REDUCING INEQUALITY AS A PATH TO NET ZERO AND CLIMATE SALVATION

 

A message for UK Greens. Inequality reduction may be an important political objective, but to put it forward as a primary means to achieve environmental, and especially climate related goals, is a naïve and dangerous distraction. Viable strategies  reverse these priorities. Measures targeted on carbon reduction will mostly help reduce inequality.

 

The new leader of the UK Greens, Zak Polanski, has staked out a new ideology for his party and for the environmental movement. His emphasis is on the notion that a major reduction in inequality is an essential prerequisite for success in tackling environmental problems and particularly climate change. His early pronouncements have been conspicuous in their failure to mention net zero. So is there a substantive argument here or is inequality an important but essentially separate issue?

 

There are certainly major connections. Globally it is the wealthy developed economies that are largely responsible for historic greenhouse gas emissions, while it is the poorest who may suffer the worst impacts and have the least capacity to adapt and protect themselves. So there is a moral imperative for a transfer of funds from richer to poorer. There is also a practical case for this. Some of the best returns, in terms of reduced emissions for a given investment, may be found in developing economies, for example in the substitution of rural electric power for wood and charcoal cooking (as I have argued previously).

 

Even here there are some surprises however. China may still not be seen as a wealthy country, but its per capita carbon footprint comfortably exceeds that of the EU.

 

But the context of Polanski’s argument is that of UK politics. Most people in the UK would count as high income and wealthy in a global context, and Polanski is not campaigning for massive increases in foreign aid for emissions reduction. So we have to interpret the Polanski argument as one about redistribution of wealth and income within the UK. That leads us to a relatively simple question, as to whether a redistribution of income would actually lower the UK carbon footprint. To use the language of economics, is the marginal propensity to consume more energy (and hence generate more carbon emissions) for a given increment of income, higher or lower in high income groups?

 

There is plenty of statistical data with which to answer this question. It is certainly true that the highest income groups also have the highest carbon footprints. In some respects, with use of private jets or billion dollar motor yachts, this can be almost obscenely so. More generally higher income groups are more likely to live in larger houses, use more heat, engage in more leisure road travel, and fly to more distant holiday locations. They will also buy more consumer goods with an embedded carbon content.

 

However this does not imply that a simple redistribution of income would have any effect in reducing CO2 emissions. For the UK, the average income of the top 10% is about seven times the average income of the bottom 10%, but their carbon footprint is only a little over three times as high (according to the Institute for Fiscal Studies). The spending of poorer households is more carbon-intensive, while the enjoyment of extra income becomes less energy intensive among higher income groups. In very simple terms, therefore, the transfer of £1000 of income from a rich person to a poor person will increase carbon emissions.

 

A research study cited by the Grantham Institute at the London School of Economics demonstrates very similar results for the USA. Based on household consumption and World Input-Output tables it found that the 10% of households with the highest incomes had an average carbon footprint of 59.4 metric tons of CO₂ per household while the 10% of households with the lowest incomes had a carbon footprint of 18.1 metric tons.

 

In the words of the study, this creates:

 

a dilemma for policymakers that income equality could increase CO₂ This has been called the ‘equity-pollution dilemma’. It predicts that if the US had the same household income distribution as Sweden, CO₂ emissions from private households would be 1.5% higher, and would increase by 2.3% – or an extra 0.8 metric tons per household per year under total income equality.

 

and calculates that

transferring US$1,000 from a richer household to a poorer household could increase the emissions created by that sum by 5%, or 28.5kg of CO₂

This indicates that changing the focus of environmental policy to inequality may be both naïve and dangerous, especially if the “first round” effects operate in the wrong direction or suggest that climate is a problem that can be attributed entirely to the rich. Discovery that taxing the rich does not after all solve the problems will tend to discredit the promoters of green objectives. The reality is that climate change and net zero pose problems that need to engage the whole of society. The plausible solutions rely heavily on technology but also on behaviour and personal choices, for example the development of efficient heat pumps and the ability of households to retrofit them.

