if started now would have a modest decline in GDP and rise in inflation, slowing global economic growth by 0.15 to 0.25% and rising inflation by 0.1 to 0.45; but if delayed until 2027 with the rationale of waiting until inflation is down the effect on the global economy would be worse….
Is it reasonable to wait—as some have proposed—until inflation is down before implementing climate mitigation policies? We ran a scenario delaying implementation until 2027 that still achieves the same reduction in cumulative emissions in the long term. The delayed package is phased in more rapidly and requires a higher greenhouse gas tax, since a steeper decline in emissions is necessary to offset the accumulation of emissions from 2023 to 2026.
The results are striking. Even in the most favorable circumstances when monetary policy is credible and the transition to decarbonized electricity is rapid, the output-inflation trade-off would rise significantly; GDP would have to drop by 1.5 percent below baseline over four years to drive inflation back to target. Delay beyond 2027 would require an even more rushed transition in which inflation can becontained only at significant cost to real GDP. The longer we wait, the worse the trade-off.
The take home message? ….if the right measures are implemented immediately and phased in gradually over the next eight years, the costs will remain manageable and are dwarfed by the innumerable long-term costs of inaction.
It seems appropriate to be writing about a blog by an Oxfam researcher on this Jubilee weekend as the biblical purpose of Jubilee years was to release the indebted and restore their land to them. Climate change is a symptom of global economic and social injustice. In the debate about solutions carbon pricing is often criticised as a regressive and ineffectual policy favoured by those who want to keep the economic status quo – of course supporters of Climate Income know better!
Before we get to the arguments about whether carbon pricing can work, it’s essential to point out that carbon prices are currently inadequate to address climate change. In the vast majority of cases, prices are too low, and not applied to enough of the economy to drive decarbonisation at the rate necessary. The graph below shows how prices are generally below $50 per tonne of CO2 (they need to be closer to $100/tCO2) and only cover 15% of the global economy (they need to be at 100%). Despite these problems, it’s notable that carbon pricing is seeing increasing uptake over time – with more and more countries adopting prices and more of the global economy under a price.
CARBON PRICING DOES NOT AFFECT EMISSIONS
First is the argument that placing a price on carbon does not affect emissions. The empirical literature doesn’t support this claim. Numerous empirical studies of carbon pricing, using a variety of methods, demonstrate that carbon pricing has reduced emissions. There is some question over whether the emissions reductions have been large enough, but this really comes down to what you consider “large” and what sort of reductions might be expected at what prices. In general reductions in emissions have been small, but significant, especially considering the low prices in place.
IT WON’T BE ENOUGH BY ITSELF TO TACKLE CLIMATE CHANGE
The second argument against carbon pricing’s effectiveness is that alone, it is inadequate to tackle climate change, because consumers don’t behave like economists assume: as rational cost minimisers. For example, people don’t just buy the cheapest car for their needs; they buy cars based on ideas of status and brand loyalty, among others. This is true and uncontroversial, we need more than price signals to move consumers. However, this argument is also something of a straw doll: most of the literature on carbon pricing acknowledges that carbon pricing will need to be complemented with other policies if it is to be effective in averting climate catastrophe. To this end, advocates of a carbon price who suggest it’s the only policy we need should be viewed with scepticism.
Note that CCI doesn’t call for Climate Income to be a stand alone policy and it has not been implemented as such in the countries like Canada which have adopted it thus far.
IT WILL HURT THE POOREST PEOPLE WHEREVER IT’S IMPLEMENTED
A big concern around carbon pricing is that increasing the cost of energy derived from fossil fuels will drive regressive impacts.
Since energy is central to the functioning of the global economy, and we currently generate around 83% of primary energy from fossil fuels, a carbon price will make almost all goods in the economy more expensive. Because low-income groups tend to spend a greater portion of their income on energy-intensive goods, a carbon price will have a disproportionately large negative impact on their well-being compared to wealthy households – making the policy notably regressive.
