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UK carbon tax would do nothing to reduce European-wide greenhouse gas emissions

The introduction of a carbon tax would help the UK meet its greenhouse gas target, but make no difference to emissions of greenhouse gases across Europe according to research by the Grantham Research Institute on Climate Change and the Environment and the Centre for Climate Change Economics and Policy, at the London School of Economics and Political Science (LSE) published today (4 February 2011).

The research Combining Multiple Climate Policy Instruments: How not to do it, points out that a Europe-wide cap on emissions under the EU Emissions Trading Scheme means that the rest of Europe will continue to emit up to this 'capped' level whatever policy instruments are introduced at a national level.

sky with cloudsThe UK Government is currently consulting on a 'carbon floor price' or tax which would mean that UK electricity companies would have to pay extra for the carbon they emit. Until now power generators have been exempt from the Climate Change Levy, the closest thing that the UK has to a carbon tax.

Dr Samuel Fankhauser, one of the research's authors and Deputy Director of the Grantham Research Institute, explains: 'A carbon tax would undoubtedly encourage UK companies to reduce their greenhouse gas emissions since they would have to pay two sets of costs for every tonne of greenhouse gas they emit – for the carbon tax and for EU ETS permits.

'And while any cuts in emissions are welcome, we have to look beyond the UK. A  lower demand for EU ETS permits from UK companies would cause the price of carbon to fall, encouraging other countries to emit more. As long as there is a European cap on emissions, anything we do unilaterally merely moves greenhouse gases around. The accounting may look good, but the reality isn't.'

One of the UK Government's objectives in considering a carbon tax, or a 'carbon price floor', is to set a strong and predictable carbon price which would be an effective penalty for pollution and encourage investment in renewable energies and Carbon Capture and Storage.

Dr Fankhauser says: 'A strong, long-term carbon price is a good thing, so the tax has its merits. But an even better approach would be for the UK to work with its EU partners to tighten the EU emissions cap from a 20 per cent to a 30 per cent target. This would send a long-term price signal and lead to immediate EU-wide emission reductions.'

Dr Cameron Hepburn, co-author of the paper, said: 'European co-operation is necessary, otherwise UK policies simply shuffle emissions between EU countries. The UK should seek EU agreement on a "minimum reserve price" at permit auctions, so that permits would not be sold unless polluters paid the reserve price or higher.'

ENDS

Posted 4 February 2011 

Notes to Editors

  1. The Grantham Research Institute on Climate Change and the Environment (http://www.lse.ac.uk/grantham) was launched at the London School of Economics and Political Science in October 2008. It is funded by The Grantham Foundation for the Protection of the Environment (http://www.granthamfoundation.org/).
  2. The Centre for Climate Change Economics and Policy (http://www.cccep.ac.uk/), was established in 2008 to advance public and private action on climate change through rigorous, innovative research. The Centre is hosted jointly by the University of Leeds and the London School of Economics and Political Science. It is funded by the UK Economic and Social Research Council (http://www.esrc.ac.uk/) and Munich Re (http://www.munichre.com).

 The authors of Combining Multiple Climate Policy Instruments: How not to do it are: Samuel Fankhauser from the Grantham Research Institute and Centre for Climate Change Economics and Policy and a member of the Committee on Climate Change; Cameron Hepburn from the Grantham Research Institute and Centre for Climate Change Economics and Policy, Smith School of Enterprise and the Environment and New College, Oxford and Jisung Park from Oxford Department of International Development and Magdalen College, Oxford.

A copy of the researchis available from the LSE press office

More information for the media is available from:

Sue Windebank, LSE press office, T: 020 7849 4624, E: s.windebank@lse.ac.uk|

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