 

Paradoxically if we reverse the order of priorities proposed by UK Greens then we might actually achieve a lot more on equality. Most obviously, targeted subsidies for better insulation will disproportionately benefit poor people. Just as obviously, taxing aviation fuel in a way consistent with how we tax road fuel, will hit the users of private jets. And there are multiple reforms to the tax system, and to energy tariffs, which could assist both environmental and equality objectives.

 

There is other low hanging fruit, too, which could have a substantial impact on carbon reduction. Regulation to limit the use of private jets is perhaps the most obvious, but the elimination of cryptocurrency, with a carbon footprint comparable to that of aviation, is another. Both have limited impact on the poor.

 

A conclusion from the above must be that focus on a populist approach to redistribution of income, and the pretence that it is a overwhelmingly dominant Green issue, while largely ignoring the importance of net zero objectives, will ultimately only serve to discredit the environmental movement. This is to the detriment of everyone.

…………..

 

The above comments reference two reliable sources, the Institute for Fiscal Studies and the Grantham Institute on Climate Change and the Environment.

 

1 Tax policies to help achieve net zero carbon emissions. Stuart Adam, Isaac Delestre Peter Levell Helen Miller.  Institute for Fiscal Studies October 2021

 

2 Income Inequality and Carbon Consumption:  Evidence from Environmental Engel Curves  Lutz Sager. London School of Economics and Political Science. November 2017

 

A PAY-PER-MILE TAX JUST FOR ELECTRIC VEHICLES. SURELY NOT?

 One of the ideas being floated for the budget is the imposition of a pay-per-mile tax for driving on UK roads. The immediate motive for this is the growing realisation that revenues to HM Treasury from fuel tax will shrink rapidly as electric cars replace the internal combustion engine.

 

However current proposals, including those from the Resolution Foundation, suggest that the charge, of perhaps 3p per mile, should apply only to electric vehicles and not to internal combustion engine (ICE) vehicles.  I cannot think of anything that would be better calculated to destroy Labour's credentials as a party committed to environmental protection and public health. The international reputation of the UK on climate matters would similarly be demolished, if it were to sabotage what has hitherto been one of the more promising and successful planks in its raft of low carbon policies (after decarbonisation of the power sector).

 

It's worth starting with a simple observation on the current level of fuel duty, frozen since 2011. There is a general principle of sensible taxation for products or activities that cause widespread damage to society. Where the damage is general and a realistic measures and estimates can be made, so-called Pigovian taxes, sometimes described as “sin” taxes, should at least equal the estimated cost to society of the damage done. Otherwise, consumers are not covering the costs of the damage they inflict. If they were obliged to do so, they would tend to consume less of the product, and we would be collectively better off; in this case they would be more likely to switch to low carbon alternatives, hydrogen or electric vehicles.

 

Surprisingly, for ICE fuels, we do have a number that we can use.  Treasury Guidance, which supposedly provides a basis for UK public policy and project appraisal, sets a cost/value to be placed on CO2 emissions/savings. It was set at £265 per tonne of CO2e for 2022. The implication of this is that fuel duty should be set at somewhere around 60p per litre or higher, simply to compensate for the emissions for which it is responsible. For ICE fuels, the current level of fuel duty is 52.95p per litre; in other words ICE vehicles are not paying the true societal costs of the fuel they use.

 

Incidentally this analysis excludes the health costs of urban pollution from ICE vehicles. This is a similar order of magnitude, and is already recognised in London with ULEZ. There are plenty of studies that do cost the health effects, and the numbers are large. So the growing use of electric vehicles is overwhelmingly in the public interest, whether from a national or a global perspective.

 

There are a few rather specious excuses for the proposal to levy pay-per-mile charges on EVs. The main one is that they tend to be heavier, like for like, and may therefore incur higher road maintenance costs. Apart from the fact that the UK sensibly and rarely hypothecates taxes in this way (duties on wines and spirits are not used to subsidise pubs or off-licences), there are two responses that demolish this argument. One is that the relative impact of EVs, compared to large commercial vehicles, or to other factors like weather, that impact on roads is firly insignificant. The other is that if this really were a serious issue we should already be imposing differential weight-based charges on ICE vehicles as well

 

Purely from a climate or public finance perspective, there should not necessarily be any objections in principle to the introduction of pay-per-mile. Road use charging is potentially just one more method of revenue raising, with the advantage that it is to some degree related to an infrastructure cost, with the disadvantage of being quite hard to implement effectively. Like any tax it will also be examined for its wider impacts. But if introduced these taxes should apply to all vehicles, in order to retain the incentive for cleaner vehicles, whether hydrogen or EVs.