However, a huge advantage of carbon pricing is that the price also generates revenues. Importantly, wealthy groups tend to consume more energy-intensive goods than low-income groups (even though they spend a smaller proportion of their income on these goods). What this means is that, despite regressive cost-side impacts, you can use the revenues to make carbon pricing substantially progressive. There are a number of ways to do this, but the simplest is to just return all the revenues to everyone, equally (ie on a per capita basis). Doing so would result in low-income populations receiving more than they pay in increased prices, while the opposite would be true for wealthy populations. (My emphasis).
Morrisey does point out that the policy has to overcome public antipathy to the concept of increasing taxation, which also makes the policy easier for opponents to criticise than less visible regulations and subsidies. He argues, however, that these alternative policies also encounter opposition and are no more capable of solving the problem of climate change on their own than is carbon pricing. He concludes that if there is some momentum for carbon pricing NGOs should support it with the caveats that ….
The revenues produced by carbon pricing must be used to effectively address all regressive impacts created by the price. Prices must either be set high enough to drive ambitious emissions reductions or, if prices are to start low and increase over time to overcome political opposition, the process for increasing prices needs to be automatic and insulated from political push-back. (My emphasis).
Carbon pricing can be effective but, by itself, it will not be enough to address climate change. Any carbon price will require complementary policies. The most important will relate to addressing other market failures (such as the need for public investment in research and development) and addressing networkproblems (such as supporting electric vehicle charging infrastructure), but will also include policies for numerous markets where price signals are insufficient to shift behaviour.
Along with the recent reports in Nature and by the Autonomy think tank, this blog and the related Oxfam primer on carbon pricing show growing support for the concept that a Climate Income policy will not only alleviate climate change but also the gross inequalities impeding sustainable development in the Global South.
Finally I must mention a very apposite blog by fellow Citizens’ Climate Europe member Brigitte Vangerven about the idea that protecting the climate requires sacrifice. …
Pricing pollution will make polluting products more expensive than clean products. The price difference will make people and companies choose the clean alternatives. It will greatly accelerate decarbonisation and the widespread deployment of clean alternatives. The proceeds are used to support the people in the energy transition.
Everybody receives a Climate Income. Most households, especially low and mid incomes are better off or break even through this policy.
It is simple, transparent, just and effective, and I hope that for many people it will dispel their reservations.
This makes it possible to implement an ambitious climate policy, that will receive broad support from the people. There is no longer a conflict.
Last year the IMF called for a globally applied carbon price floor corresponding to a country’s wealth, with a suggested tariff in 2021 of $75 for the wealthiest countries and $25 for less developed countries. Today in the Times (paywall) Mehreen Khan, the economics editor, makes the case for an effective international carbon pricing system rather than occasional windfall taxes….
“One levy notably absent from the present debate is a global carbon tax to provide an incentive for the huge shifts required to hit the global net-zero target. Even in relatively benign times, politicians have taken fright at the idea of taxing carbon use, thinking that it will disadvantage their industry at the expense of foreign rivals…
Arguments against national carbon taxes wither away if all countries agree to impose a price. The International Monetary Fund has devised an international carbon floor where the price paid corresponds to a country’s wealth. It would mean America, Britain and Europe would use a minimum floor of $75 a tonne, falling to $25 for the poorest. This collective jump into carbon taxation would not disadvantage industries in richer countries, the fund says, and would dramatically reduce emissions.”
We support establishment of a global “price floor”, supported by national policies to impose a steadily intensifying price signal disfavoring climate pollution. As the IEA has reported, “There is no need for investment in new fossil fuel supply…” Pricing systems should effectively and efficiently eliminate climate pollution while building incomes for people and enhancing international cooperation for a zero-emissions future.
Recent studies such as the report in Nature and the Autonomy report have also suggested how Climate Income could be a game changer for the Global South….
While countries in South America, Sub-Saharan Africa, South-Asia and many other parts of the Global South would profit immensely, most developed economies would only see proportionally relatively small losses.
