Climate change: Why failing to pay the real price of carbon emissions is making progress towards net zero painfully slow – Dr Richard Dixon
There are a number of ways to put a price on a tonne of carbon emissions. The UK‘s Emissions Trading Scheme uses a market to trade permits to pollute among big businesses.
It currently has a fine of £100 a tonne for those who haven’t bought enough certificates, which is therefore effectively the maximum price in the scheme. Just now a tonne of carbon dioxide is trading for around £70, although there are various adjustments which mean the real price to a participating company is often less than this.
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Hide AdNineteen European countries have some form of carbon tax. Sweden's tax applies only to transport and heating fuels, and is credited with having led to an 85 per cent drop in fossil-fuelled heating since 1990. It is the highest carbon tax in Europe at around £117 a tonne and was introduced at the same time as a balancing reduction in income tax.
There is also a social or shadow cost of carbon. Devised in the early 1980s, used for a while but now mostly out of favour, this is supposed to be a price which reflects the real economic harm from climate impacts. It is a price which no-one actually pays but which is supposed to be used in government policy-making to understand the carbon consequences of decisions in monetary terms.
The estimated value has often been too low to make much of a difference or the calculations have not been taken seriously. The 2006 report on the economics of climate change by former World Bank chief economist Nick Stern put the value at $85 a tonne (about £74 a tonne in today’s money).
The US government currently uses $51 a US ton (approximately £38 a tonne), while the anti-climate Trump administration used a derisory $3-$5 a ton. A recent estimate for a price which would help deliver net-zero emissions in the US was £66 to £107 a tonne.
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Hide AdThe UK Treasury took these numbers quite seriously for a while (at least in theory) and recommends a 2022 value of £124 to £373 a tonne, with a central estimate of £248, as the necessary value to deliver on the UK’s net-zero target. The central estimate rises to £280 by 2030 and to £326 in 2040.
As you can see, we are consistently under-valuing carbon emissions. Businesses in the UK are paying only about a third of the right price. Individuals in Sweden are paying less than half the true cost of climate pollution.
If real-world prices properly reflected the impact of climate change, price signals would shift in a big way from car driving to public transport, walking and cycling, meat would be more expensive, renewable energy would be much cheaper than fossil fuels and most raw materials would be more expensive.
Until we start to properly factor in climate change costs, we will continue to make the same choices that have put us into climate crisis, with any actual progress being painfully slow in reducing real-world emissions.
Dr Richard Dixon is an environmental campaigner and consultant
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