 

But if we do introduce charges per mile, we should go all the way to a proper system of road pricing, charging only for the most heavily used and congested routes. This would alleviate city congestion, save time and money, and, while we still have mostly ICE vehicles, would also reduce pollution and improve health outcomes.

 

Perhaps most importantly, imposing a tax specifically targeted at EVs, after a long period when governments have been actively encouraging their purchase, would destroy the credibility of future incentives that governments may wish to use in pursuit of their policies. Such a loss of trust in the consistency and stability of future economic incentives would not be confined to the energy sector or to zero carbon issues.

 

FARAGE AND NET ZERO

I had been tempted to retire from posting comments on CO2ECONOMICS, partly because so much of the basic truths I described were becoming mainstream, and partly because my own direct involvement in climate issues and their analysis was reducing. However there is nothing like a piece of truly egregious dishonesty, or a deliberate attempt to hide the facts, to stimulate response in the climate policy debate.

 

Step forward Nigel Farage in his recent interview with Laura Kuenssberg (20 July). According to the fiscal maestro, future tax reductions would be funded, inter alia, through the fiscal savings of £ 30 billion that would result from scrapping the government’s net zero targets. The £30 billion estimate was attributed to the independent and usually authoritative Office of Budget Responsibility.

 

[We should not, incidentally, ignore the hapless Tories under Kemi Badenoch in this discussion, as they have been only too happy to jump on the “scrap net zero” bandwagon.]

 

As ever, when dubious arguments appear to depend on evidence from normally reliable sources, it is worth checking the sources themselves. And the Farage claim is no exception. Simple headlines conceal the real truths which tell a rather different story.

 

The most recent OBR projections (July 2025) do indeed indicate a £30 billion a year cost to the public finances to 2050. However two-thirds of this stems from lost government revenues – especially fuel duty – as drivers switch to electric vehicles. 

 

It’s actually a tax cut!

 

In other words one major impact of net zero policies is expected to be a huge reduction of about £ 20 billion per annum in the take of the hated fuel duty tax, something one might expect a Reform leader, in other contexts, to be championing or celebrating. The impact of net zero in this respect is not a cost to the economy or living standards, but simply the reduced take from one particular means of taxation, easily replaceable by an equivalent levy, eg via road pricing, on electric vehicle use, or in many other ways.

 

Moreover scrapping net zero policies would not mean that drivers would stop changing to ever improving electric cars.

 

There is a lot more from the OBR on climate change that deserves serious discussion. Among their more important conclusions are the following:

 

·      Estimates of the real cost to the economy of a net zero policy have fallen dramatically in the last few years. (This of course is an even more important metric than the impact on public finances.)

·      The cost of net zero policies is a magnitude less than the costs we face through a global failure to address the problem.

·      Acting early carries a substantially lower cost burden than delay.

 

Surely time for one of our political heavyweights to put the record straight!

 

IN DEFENCE OF CARBON CAPTURE AND STORAGE

I am not an expert on CCS, and prepared to be agnostic. Also I usually have a lot of time for George Monbiot, but this week I was puzzled by his vitriolic attack on carbon capture proposals, backed up by a number of Guardian readers. 

 

Both the IPCC and the UK’s own Committee on Climate Change (CCC) support a crucial role for carbon capture. IPCC extends this to the much more expensive DACC - direct atmospheric extraction as opposed to the presumed retro-fitting to capture at the point of combustion.  Both IPCC and CCC are serious bodies, tasked with climate concerns, and with access to the best technical and science expertise. CCC has an excellent overview of the UK energy and CO2 scene. Neither are compromised by financial links to fossil lobby groups. 

First nobody should dispute the simple truth that the cheapest and first best solution is to burn as little fossil fuel as possible. So we should pick the low hanging fruit first. That includes not just home insulation but also "obvious" but contested proposals like suppressing bitcoin and many other cryptos (ultra high energy use and zero societal value).

