We have to face facts – reducing carbon emissions is costly

The recent article on climate change by Andy Atkins, chief executive of A Rocha UK, and Chair of the Climate Sunday Initiative, was both impassioned and thoughtful – a difficult combination to pull off. 

Many of the people involved in these debates make dialogue difficult. Many on the left, for example, think that the problem of climate change is a damning indictment of capitalism and that free markets have to be “smashed” in order to address the problem. In these circumstances, it is not surprising that interest in climate change policy tends to polarise rather than unite and discussion gets closed down. If those who believe there really is a “climate emergency” are right then that is a tragedy. Again, tribute to Andy Atkins for writing a constructive piece that can draw us all into the debate.  

Supporters of a free economy would point to the dreadful record of socialist countries when it comes to environmental outcomes: a ranking of countries by protection of private property rights has an incredibly close correlation with a ranking of countries by net reforestation. And this is not a quirk of where the former countries tend to be located in the world – the correlations are, if anything, stronger within continents than between them. And, when it comes to climate change, market mechanisms can be used to send signals to people to take action in a way which is least costly to them. So supporters of a free economy should be brought into the conversations about how we deal with environmental problems – including climate change. Church Justice and Peace groups should be inclusive and not exclusive. 

In that spirit of dialogue, I have three suggestions that merit discussion, one of which is a strong criticism of the proposals in Andy Atkins’s blog. He may, however, agree with the first two. 

Much more attention needs to be given to fossil fuel subsidies. Andy Atkins calls for the UK government to stop licensing fossil fuel developments. In fact, paradoxically, that probably will not make much difference to carbon emissions, as new developments are highly likely to replace imported fossil fuels with overall fossil fuel use being determined by other policies. What really is disastrous, however, is the existence of fossil fuel subsidies which increase demand for carbon-intensive fuels. 

The European Union estimates that fossil fuel subsidies within the EU27 total €50 billion, a figure that has hardly changed in the last decade. The largest provider of fossil fuel subsidies is Germany (€12.2billion), much of which involves direct subsidies to coal. In France, subsidies have grown rapidly in the last few years because of increased exemptions from excise duties. Total UK subsidies are around the same levels as those in Germany. In the UK, the main form of subsidy is the exemption from normal taxes such as value added tax on domestic fuel consumption which, is, in effect, a 15 per cent subsidy for natural gas and electricity consumption. The highest fossil fuel subsidies per capita in the EU are in Ireland (€380) and Finland (€302). Subsidies in the EU are far higher than in other developed countries. However, they are larger still in many developing countries, including, of course, in “socialist paradises” such as Venezuela.  

Of course, fossil fuel subsidies are very difficult to remove. The restoration of the VAT exemption was a key plank in the 1997 Labour Party manifesto and was extremely popular with the electorate. Politicians should be encouraged to take difficult decisions by campaign groups, and environmental organisations should campaign for VAT to be charged on domestic fuel use at the full rate. Indeed, most economists would say that we should tax carbon emissions and we should also charge properly for road use. 

This can be done alongside cap and trade schemes, such as the one that operates in the EU. The logic here is simple. Carbon emissions cause significant harm which is not priced into the cost of using carbon-emitting fuels and a “carbon tax” should be levied to reflect this. People will respond to the carbon tax by reducing carbon emissions in the way that is most efficient for them. There then, of course, needs to be a discussion about which taxes we lower using the proceeds of a carbon tax to ensure that, on average, carbon taxes do not bear to heavily on the least well off: national insurance and the general rate of VAT would be good candidates. 

Unfortunately, politicians want to address political problems in ways that appear pain-free. Sadly, environmental campaign groups fall into this trap too and policies are proposed which might have some chance of working but which have a very high chance of complete failure. And this is where I part company with Andy Atkins who argues that we should be “rolling out a mass and heavily subsidised programme to heat our homes from renewable energy”. This and complementary programmes to subsidise public transport are not the way forward and could be a disaster. 

Apart from the huge cost of a public subsidy programme, the burden of which might well lead to increases in taxes that would damage business and employment, it is not guaranteed to reduce carbon emissions. The impact is likely to be to increase energy demand at a time when energy will be becoming more expensive and difficult to generate. If the government is subsidising your hydrogen-driven central heating, why not add that heated swimming pool to the garden? The impact of public transport subsidies is likely to be to lead people to live further from where they work and use transport more in general – and all transport, even if it uses green fuel, is very carbon intensive. Furthermore, technology subsidies involve the government trying to decide in advance what the best technologies are for reducing carbon emissions. Governments have a poor record here.  

Instead, a tax on carbon emissions and a removal of subsidies will allow people and businesses to decide how best to reduce carbon emissions given their own circumstances: the principle of subsidiarity at work in a sense For some, it will be different forms of heating; for others it will be walking and cycling and not flying; for others it will be much better insulation. For still others (indeed, for most people) it will be some combination of these things which depends on their own circumstances. 

Climate change is a cost, and avoiding it is also costly. Politicians and campaign groups need to explain that. Subsidising left, right and centre tries to sweep the costs under the carpet, but this just increases the costs. The cheapest way to reduce carbon emissions is to tax them and then to have a discussion about the taxes we reduce using the revenues from a carbon tax. The approach that makes the costs explicit is, in fact, the approach that will lead to the cheapest transition.