Carbon pricing is the ultimate antisocial policy.
The trouble with carbon pricing or taxation is there’s nowhere really that consumer spending can fly to to avoid carbon pricing.
In the United Kingdom, for example, around 90% of the country’s energy is derived from fossil fuels. A carbon price will make everything more expensive – mostly for consumers.
|Despite the phenomenal, almost exponential, growth in renewable energy deployment, not everybody can choose to use green energy – there simply isn’t enough to go round.
The theoretical basis for carbon pricing, taxation, and quota markets (as known as cap and trade, or cap-and-something) is that the polluter should pay. The thing is, it’s not clear in the theory whether the polluter is the energy company who produces dirty energy, or the consumer of the dirty energy (who doesn’t have a choice about the carbon content of the energy they use).
Let’s be honest here – pricing high carbon energy is not a cost that’s going to be paid by energy producers – they are simply going to pass the costs on to their consumers.
Environmental fines and charges have the same effect. People are pleased to hear that BP and Royal Dutch Shell have been handed huge fines for their environmental pollution – but who will actually pay for these ? Why, the shareholders and the customers, of course.
Our economies are set up in such a way that they depend on cheap energy. From the automated cash machines – the holes-in-the-wall, via poorly insulated homes, schools and hospitals, all the way through to huge corporate headquarters burning coal-generated electricity virtually for free.
And on another matter, it will rightly remain a bone of contention that so much tax is extorted from people who have to put fossil fuel in their car engines. Is it their fault that the only fuel available for their essential commute to work is high carbon ? Why should they pay a premium for that ? They don’t have the choice to use an efficient, reasonably-priced, well-connected public transport service (except in the major cities).
And what about fuel poverty ? As energy prices rise, those who have the water of destitution lapping around their ankles will find themselves drowning. Why should the poor suffer higher costs in energy simply to impose a carbon price ?
Economists believe that relative pricing can offer an incentive to use alternatives. But consumer spending is quite inflexible. For example, in order to drive electric, a driver would need to purchase an entirely new car. That’s a huge barrier. And to install renewable energy in their home, they might need to get a second mortgage. Energy companies that sell green energy, because green energy is new off the ground, will have tariffs that look costly. The ordinary householder with a squeezed budget and the ever-present threat of redundancy frankly doesn’t have a choice in energy.
The only thing we can say about the European Union cap-and-trade Emissions Trading Scheme (EU ETS) so far is that is failed to create a sufficient incentive to divert energy investment away from fossil fuels.
However, legislation, meanwhile, is having an impact. As long as they are not abandoned, European Union Directives have shut the door to dirty coal, more or less. The rules to tighten up emissions standards means that energy production companies can see the point in moving beyond coal. It’s not the Emissions Trading Scheme that convinced them, it’s the regulation of emissions intensity.
But what’s happened ? We are now seeing a second “dash to gas” in countries without a comprehensive renewable energy promotion policy. Yes, Natural Gas is the default go-to option for the United Kingdom, yet again.
Operators are prepared to pay the carbon costs (and pass them on to their consumers) to be permitted to burn Natural Gas to generate power. Except they’re not. The Natural Gas market has managed to push back at regulatory emissions intensity control. They’re big. They can do it.
Carbon Capture and Storage (CCS) has been demonstrated to be expensive, so the Natural Gas industry has a case for resisting it. They can rightly say that these costs would be borne by their customers and shareholders if they were obliged to take them on – unless the governments subsidise CCS. The European purse is as tight as other regional spending federations – which means that CCS cannot rely on public funds, despite programmes to boost new energy technologies. There were plans to pay for CCS development, but this could well become seen as a waste of money – which could be better spent elsewhere.
Several decades ago, energy was privatised in Europe. This led to relatively cheaper consumer bills, but also triggered a slow-down in new investment. Much energy plant in Europe now needs replacing, and the private energy companies will be squirming to avoid having to inject capital into new plant. Europe is almost bust – the public kitty is practically empty, so high subsidies cannot be promised. All this adds up to energy becoming more expensive for the consumer.
Researchers are declaring that “peak oil” has arrived – that from now on, oil supply will begin to reduce, because of a combination of factors, including depletion of petroleum oil fields. If oil has peaked, the peak in Natural Gas production will not be far behind. Some researchers also predict that even coal production is now stressed. The likelihood is that energy price rises will be required to fund new exploration of new unconventional fossil fuel resources.
In this era of rising energy prices, a carbon price will be just another signal. It won’t alter the behaviour of the energy producing nations and energy production companies because it will be just one force among many, and not a large enough lever compared to the demands for new investment, social control of energy prices and shareholder demands for dividends.