Second the UK has proven itself perfectly capable of screwing up major projects (cf HS2) so there are no absolute certainties this won’t happen again with CCS, but that concern applies to any of the many major infrastructure or retro-fitting projects that we need to get to net zero, including heat pumps and grid expansion.

Third the much harder and costlier option of DACC will certainly be a necessity as we are already well past the degree of CO2 limitation needed for 1.5 degrees. And no, we can’t  do it all through managing land use. If we can’t even do retro-fitting to fossil plant or industrial process CCS, what hope is there for DACC ?

Fourth the abandonment of earlier CCS projects surely stemmed from the shameful austerity programmes and Tory retreat from Cameron's “Green crap” rather than from infeasibility. Here there are more shades of the British disease in which political vacillation stalled the kind of nuclear programmes the French completed so successfully in the last century

Finally the recent September 2023 Royal Society report also touches on CCS, but makes it clear that alternatives like hydrogen storage are also substantial infrastructure projects with significant project risks.

 

Carbon Capture. Getting behind the hysteria.

Carbon capture is in the news again, as the new Labour government announces a substantial new programme for the development of the technology. This has attracted a barrage of criticism from both Left and Right, in spite of the fact that carbon capture is widely regarded as an essential component of any mitigation strategy. So it’s worth exploring a bit further.

 

Some technical background.

 

We should get the terminology clear. There are many approaches to carbon capture, including the use of natural processes in the carbon cycle, for example by improved land use, planting trees or through various “geo-engineering” schemes to increase the “fixing” of the carbon in the oceans.  Greens and others, unsurprisingly, tend to favour the most “natural” and least environmentally intrusive of these. 

 

Second, when CO₂ is captured, it can either find a useful purpose, or it can be sent to a safe permanent store. Use in the soft drinks industry will be trivially small, but it can also be used in the production of synthetic fuels. Most recently there has been a lot of interest in synthetic aviation fuel (SAF) for the hard-to-decarbonise aviation industry.

 

Trees are one form of direct atmospheric carbon capture (DACC). But there are also industrial process approaches to direct capture, sometimes referred to as mechanical trees, which rely on established chemical techniques to separate CO₂  from the atmosphere. It’s claimed that the cost of DACC and subsequent storage (DACC+S) could be brought down to below $200/ tonne, a level that could imply total costs of emission-free oil use well within the historical range of oil price variations. Proposed options for storage include geological formations such as depleted oil reservoirs  and the deep oceans

 

Problems with and arguments against the various DACC methods include:

 

·       excessive requirement for land use, sometimes in competition with food production; this will apply to some but not all methods of both a “natural” and industrial nature; this places an upper limit on what they can achieve

·       excessive land use can also have ecological and human rights implications

·       unproven nature and potentially high costs, and, in the case of natural methods, science unknowns around whether particular land-use policies will be net emitters or receivers of CO₂

·       for industrial methods, high energy use requirements

·       the argument that carbon capture is a distraction from the preferred alternative of eliminating fossil fuels

·       in relation to storage, doubts about suitability of locations, safety and permanence; transport of CO₂and injection into storage may also be expensive

 

The above has all been about direct air capture. However it is, for obvious reasons, likely to be much easier and cheaper to capture high concentrations of CO₂  at the point of combustion when it is released from the fossil fuel. A Green version of this technique involves the use of sustainable bio-fuels, known as bio-energy carbon capture and storage or BECCS. BECCS is likely to be severely supply limited in relation to the scale of what is needed. More generally carbon capture can be fitted or retro-fitted to fossil burning plant, including power generation, and this has generally been the main focus of carbon capture and storage policies, usually referred to as CCS.

 

An additional issue for CCS is that it is likely to be less than 100% effective, with a leakage rate of perhaps 10% or more, so it is not a silver bullet.

 

Is carbon capture an essential component of climate strategies?

