Mark Carney has backed an emissions trading system as the best option for pricing carbon pricing, while warning that it is impossible for countries to “self-isolate” against climate change.
During a virtual event on global warming, organised by the thinktank Policy Exchange last Thursday, the former Bank of England governor was quizzed on the best way of pricing the environmental costs of emissions.
Carney, who has been appointed as the UK’s climate finance envoy in the run up to the delayed COP26 global warming summit, said his “first ask” would be some form of emissions quota trading system.
He said that he preferred a mechanism, like the EU ETS (emissions trading system) which the UK is due to quit as part of the Brexit process, to a carbon tax. The UK government is currently weighing up its options for pricing carbon when it leaves the EU ETS.
Carney said that carbon pricing offered an opportunity to take a “wedge” on the fall in the oil price, which the world has recently seen.
Former Australian prime minister Malcolm Turnbull told the online event that he also prefers an ETS to a carbon tax because of the greater certainty that it provides investors.
But there were sound revenue raising reasons for introducing a carbon tax in a post-crash environment in which governments have run up huge deficits, he said: “Governments will need to look for additional revenues which is very scalable. The problem with imposing higher taxes is the dead weight they impose on the economy. The government will be looking for revenue but will want the economy to be moving again. There is a respectable argument that a carbon tax could be less of a dead weight on the economy than jacking up income tax or company tax. There may be a stronger fiscal argument for putting tax on carbon than absolute environmental ones.”
Carney also predicted that the plunging cost of renewable power means that while has a part to play as a transitional fuel, it will have an increasingly marginal role in electricity generation.
“The role of fossil fuels should be no more than gas peaking plants used as generation with the advantage that they can be turned off and on relatively quickly,” he said, adding that both electricity storage and carbon capture storage(CCS) are both reaching the “tipping point” of becoming commercially viable technologies.
Carney also said the current economic shake-out is likely to “accelerate” the transition to a lower carbon economy and that companies securing government support should comply with the goal of net-zero emissions by 2050.
“Larger, heavier emitting industries are mostly under extreme pressure and will face some form of restructuring. A massive reallocation of capacity will be required. The question is how that will be reallocated.
“If you’re in the United Kingdom – or in one of the 120 other countries that have net-zero targets – it is a reasonable request for companies to have a transition plan, a plan that they come up with, not dictating them the plan, a plan they have for managing their transition toward net zero. After all, if we are relaunching our economy, if we are restructuring a number of industries, and that is not the state doing it, that is the actual economics doing it, it is reasonable to expect that companies are relaunching through these core objectives.”
He added: “You can’t wish away systemic risk. In the end, a small investment up front can save tremendous cost down the road. We have a situation with climate change, which will involve the entire world – and from which we can’t self-isolate – and is predicted not just to be a risk tomorrow but the central scenario tomorrow.”
Turnbull said that an explosion in renewable electricity generation will facilitate the production of green hydrogen, which involves very few emissions.
“Green hydrogen is going to be very big player because once the whole process is really industrialised you are going to have an abundance at different times of the day of very cheap electricity.
“If you can take those periods of over-abundance and use that to make hydrogen, it’s going to be really outstanding outcome.”