In the run up to COP 26 in Glasgow, the UK government will need to decide which policy tools to use to set the path to achieving its zero carbon target by 2050. A number of different levers have been used successfully in the UK to date to reduce emissions. Many academics strongly support using carbon pricing as the key method to reduce emissions, arguing that setting a price for this environmental externality is the best method. I believe that pricing may have its uses, but regulation may be a more effective tool for certain sectors which account for most emissions. Indeed, the current regulatory framework in the UK could be the basis for a global framework which would address a significant amount of emissions.
It is useful to look at the successful policy levers which have been used to date.
Regulation may be the simplest method of reducing domestic emissions. The regulation which set a limit of 450 grams CO2 per KW hour by 1 October 2025 for UK power stations, has reduced and will eliminate coal from UK power generation as power stations will not be allowed to operate if they exceed the limit. This will be a remarkable change given that coal was the principal energy source in 2014 in the UK.
Regulation could also be used to remove both gas and oil from power generation in a similar way by imposing a date and a limit on CO2 grams per KW hour for those fuels. This type of regulatory regime could be adopted by other countries or globally.
The UK government has indicated that no internal combustion engine cars will be sold in the UK from 2035, again using regulation. The same approach could be used for other sectors of road transport and the railways.
The government has also set a date (2025) from which gas cannot be supplied to new build residential properties. In due course, a date will be set for the regulation of existing properties and presumably will forbid the installation of replacement gas appliances including boilers.
These sectors (energy supply, transport and residential) account for 66% of UK emissions. They can all be addressed by regulation and that is the preferred government policy to date.
The UK has also used pricing to change behaviour in some sectors. The Landfill tax is a good example of how pricing can reduce landfill and increase recycling –it is a domestic tax for a domestic sector.
The UK has had a number of pricing mechanisms for carbon as well, the effect of which has been limited compared to regulation. It has participated in the EU Emission Trading System. Until recently the price of permits in the EUETS has been too low due to EU policy decisions on the quantum of permits and it has had little effect on behaviour. We will have to wait to see how much the recent increase in prices does affect behaviour and reduce emissions.
In addition, the UK has had a number of national mechanisms (in addition to the EUETS) to price carbon. I have argued that these schemes have sometimes been confused in their target and effect. Business emissions have reduced by 30% since 1990.
The EUETS and UK and other national carbon pricing have usually included an exclusion for trade exposed sectors to avoid making these sectors uncompetitive against businesses located in countries with no carbon pricing. The issue of global competitiveness and carbon pricing is a difficult one, but as the UK example demonstrates, the majority of emissions are domestic.
The preferred method of reducing emissions in the UK to date has been regulation not carbon pricing. Its success as a method has led to the removal of coal from power generation, will end the sale of ICE cars by 2035 (or earlier) and start the removal of gas as a source of heating. If it is extended to other forms of transport it will deal with 66% of UK emissions. Domestic food waste could also be dealt with by regulation.
Removing the balance of UK emissions is more difficult. Agriculture and meat and dairy depend on personal choices. Industry emissions are difficult due to technology and the international competitiveness issue. Aviation emissions depend in part on personal choice and shipping has technological issues like heavy industry. None lend themselves easily to regulation.
From this, one may question why so many papers are published on pricing carbon in general rather than focussing on those sectors where regulation may be difficult. What is clear is that the government’s approach of using regulation may be the most efficient way to reduce emissions for power generation, transport and residential heating.
In terms of COP 26 later this year, perhaps the UK, as Chair, should propose that other countries sign up to the same regulations and timelines to reduce emissions which the UK has proposed. These regulations are stronger than those which apply at EU level and indeed lead the world. Granted, it would not achieve zero carbon, but it would be a significant step on the road to this goal and allow greater focus on developing policy to reduce emissions in those other sectors.
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