EU countries should focus on carbon pricing instead of subsidies for renewables

European Union countries should focus on carbon pricing rather than subsidies for low-carbon electricity to achieve further reductions in emissions from their power sectors. An audience of policymakers and business representatives in Brussels will be told today (Tuesday 5 December) by researchers from 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.

The analysis led by Samuela Bassi, Statkraft policy fellow at the Grantham Research Institute, points out that renewable sources of electricity, such as wind and solar power, are becoming cost-competitive with fossil fuels and will soon no longer need subsidies. Carbon pricing, including through the European Union Emissions Trading System, is a more cost-effective way than subsidies of cutting emissions through greater use of mature low-carbon sources of electricity.

The report notes that carbon pricing treats low-carbon generators neutrally and that “this implies a more even distribution of policy costs and benefits among generators”.

The policy report, ‘Decarbonising the European Union credibly, effectively and acceptably’, summarises the findings of three new studies, full details of which are also published today, on the decarbonisation efforts of the member states. The studies were funded by the Norwegian power company, Statkraft.

The report points out that although the European Union is currently on track to meet its targets for 2020 of cutting annual emissions by 20 per cent compared with 1990 levels and generating 20 per cent of electricity from renewables, the member states will need stronger policies to meet the more ambitious 2030 target of a 40 per cent cut in annual emissions compared with 1990.

New modelling presented in the report finds that carbon pricing is more cost-effective than a coal tax, a tax on electricity consumption and a technology-specific subsidy.

The report also stresses that the credibility of decarbonisation policies for the power sector “is vital for building trust among investors and the international community and for helping to increase the ambition of political commitments over time”.

The research analysed the credibility of some member states’ commitments to decarbonise their power sector based on public opinion, private sector support for climate action, policy reversals, legislation and policy, past performance and process.

Of the eight countries analysed, Denmark, Germany and the UK were ranked as having the most credible decarbonisation plans for the power sector. France, Spain and Italy ranked in the middle and Poland and the Czech Republic were found to be least credible on decarbonisation.

The report highlights that one of the biggest threats to credibility is policy reversal: “Frequent policy reversals are a challenge to the credibility of decarbonising efforts in most of the member states analysed, in particular in the Czech Republic and Spain”.

Member states need to strengthen their policy and legislation, join up climate and energy policies and ensure government action is scrutinised by independent bodies, recommends the report.

However, to meet the European Union’s 2030 target, member states will need to make further emissions reductions by applying carbon pricing to sectors of their economies not covered by the European Union Emissions Trading System, including transport and waste.

Although carbon taxes would be a cost-effective way to reduce emissions in several of these sectors, they could encounter public opposition. The research published today recommends that policy-makers can increase the acceptance of carbon taxes by phasing them in, introducing them at a low rate with commitment devices to increase the rates over time, and using trial periods. The report also concludes that earmarking carbon tax revenues for projects to reduce greenhouse gas emissions, and reducing the burden carbon tax places on the poorest families, increases public acceptance.

The report also highlights the importance of increasing information and communication before and after the introduction of a carbon tax, as public attitudes do not remain the same over time.

For a full copy of the report under embargo or to arrange an interview with spokespeople please contact:

Victoria Druce: +44 (0) 207 107 5865, v.druce@lse.ac.uk 

Bob Ward: +44 (0) 7811 320346, r.e.ward@lse.ac.uk

 

NOTES FOR EDITORS

  1. The report will be available at the following link once the embargo lifts: http://www.lse.ac.uk/GranthamInstitute/publication/decarbonising-the-european-union-credibly-effectively-and-acceptably/

 

  1. The report, Decarbonising the European Union credibly, effectively and acceptably, is published as part of the The Statkraft Policy Research Programme at 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.

 

  1. The report is a summary of three studies analysing the credibility, effectiveness, and acceptability on EU decarbonisation policies respectively.

 

The Statkraft Policy Research Programme was launched in October 2015. The announcement can be found here: http://www.lse.ac.uk/GranthamInstitute/news/statkraft-and-grantham-research-institute-announce-three-year-partnership-on-low-carbon-economy-research/