…..As a global policy, it could wipe out extreme poverty and easily dwarf the scope of any existing development aid and debt relief schemes, illustrating that, in this sense, it is the Global North that owes an immense debt to the populations in the Global South, not the other way round. It would also go a long way to alleviate the disastrous impacts the Covid pandemic has had on the world’s poorest and most vulnerable, with for instance an additional 100m children falling into poverty, and prevent global disparities from deepening as richer countries recover while poorer countries fall even further behind (UNICEF 2021b). Such a global carbon dividend scheme could end the bitter reality of mass hunger and destitution and be a key building stone of a fairer, more sustainable and more inclusive post-pandemic economy. (Toll gates and money pumps, Autonomy, p.51)
It is good to see growing support for a carbon pricing system which would remove the uncertainty and short termism thwarting the rapid decarbonisation which the world needs!
The Independent recently reported on a speech by Dr Jean Rogers, head of ESG at global asset management company Blackstone. Speaking at the Dublin Climate Summit on the 12th May, Dr Rogers argued that whilst 90% of the world’s GDP is now covered by climate commitments but still only 20% of the world’s emissions are priced it is difficult for investment companies to avoid putting investor’s money into future stranded assets. The solution, she argued, is a carbon pricing policy like Canada’s, which is predictable and progressively rises…..
“One thing that can really move the needle is actually pricing carbon and the reason for that is that it then becomes investable – you can take that future liability and turn it into an asset by investing against it now.”
The fact that the Canadian carbon tax will rise from $50 a tonne now to $170 by 2030 incentivises investors to finance the decarbonisation of the copper mine of which she is a board member…..
“We’d never want to pay a dime against that tax… and that is, I think, a really important mechanism.”
The predictability of such a carbon tax would enable the case for investment in decarbonisation to be clearly put across to investors…
“We now need to be talking about long term capital strategies, and we need the tools, but we need the incentives to do that really well,”.
The article also reported on Mark Carney’s appearance at the Lords Economic Affairs Committee on the 22nd April. Carney was former Governor of the Bank of England and is now special envoy for climate action and finance at the United Nations. The committee was discussing how the financial sector should be regulated to enable the move to net zero whilst preventing fear of stranded assets moving investors away from the regulated market.
Carney was asked, ‘Would not this add up to a further case for a carbon tax which would reach part of the financial sector which regulation can’t reach?’ To which he replied, ‘Carlsberg solution, the case is very strong for a carbon price widely applied with maybe an appropriate rebate for less well off households to ensure it is resilient.’ – aka Climate Income!
The progressive think tank Autonomy, which researches solutions for climate change, the future of work and economic planning published a (very readable) report titled ‘Toll Gates and Money Pumps: Why carbon taxation could be a simple, fair and transformative policy instrument’ on the 21st of March. The report outlines how a globally applied carbon fee and dividend policy would be extremely effective at lifting the poorest countries out of poverty and more than a billion people above the global poverty line, as well as combating climate change. There is an article on the report in the Independent.
The researchers modelled the global, European and nation state application of the scheme using two carbon prices. The lower carbon price is the current highest carbon tax worldwide, that of Sweden, at $137 per tonne, a price which makes it into the range indicated by IPCC to be needed by 2030 to stay below 1.5°C-warming. The higher carbon price modelled was $195, this is the rate for advanced economies proposed by the Federal Environment Agency of Germany. It states that the policy is not intended to preclude public spending on decarbonising industry, agriculture, homes and transport and commodities should be clearly labelled with the GHG emissions expended in manufacture.
The report states that the (lower) Swedish carbon price, applied globally, would be transformative, raising $2.69tn annually ……
While countries in South America, Sub-Saharan Africa, South-Asia and many other parts of the Global South would profit immensely, most developed economies would only see proportionally relatively small losses.
…..As a global policy, it could wipe out extreme poverty and easily dwarf the scope of any existing development aid and debt relief schemes, illustrating that, in this sense, it is the Global North that owes an immense debt to the populations in the Global South, not the other way round. It would also go a long way to alleviate the disastrous impacts the Covid pandemic has had on the world’s poorest and most vulnerable, with for instance an additional 100m children falling into poverty, and prevent global disparities from deepening as richer countries recover while poorer countries fall even further behind (UNICEF 2021b). Such a global carbon dividend scheme could end the bitter reality of mass hunger and destitution and be a key building stone of a fairer, more sustainable and more inclusive post-pandemic economy.
