Carbon Tax and Dividend
with Duncan Brack and
Hannah Dillon www.zeroc.org.uk/the-team
and John Leach
and Jason Billin
from September 2020 LibDem Conference GLD fringe
shortcode to this page http://grn.lib.dm/a21dwn
edited by Geoff Harvey
Jason: I suggest we might start in a moment
The idea was we were going to go to Hannah first then Julian and then John Leach who's our other invited guest, and then Duncan,
so we might have to do Hannah, Julian, Duncan, and John as soon as I can get him in; and we'll get Keith [Melton] back as soon as we can him in
I haven't introduced myself by the way: my name is Jason Billin. I'm the Vice Chair, Organization for Green Liberal Democrats
The title on this session is 2020 Vision, carrying forward from our summer conference season: "carbon tax and dividend". So basically it's about carbon pricing and the issue being carbon tax and emissions trading schemes and we have very two different sides I hope if we get John in of the arguments and some other expert commentators, or informers I should say as well. So Hannah do you want to kick off with an introduction of where you're from and if you'd like to make your presentation and I will mute myself to try and get John in.
Hannah: Yeah great thank you Jason just checking you can all hear me
okay good thumbs up so:
Hi I'm Hannah Dillon. I'm head of a campaign called the Zero Carbon Campaign, zeroc.org.uk , and broadly we were set up after the announcement of the UK's 2050 net zero target to advocate for policy solutions to try and achieve and deliver on that target, but we have specifically taken a focus on the current green tax landscape in the UK and how that might be revised in order to better support the transition towards net zero by 2050; so we've taken a very specific focus on carbon pricing which is why I'm here talking to everyone today.
About seven months ago we set up a commission of experts to look into this question of how we might review the UK's carbon pricing system and better align it to the 2050 net zero target and on Monday this week (or last week now)on the 21st we actually launched our commission's final report and which is a kind of comprehensive overview of how we might practically and reasonably introduce carbon pricing across more of the UK economy in order to try and help drive the change required across the economy to get to net zero and I'll say up front that we don't think that carbon pricing is the only thing that we need and I want to make that really clear because I think it's really important to talk about the other policy levers that carbon pricing can interact with to try and facilitate the change that we need across our economy to get to 2050. I was just going to give a quick summary of the report which Steve has just very kindly popped into the chat and I was just going to frame that around five core principles that we've looked at, that frame why we've come to the conclusions that we have, and then as we get into the discussion, I'm very happy to answer questions around any specifics.
So the first thing that we looked at was the price itself, the level at which we price a ton of carbon dioxide and other greenhouse gas emissions and we've reviewed a few different papers. On our commission is Sam Fankhauser who's head of the Grantham Institute and at LSE and the Grantham Institute have done quite a lot of work around what specific price we're going to need if we want to get to net zero and I should say just for anyone that doesn't know: there's a bit of a debate on carbon pricing whether you're trying to sign a sort of social cost of carbon or if you try and price carbon based on the emissions reductions that you need to get to.
We've gone with the latter and our commission landed on requiring about £75 a ton of carbon dioxide by 2030 in order to mobilize the level of transition that we need to get to net zero.
And in the report we've taken a kind of sector by sector approach as to how you can start introducing a price into sectors of the economy which don't yet have carbon pricing in, and revise the way that carbon pricing is applied in certain sectors that already do have it.
The second thing we looked at was coverage. So about one third of the UK's emissions are covered by carbon pricing at the moment. Our commission have argued that we need to do more than that if we want to get to net zero and we need to specifically look at how we can introduce carbon pricing in sectors of the economy that don't yet have it in place. So I'm thinking of something like agriculture. How might we start to effectively put a price on the emissions that come from agriculture, from the use of fertilizer and from livestock, and what are the challenges for us to introduce carbon pricing into that sector and how can we recognize the role that the agriculture sector has to play in both being a kind of sink for carbon as well as a source and how can we reasonably motivate the land use change required to get to net zero as well as trying to cover more of the emissions that are produced from agriculture. And I'm very happy to get into questions around the specifics that we've come up with there.
The third thing that we've tried to do is look at the inconsistencies that that exist in current carbon pricing signals so there's a lot of different carbon prices on our economy at the moment I mentioned about a third is covered is there a way that we can amalgamate the different price signals that exist into a more singular transparent price which we refer to as a carbon charge; so I should say that is a set carbon tax that we're talking about a price over trade and where are the opportunities for kind of reforming existing pricing and replacing that with a more singular approach to taxation so whilst it can sound a bit scary saying we need to, you know, put carbon pricing in across our economy, in a lot of places we're talking about reforming the existing system rather than adding on new layers of taxation.