 

The IPCC is fairly clear that carbon removal, ie DACC, will be an essential component of any feasible route to a sustainable future. It also endorses continued use of fossil fuels, where this is accompanied by CCS, as one of the options for getting to a net zero future. CCS is also supported by the UK Committee on Climate Change (CCC) as part of a UK strategy aimed at this objective. Both these bodies have the advantage of access to a huge body of scientific and technical advice on the subject, in the context of means to mitigate climate change.

 

So should the UK government be promoting CCS?

 

On the basis of IPCC and CCC advice, the principle of promoting CCS seems to bejustified. There may be alternative means of getting to net zero, but if this is the quickest and cheapest option, then there should be no reason to object to it. Moreover this will not just be a UK issue. Much of the world is even more locked into fossil-based technologies than the UK, so the potential of CCS as an interim or transition technology may be quite important.

 

Whether it has a positive contribution to a UK industrial strategy is another question. Potentially the answer is that it does. Countries like Germany have a much higher lock-in to fossil fuel. But as ever, geography and trading relations matter. Not all countries will enjoy the storage options that the UK has, and Brexit will make the potential to exploit European markets harder.

 

Finally there is a history to this. In 2015 the Cameron/ Osborne government cancelled a CCS programme after the spend of £ 100 million of public money and substantial private sector investment of time and resources. This was part of a major rolling back of  Cameron’s Green promises and accompanied the slashing of budgets on other “easy win” measures such as home insulation. As a marker of determination to take net zero seriously, the Labour government's move is a welcome step. But it does not detract from the need to continue to explore the wider DACC options for carbon removal and storage, nationally and globally.

I’m engaging with a climate activist group in the near future, and I wanted to give them some idea of what I thought were some really important ideas on climate. I’m referring them to this blog but I also know this site can be difficult to navigate, so I’m adding a few links to particular past posts which we may cover and I think are quite thought provoking.

 

Oxford Martin School Integrate Programme:

 

Oxford Martin School. Integrating Renewable Energy Programme

 

Historic responsibility and development:

 

COP 27. Reparations and clean development

 

Firewood Charcoal and Deforestation

 

You tube presentation on this subject available at https://youtu.be/d81oGZzQaQ0

 

Climate science and chaos

 

Science versus scepticism

 

Climate and chaos

 

Electric vehicles:

 

Costing an EV future. Ignore the alarmists

 

The case for EVs is strong enough to withstand the ICE lobbyists

Urgency, early action and low hanging fruit:

Bitcoin. Cryptos threaten sustainability

Cumulative carbon. Has the economics lost contact with the physics? 

CAN THE GOVERNMENT MAINTAIN ITS FOCUS ON SOLAR. THERE ARE A FEW PROBLEMS AHEAD.

The new government is reportedly focusing its renewable energy drive on solar power. The change from the lacklustre energy policy approach of the Tories is welcome, but there are a few technical questions and possible policy traps ahead. 

The first is the wind/solar balance. The Royal Society analysis suggests that, simply in terms of seasonal supply and demand, an 80/20 split in favour of wind is likely to minimise the need for expensive storage. However the biggest driver of storage need with renewables is likely to prove to be inter annual variations in renewables output.  

A bigger headache in policy terms may prove to be the incentive that households receive in terms of a reduction to their energy bills. The immediate saving to an individual household will exceed the actual cost saving for the power system as a whole. This is good for the individual consumer in the short term, but the fixed costs of the distribution network still have to be covered somehow. If they continue to be averaged out over all kWh consumed then eventually households without the ability to instal solar will be subsidising those that do. In many cases this will mean the poor cross-subsidising the wealthy. 

There is a further and related problem if we want a substantial number of households to substitute heat pumps for gas boilers. Current pricing structures are a strong disincentive and tend to make running costs for a heat pump much less attractive than continuing with gas. 

There are answers to this conundrum, but they involve a new approach to recovering fixed network costs. One of the simplest ways to achieve this is through the traditional approach in the water industry, and to the collection of revenues to local authority services – linking a fixed charge component to property value. This is a simple policy to state, but it will take a lot of work to implement. However, its necessity will become increasingly apparent.

ELECTRICITY TARIFFS IN A LOW CARBON WORLD

 

We can start from a few basic principles and realities.

