Government should increase business carbon price to achieve net zero, says new report

In order to achieve ‘net zero’ greenhouse gas emissions by 2050, the Government needs to increase the price of carbon in key sectors and create a market for ‘negative emissions’.

This is according to a new report published by the Grantham Research Institute on Climate Change and the Environment and the ESRC Centre for Climate Change Economics and Policy at London School of Economics and the Political Science.

The report warns that the UK Government will need to increase the price of carbon in key energy intensive industries such as aviation, vehicles, and agriculture, to phase out emissions that are driving climate change. However, the target of net zero emissions could be achieved with a carbon price of up to £160 per tonne of carbon-dioxide-equivalent (tCO2e), including the cost of ‘negative emissions’.

The new report comes after the Committee on Climate Change recommended that the UK should achieve net zero emissions by 2050. It concludes that the UK Government could encourage emission reductions from UK industries through putting a more effective price on the damage that emissions cause, such as a tax on red meat, an increase in fuel duty, a tax on aviation fuels and a tax on the carbon content in waste disposal, the research suggests.

The report recommends that the UK Government should create better incentives for investment in negative emission technologies – such as the use of bioenergy with carbon capture and storage (BECCS) in electricity generation – by creating a public procurement scheme or a market for ways to offset emissions.

The report proposes that the Government could set up a public procurement system in which it uses the revenue from carbon taxes to pay negative emission providers for the amount of carbon dioxide that they remove from the atmosphere. In this scenario, the providers of negative emission technology would bid for Government contracts through an auction process that would determine the cheapest and most effective investments.

However, the report makes it clear that the carbon price and negative emissions market would need to be complemented by other policies, including more funding for energy efficiency measures in UK homes to ensure that fuel poor households are not disproportionately affected.

Professor Sam Fankhauser, Director of the Grantham Research Institute on Climate Change and the Environment and the ESRC Centre for Climate Change Economics and Policy at the London School of Economics and Political Science, said: “The decision to reduce carbon emissions so that we do not pay a lot more later under more extreme climate change scenarios is not a hard one, but the UK Government will need to make some tough choices to achieve this.

“The technology to remove greenhouse gas emissions is becoming increasingly feasible but the UK Government must act to make it more attractive to invest in carbon capture and ways to offset emissions. Setting up a Government-run system, or a regulated market for negative emissions, would provide the right encouragement for the necessary research and development.

“Getting the price of carbon right across UK industries is also important to reduce emissions and air pollution. The carbon price must also achieve a balance between costs that are passed on to the consumer and taxpayer in the short term and incentives for industry to invest in ways to reduce their emissions.

“The Committee on Climate Change has outlined one of the most ambitious emissions reduction targets in the world to date. To be credible, the new target must now be accompanied by an equally rigorous set of policies, with a strong carbon price at the core of this. The Government must act quickly and be bold, looking at options such as taxes on red meat and waste disposal, alongside policies that will reduce emissions and help the worst-off households, such as funding for energy efficiency in existing homes.”

The full report – How to price carbon to reach net zero emissions in the UK – can be read here.