The fourth thing, and actually this was our starting principle, is just to look at fairness and I know fair is a very tricky term to use but the starting question we used is, is it fair that a lot of big polluters are being given free allowances and entering in certain agreements that mean they don't have to pay the full price for all of their emissions, whilst lots of households do face kind of decarbonization costs on their electricity bills and is there something we can do to redress that balance a bit? And I will acknowledge that there's a lot of reasons that certain things like free allowances for big polluters exist and there's a huge amount of background as to why that situation is the way that it is. But we were looking at, is there something we can do to price pollution more fully across the economy and then think about getting around some of the impacts of doing so. So for example, those of you that are interested in the fee and dividend model and have read around carbon taxation will have heard about border carbon adjustments being discussed.
It's something that the European Commission are looking at and what they've said is that if they can effectively set up border measures that help address concerns around higher carbon pricing affecting competitiveness of domestic manufacturing could they then look to start to remove the free allowances that lots of heavy industry are granted? And I won't go into too much detail because carbon border adjustments are
incredibly complex but I think it's just important to bring that into the discussion. And the other question of fairness was just:
some of the very legitimate criticisms of carbon taxation are that a carbon tax can be quite a blunt instrument and can be regressive for poorer households because the emissions sort of a carbon tax takes up a greater proportion of their income to pay than it would for more wealthy households and so we've looked into solutions around how we can try and mitigate cost impacts if we were to introduce a carbon charge across more of the economy. And I know the title of this is about the tax and dividend; the dividend part of that has been something that our commission have looked at so it might not be that we would look to use the revenue from a carbon tax to entirely compensate all households because we want to motivate a certain level of behaviour change and that's not necessarily going to happen if you give everyone back the full money. But could there be a mechanism by which we for example looked at the bottom three income brackets and used some of the revenues from carbon pricing to help them avoid any increased costs whether that's through money in the bank or looking into things like energy efficiency in buildings and financing that. And then the final point is just around revenue. Very quickly: so if we were to put a carbon price that reached £75 a ton across the majority of the economy by 2030 our commission have calculated that that could raise up to £27billion. Now, sounds like a lot of money and I
know that it's probably not, compared to some other taxes that are out there but we've also looked at how we can effectively use that revenue to further the impacts of carbon pricing so not just in terms of mitigating cost impacts on poorer households, but could it be that we could invest some of that in green innovation and use it as a mechanism to, what the commission referred to as de-risk certain investments in green technologies. And learning from tricks as with the power sector where mechanisms such as Contracts for Difference and combined with the carbon price have had such a positive effect on starting to wean the UK off coal. So those are our five core principles.
As I mentioned at the beginning, we've looked at how we compare carbon pricing with different complementary policies in different sectors and we've got a huge amount of those in our report so I'm conscious I don't want to take up too much time at this point but very happy to get into specifics around recommendations for different sectors. And the final comment, I just wanted to make very quickly, is that the reason that we (our commission) have spoken about favouring a tax, over a trading system is that partly because a long-term price trajectory can give a greater view for people of what's coming down the track, so they have more confidence that they can make investments to avoid those costs and have a clear forecast on that, but also if we're looking at introducing pricing across more of the economy, for sectors that haven't been involved in emissions trading before, it might be simpler to work with taxation because for example, households know how to pay taxes but don't necessarily know how to trade emissions. So I'll stop there. I'm sure I've raised a lot of questions and yeah happy to take any questions now.
keith are you muted keith can you hear me i think you're muted i think we're having technical issues again and we've been having this this this problem with hopping for the last couple of days unfortunately um i don't know whether it's incompatibility of systems or what um thank you for that hannah um that was excellent enlightening um i'm going to move swiftly on while we try and sort out some technical issues and if we if we can go to duncan first actually first john can you just try speaking so we can see if he can hear you john can you hear me right julian can't see anybody john can't see keith no i hear you can you hear me right well that's something okay i i've not been able to hear anything for the past five
minutes so um i can see the teeth i can't hear anything [Music]
John: Okay what shall I start with, my pitch okay. So there are three points that I'd like to make. I apologize if this crosses with Hannah because I wasn't able to hear what Hannah was saying. The first point is that we need to get to net zero. I mean, ideally we need to get to net zero as soon as we can. We have to choose a date so let's choose 2050, but the point is we have to get to net zero net 50 percent or net 25 will not do. And the reason for that is that climate change will carry on getting worse until we reach net zero. When we reach zero that's not the end of the battle, that just means that we're not putting any more carbon into the atmosphere.