 

1.     Spot markets as conceived in the UK are increasingly irrelevant and/or dysfunctional. Originally conceived to replicate the optimisation of the merit order of fossil plant, and designed by the operators of such plant, they provided price signals consistent with efficient operation of an existing collection of generating plant. The provision of signals for inducing the right quantities and types of investment were always more problematic and for some time spot markets have increasingly been seen as wholly inadequate for this purpose. However we now need to recognise that with low carbon systems based around renewables, nuclear and storage, they will increasingly be irrelevant even in the first function, that of price signals that result in efficient least cost operations.

 

2.     What should really matter to us is not pricing structures in the wholesale market per se –  more or less a legacy structure of institutional arrangements in need of serious reform - but the nature of the tariffs that get passed through to final consumers. We should try to follow the general economic principle that the structure of tariffs needs to reflect the structure of costs. Failure to do this almost invariably results in major economic distortions that come back to bite us, through adverse selection and other unintended incentives and consequences. Current and recent institutional and structures and regulatory approaches have not encouraged more cost reflective tariffs.

 

3.     Reliability planning is fundamental, particularly as electricity expands into heating and transport (EVs), where the security/reliability requirements are very different from those of “traditional” load. The old VOLL approach is no longer appropriate since we really need very different types and definitions of reliability in the new world. Addressing reliability questions, in terms of what we are prepared to pay for, is essential.

 

4.     At least for domestic and smaller consumers, politically the most important category, a very high proportion of costs rests in the provision and operation of transmission and distribution. These are network costs which are essentially fixed costs that do not vary much (on a long term basis) with the volume of throughput. These are however recovered, typically, by averaging over kWh supplied. This method is widely accepted as “fair” and equitable, but will inevitably produce some major distortions. Other approaches are possible which are more economically efficient and can do a better job on redistribution objectives. 

 

5.     Metering, communications, control and information technologies allow for a range of feasible tariff options that would have been unthinkable a few decades ago. These include supplier managed loads, choice over reliability standards, and charging by type of use, as well as more familiar ToD pricing and load management techniques. These are of much greater significance in a low carbon world when there is less flexibility in generation and therefore there has to be more flexibility in either consumption or storage.

 

6.     There have been particular concerns expressed that prices can be set by, for example, very high spot prices dictated by the marginal (gas) plant when gas prices are high, even though most of the power may be coming from low cost renewables. The analogous situations in traditional “vertically integrated” power systems arise when incremental growth is met through different generation technologies, and it can work both ways. For example load growth in some countries can exhaust cheap hydro, and utilities, if they can price at long run incremental  cost (LRMC), can then enjoy a potentially large economic rent from their legacy plant. Legacy costs or surpluses (as an offset) can of course be put with other fixed costs if it is decreed that they have to be recovered from consumers.

 

7.     Economic efficiency and the requirement for adequate revenue generation are clearly not the only considerations. Political acceptability and distributional issues are also key. There are no trivially easy solutions but there is a lot that can be done to improve matters in the future.

 

8.     My idealised solutions rest heavily on technical  assumptions about metering, communications and control systems, but might include some combination and selection from the following:

 

·      Recovery of far more of fixed cost through other “distributional” means, eg via linkin standing charges to property values (cf water), more use of rising block tariffs, and type of use tariffs. 

·      In addition to the above means, price inelastic EV charging might legitimately be expected, as a premium use, to carry a higher burden of infrastructure cost than price elastic and politically sensitive heating load, where we need low unit rates to encourage a switch to heat pumps.

·      Recognition that it is really only the “traditional” loads that need the instantaneous supply response that underlies the VOLL approach, and also dominates conventional definitions of reliability. We need different conceptions and definitions of supply reliability especially in systems that rely on storage. 

·      Consumers will place different values on reliability depending on the application, and this needs to be reflected in reliability planning and in tariffs.

·      Consumer options to designate certain uses as “supplier managed”, with an appropriate tariff incentive for a lower unit rate.

·      Differentiated reliability standards for different uses, with selected uses (eg lights, TV, computer) always the most reliable; default to this standard for less vital services available at a premium.

·      Various methods for reflecting periods of “system stress” into tariffs - eg the French “red light” approach.

·      Continued development of possible time of day or seasonal pricing.