UK Government should create market for greenhouse gas removals and increase carbon prices for businesses to achieve net zero emissions by 2050

To achieve ‘net zero’ greenhouse gas emissions by 2050, the Government should create a market for so-called ‘negative emissions’ that result from the removal of greenhouse gases from the atmosphere, a report published by 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 the Political Science reveals today (22 May 2019).

The report by Josh Burke, Rebecca Byrnes and Sam Fankhauser also warns that the UK Government will need to increase the price of carbon in key sectors 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 on 2 May 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.

Net zero refers to achieving an overall balance between greenhouse gases emitted by human activities and greenhouse gases removed from the atmosphere by human activities. Getting to net zero carbon emissions will require both reductions in greenhouse gas emissions, and offsetting residual emissions by removing greenhouse gases, or achieving ‘negative emissions’, by expanding natural ‘sinks’ (including planting more trees that absorb carbon dioxide from the atmosphere during photosynthesis) or creating engineered sinks.

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.

Alternatively, the report recommends creating a regulated offset market, in which businesses could buy negative emissions instead of paying the carbon price. Sectors with significant residual emissions – such as aviation – would pay negative emissions providers to offset these emissions.

To reduce the need for negative emissions technology, the report recommends setting a higher carbon price to encourage lower emissions. It outlines the different options for setting a higher price of carbon across the energy, vehicle, aviation & shipping, housing, agriculture, business and waste sectors, and how these should be scaled up by 2050 to achieve net zero emissions.

Specifically, the report suggests that by 2020 the Government should set a carbon price through direct means (new taxes, for industries such as aviation, agriculture and waste disposal) or indirect means (increasing current price mechanisms such as fuel duty or decreasing exemptions granted on some fossil fuel uses).

The report argues for a carbon price specific to different sectors, in contrast to previous calls by economists for a uniform carbon price across all sectors. The report suggests that the different carbon prices by sector could be:

• £40/tCO₂e in agriculture through a new tax on red meat and a tax on fertilisers, rising to £100/tCO₂e by 2050 – this would amount to just an additional £0.23/kg of beef and £0.46/kg lamb in 2020, rising to £0.70 and £1.41 in 2050 respectively
• £40/tCO₂e for vehicles as a component of fuel duty, on top of its current price – this would equate to a 10p per litre addition to fuel duty for drivers in 2020, rising to 14p per litre in 2050
• £40/tCO₂e in the electric power sector, up from around £35/tCO₂e today, using the Carbon Price Support Rate when necessary, rising to £120/tCO₂e in 2050
• £40/tCO₂e in homes through changing VAT rates on gas and electricity, and rising to £100/tCO₂e by 2050
• £40/tCO₂e for non-energy-intensive industries such as financial services reducing reductions given through the Climate Change Levy, rising to £100/tCO₂e by 2050
• £40/tCO₂e for waste disposal through a tax on the carbon content of waste products being processed, and rising to £100/tCO₂e by 2050
• £50/tCO₂e in aviation and shipping through a tax on international transport fuels, and rising to £160 in 2050 – at £50/tCO₂e for a return flight from London to New York would be, on average, 6.5 per cent more expensive, based on prices today
• £50/tCO₂e for energy-intensive industries, such as steel and cement, by reducing reductions to the Climate Change Levy, rising to £160/tCO₂e by 2050.

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.”

For more information about this media release please contact Kieran Lowe on +44 (0) 20 7107 5442 or k.lowe@lse.ac.uk or Bob Ward on +44 (0) 7811 320346 or r.e.ward@lse.ac.uk

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NOTES FOR EDITORS

1. The ESRC Centre for Climate Change Economics and Policy is hosted 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. The Centre’s mission is to advance public and private action on climate change through rigorous, innovative research.
2. The Grantham Research Institute on Climate Change and the Environment 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.