David Toke asks whether carbon taxes or regulations are the answer to combating climate change
With Gilets jaunes blocking French cities, initially sparked by a carbon tax added to motor fuel taxes, and schoolchildren striking for climate change you would think that politicians were being forced in two contradictory directions. But not necessarily. Certainly, big corporations and right wing politicians tend to argue that carbon taxes can solve the world’s climate problems much better than regulations. This appeals to some US audiences on an ideological level, but again, misses out the practical measures that need to be taken. Carbon taxes of course can be useful, but miss the point that in order to promote technological innovation you have to have some regulatory measures to encourage ‘bottom up’ technological innovation. Innovation requires niches supported by relevant incentives/regulations.
Energy conservation programmes are popular insofar as they help reduce the impact of energy price increases, and we have been getting a lot of them as oil becomes more difficult to source and the UK has to access more expensive overseas sources of natural gas as North Sea reserves run down. But we are lacking the regulatory drive to make buildings carbon neutral. Measures to make homes zero carbon have been scrapped and local councils have been stopped from setting their own standards. Indeed, local councils usually do not even have the capacity to ensure that current building regulations governing energy efficiency are properly implemented.
On the other hand advances in wind power and solar power, whose costs have dropped tremendously this century, have had nothing whatsoever to do with carbon taxes, or even much (in a direct sense) to do with energy price increases. The cost reductions have been driven because incentives have been given to these nascent technologies.
They have been given markets leading to technical optimisation and economies of scale which have reduced their costs. Indeed, last year a third of UK electricity was supplied by renewable energy. Given the fact that the cost of renewable energy has dropped so much, all they need now is the right regulatory arrangements and they can carry on increasing this proportion very rapidly without increasing costs to the consumer. 80 per cent of our electricity could be supplied from renewable energy by 2030 this way – and there are enough offshore wind farms in the pipeline to assure this even if we only had modest increases in the amount of onshore renewable. We can deploy new technologies like heat pumps linked to district heating systems to convert electricity in heat and store the energy in various forms.
Yes, we can make a lot of progress through various regulatory devices. This is as opposed to solely relying on a one-size-fits-all carbon tax that encourages mainly existing large scale technologies – and which, moreover, will encounter political resistance from large sections of the population. This is because if carbon taxes are applied as the only measure on the level necessary to achieve big carbon reductions, they will cause political rebellion on a much greater scale than anything attending the regulatory and incentive measures promoted by the renewable or energy efficiency trade associations and other NGOs. We need lots of different methods: incentives, regulations, carbon taxes, local cooperatives.
I have recently been supporting an innovative wave power technology called ‘Resen Waves’. The company involved is now getting its first orders to supply power for communication buoys and also to supply power for oil and gas rigs in the North Sea that are being decommissioned. Once established in this niche it will be able to optimise, get economies of scale and upscale so that in a few years’ time it will be able to supply power directly to the electricity grid. That’s how new technologies develop, and we can help them by giving specific incentives to help them fill those niche markets. Carbon taxes will not do that.
Existing big business, on its own, won’t deliver technological change. We need a bottom up approach that delivers innovation. Then, after some success in this pattern the big companies will decide to change what they are doing. Or go out of business.