Carbon and Coal

Dieter Helm, the Oxford economist and climate change expert, has a new book out. It is called
The Carbon Crunch: How We’re Getting Climate Change Wrong – and How to Fix it. He has written a blog which summarizes the main points here. He argues that the coming years will see an increase in carbon emissions, primarily through additional energy generation with coal power plants. Emerging economies will be using this form of energy supply because it is cheap. It is also dirty, in fact the dirtiest form of energy. China and India are currently opening 3 coal power stations a week.

It would be wrong to blame these countries. Much of their energy is used in the production of export goods, goods that will be consumed by people in western countries. To neglect these realities is the fundamental flaw of the Kyoto approach, Helm argues:

This is the scale of the problem that climate change policy needs to address. It would be easy to simply blame China, but China’s growth is export-orientated, and it is the west – Europe and the US – that buys much of these exports. Here is where the arithmetic of Kyoto goes wrong. Kyoto measures carbon production in each country, not carbon consumption. So European countries can de industrialize  swapping energy-intensive production at home for energy-intensive imports, thereby meeting their own Kyoto targets, whilst actually contributing to greater global emissions. In the UK, for example, between 1990 and 2005, carbon production fell 15%, but carbon consumption went up by around 19%.

 This simple truth gets often neglected when UK and EU politicians celebrate their 'successes' of GHG mitigation. It is significant that Helm, who advises the UK government and the European Commission, speaks out about the basic flaws of current approaches. He then develops an alternative policy outlook, based on a carbon tax:

A better way forward would be to first encourage a rapid exit from coal. The best way of doing this is to introduce a carbon tax. Not to tax carbon is to subsidise pollution. The tax should focus on our carbon consumption, not our carbon production. It must include a border tax adjustment: it is trade distortion to exclude imported carbon. We should pay for all the pollution we cause in China, and China should not have an artificial economic advantage because it does not impose a domestic carbon price.
A carbon tax would help to tip the balance between coal and gas. Germany would not be building new coal power stations if there were a proper carbon price. This helps a switch to gas in the short term, changing the relative price of coal and gas. But because the carbon price will rise through time, it also makes sure that gas is temporary, and that by 2030 the carbon price will be forcing this temporary gas off the systems.

While this approach has the advantage that it focusses on a simple policy tool (a tax), and cuts through the myriad complexities of climate change as the 'mother of all issues', it also has its shortcomings  First, a carbon price intended to fulfil the function Helm wants to see will need international agreement which is not in sight. Second, it will thus not come in time to influence decisions such as in Germany, where more coal power stations will be built. Third, a rising carbon price which is intended to replace first coal, then gas, might price out whole populations out of access to energy.

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