The authors do not address the issue of diminishing returns as the world economy decarbonises but the assumption is that the proceeds of the tax will enable all countries to embrace sustainable and fair economic development. The authors even suggest that the visible benefits of the fair distribution of the dividend could lead to…
the introduction of a more comprehensive, far-reaching UBI – implementing a global infrastructure for roll-out and, more importantly, materially recognize and implement the right to equal use of our planet.
Now that the results of our dependence on fossil fuels are so visible in the war on ‘our doorstep’ the world may be ready to welcome such ideas!
CCL member Rob Paton explains how Climate Income can be used as a solution to the fuel price crisis as well as the environmental one.
1 The fuel poverty facing many households and the climate crisis facing us all must be tackled in synch. If they are not dealt with together, each problem worsens the other. Fuel poverty, accentuated by a price spike, has led to calls questioning support for renewable energy and has clear potential for social and political instability. Yet the necessary action on fuel poverty must not be at the expense of the climate. Households on benefits, or with low and insecure earnings, will be the least able to protect themselves from the consequences of weaker climate policies.
2 Fuel poverty should be addressed primarily by increased income, not reduced fuel prices. What those in fuel poverty need is more money. They know their priorities. And it must be money they can rely on – not complicated special payments, or means tested and arriving late to tackle a spike in prices..
3 What businesses and our economy need for the transition to zero carbon is an underlying trend of rising carbon prices. Economists and business federations agree on this. Most businesses can deal with price fluctuations, or are learning how to. Carbon subsidies and tax reliefs are a part of the problem not part of the solution.
4 The direction of travel for public finances should be away from the present high degree of carbon reliance and towards sustainable, post-carbon sources of revenue. An overhaul of the UK’s current mish-mash of fossil fuel taxes and subsidies is long overdue. A coherent approach would raise more funds, be fairer and simpler, support the drive to carbon neutrality. This is bound to take time – so the sooner the taxation system starts down this road the better.
5 Likewise, the direction of travel for income support during the great transition should be from indirect to direct payments. That is, from transfers hidden in a tax or benefits system to discrete, climate-related payments, labelled as such and paid directly. Citizens need to know that they are being supported in tackling the climate crisis, and enabled to play their part.
6 Consistent policy on carbon pricing, fiscal reform and income support requires a cross-party political consensus. Surveys have repeatedly shown that the public mood is to find and sustain the common ground, and to get on with the job. Political contestation on other issues – including other climate and environmental policies – can and should continue, both locally and nationally. But a framework to tackle the great work of this decades-long transition is needed. These are three essential elements for such a framework.
7 Communicate, communicate, communicate. Public trust in politicians needs to be restored if sometimes unpopular policies are to be sustained. A cross-party consensus in Westminster needs the backing of public opinion, and its calls will be taken more seriously by the public than party-political pronouncements. Especially when promised action follows. Nothing is clearer and more convincing than a payment direct to your bank account.
Climate income offers a way forward with the clear potential to satisfy all these principles. It may not be the only one. But it is the only one I am aware of.
Rob Paton 02/02/22
We are not the only ones with this message, today’s Carbon Brief Daily reports on two interesting reactions to the Levelling Up White Paper (Business Green is paywalled) ..
Business Green’s James Murray, analysing the paper, writes that “a government that properly prioritised the net-zero transition, rather than treated them as a separate silo, would find it much easier to embed climate action in its response to the gas price crisis.”
In another comment on levelling up in Business Green, Prof Henrietta Moore writes that “without tax reform, the cost of funding net-zero will fall disproportionately on the shoulders of those least able to afford but most likely to suffer the consequences of a rapidly degrading environment”.
Happily the fuel price crisis mitigation measures announced by Rishi Sunak today do not involve tinkering with carbon pricing and leave all to play for!
