New tax or permits required to tackle climate change

The UK Government’s climate change levy should be scrapped and replaced by a carbon tax or system of ‘carbon dioxide permits’ to combat global warming, the Royal Society urges today.

In a report on economic measures to reduce greenhouse gas emissions, the Royal Society calls for the Government to announce the phasing out of the climate change levy in its forthcoming White Paper on energy and introduce instead a tax or permit system, or both, that will effectively charge for the right to emit carbon dioxide.

Sir Eric Ash, who chaired the report’s working group, said: ‘The climate change levy is not a cost effective way of reducing the amount of carbon dioxide that is pumped into the atmosphere, as it is a tax on energy and not on greenhouse gases. Moreover, the levy does not apply to the use of fossil fuels by households and transport, and penalises electricity sources that do not produce greenhouse gases.’

‘The most important issue that the Government must address in its White Paper is how to set a price for releasing carbon dioxide into the air. Our group of scientists and economists has looked at all the options and believes that the most effective way of doing this would be through a tax imposed on all carbon dioxide emissions or a system of tradable permits to control the amount of gas released.’

He added: ‘The UK’s carbon dioxide emissions have started to rise again. If the Government’s White Paper misses the opportunity to reverse this trend, the UK could hasten the onset of potentially catastrophic climate change.’

The report recommends that the carbon tax or permit system should be applied to all producers of carbon dioxide, including householders. However, the Government should provide compensation, for example through state pensions, to help the more vulnerable members of the community. A carbon tax might be equivalent initially to an extra 1p per kilowatt-hour for electricity bills or 6p more per litre of petrol.

Permits could be initially allocated to individual companies on the basis of their previous emission levels, the report suggests. However, this should be replaced as soon as possible by a system through which companies purchase the permits by auction. Permits could also be traded by their owners.

The report also challenges assumptions that taxes or permits to reduce emissions of carbon dioxide will cause great damage to the economy. Sir Eric said: ‘Several independent studies have shown that the overall cost of even a drastic reduction in carbon dioxide emission is modest, with estimates in the range of one per cent of the world’s total Gross Domestic Product for the next 100 years. This cost is negligible compared with the expected long-term growth in the global economy over that period of one to three per cent each year.’

Fossil fuels would become more expensive under a carbon tax or permit system, according to the report. However, renewable or nuclear energy, which do not emit greenhouse gases, would become more competitive, as would long-term methods of disposing of carbon dioxide so that it does not reach the atmosphere.

The new tax or permit system should be introduced gradually, with the aim of applying it to all the countries of the European Union and possibly extending it worldwide. The Government should seek an international agreement to introduce the tax or permit system, says the Society.

Meanwhile, over in the US, a new report from the Pew Center on Global Climate Change has concluded that measures that have proven controversial at the Federal level, such as mandatory reporting of greenhouse gas emissions, have been implemented successfully at the state level.

‘The report shows that addressing climate change is not only possible, but can be done in a manner that is bipartisan and consistent with regional economic development goals. Policy-makers would do well to be mindful of their successes as they work toward federal and international programs, and actively involve states in their design and implementation,’ said Eileen Claussen, President of the Pew Center on Global Climate Change.

But the report goes on to say that action at the state level is no substitute for a comprehensive national or international approach.