Carbon and climate change will stop getting worse but at that point it will be as bad as it's going to get. The good news is that we would have stopped it getting worse. The bad news is we don't know how bad it will be at that stage; we don't know whether we'll be two degrees or three degrees or four degrees and we don't know what the climate will look like at that point. Will it be hugely disruptive for mankind, will it be catastrophic, will it be fatal? We just don't know these things. So we have to get to net zero because that's the point at which
climate change stops getting worse and anything less than net zero just won't do. The second point is that I don't think we can get to net zero by a chosen date using a carbon tax. I liken using a carbon tax to driving a car but looking only in the rear view mirror. So the main problem is we don't actually know what carbon price we need to aim for. There's loads of agreed targets. The best that we can do is set at a carbon price, put it into the economy, run the economy for a few years then three or four years down the road we can assess the, you know, we're going from assessment to emissions and then we just sort of have to adjust and come out then, so we don't know what we have achieved until you know in retrospect, other than in retrospect, and we don't know what we're aiming for, know what carbon price target we will need, in order to get to 2050 and net zero. I mean would it be a £100 a ton, £200 a ton £500 a ton, we just don't know and because there's no defined target, then every time the government tries to set a higher carbon price, the lobbyists and the naysayers will push back. T
hey'll tell us we're going too fast, that we're going to break the economy, that we're going to make the UK uncompetitive, you know, that we need to start slower, give industry more time and all of those things and because there's no absolute price that we all agree on, as the carbon price we need to aim for it's always open to challenge. Which means there'll always be compromises, which means that the carbon tax is most unlikely to be effective where we need to go. As I say, it's like driving a car looking only in the rear view mirror. An emissions trading scheme doesn't suffer from that problem because we're talking about emissions, not a carbon price. We have a target to aim for it's net zero by our chosen date you know, we can measure our emissions now and we can plot a trajectory that will get us from where we are today to net zero by our chosen date and then just drive the ETS towards that. And the lobbyists and the naysayers can argue about you know, how fast to go at the beginning of that trajectory and how fast at the end of the trajectory but ultimately we'll steer to a target net zero at 2050. That's the fundamental difference that a carbon tax does not give us. So we have a target with an emissions trading scheme, it's one that we can see and we can drive towards and we're prepared to. With a carbon tax we don't know what we're aiming for or we're just driving the car looking in the review mirror, so as I say, I always think a carbon tax is going to come up short and we simply don't have the time we can afford to take. Okay that's my picture I hope you managed to hear.
Jason: Yeah that was yep we did hear you John thank you very much for that thank you for outlining your Case, your position.
keith we still can't hear can't hear keith so we're going to carry on um right so we've heard from from hannah and we've seen you i'm afraid i can't hear a word that you're saying well i can't see keith anymore so i don't think anybody else can um technicalities are getting to us um yeah right i'm going to right
Okay, at this point I suggest we go Duncan or Julian who would like to kind of come in at this point Julian George come in with your position on carbon tax and ETS and then we'll go to Duncan for some interesting information after that, so Julian if you'd like to give us your presentation. You may need to unmute, right.
Julian: Yep can you hear me now right yeah okay I'm just a member of the Green LibDems and one of a group of us who are advocating and lobbying for a carbon tax. So I'm here to speak in support of the carbon tax but also a dividend and a broader adjustment and I also do have some comments on ETS. So in a way it's kind of fortunate that
I've come in after John. Right! We all know climate change is a critical threat. We can motivate people and corporations to reduce greenhouse gas emissions more quickly by making them pay for emissions through a carbon tax and we must protect the poor by repaying the tax revenue to people for a dividend, we also need a broader carbon tax to prevent polluting industries just moving it abroad.
A carbon tax is widely regarded by economists as the most cost-effective way to motivate emission reductions using market forces to incentivise emitters to change their behaviour. One of the requirements of the fair competition is that people don't get a free ride at other people's expense and a carbon tax does this by taxing polluters. In terms of how we make it work corporations are going to have to declare the carbon content of whatever they're producing, so if it's fossil fuels, it'll be based on the amount of carbon per unit of fuel and the quantity. They pay this to the tax authority and this feeds through the supply chain.
So one of the advantages of taxing in this way is that it affects of all the things which depend upon this. And it can be implemented in one country. It should start to affect price-sensitive purchases quickly. It should also affect long-term investment decisions because investors will adjust their plans for the cost impact over project and asset lifetimes. Now having,(we need an escalating carbon price) but having a predictable carbon price is important because it means that investors will be able to make sensible decisions they'll have some certainty. Building risks into long-term investment decisions is going to tend to cause people not to want to invest in the long term, because they don't know if they're going to make a profit or lose their shirt. Now, it's often claimed that a carbon tax will hurt the poor because some people on low incomes do spend much of what they do have on domestic heating and the solution is a carbon dividend.
The tax raised as revenue - it could be repaid to all UK residents on an equal per head basis and that makes the policy both tax neutral and progressive and it also makes it much easier to sell to the people (to get), to make it acceptable. We also need to deal with carbon leakage which is when actions taken to reduce emissions increases elsewhere, like industries relocating to other countries, or people switching from domestic products to imports we need to reduce global emissions not just move them around and the answer is the border carbon adjustments, taxing imports based on the emissions from manufacturing and distributing them up to the point of the import and this matters a lot to us, because the UK imports so much. We've got to take some account of World Trade Organization rules. This has been studied and my understanding of it from what I've read is that we should be able to do this within the rules, provided we are implementing it in a fair way and not trying to use it as a piece of disguised protectionism. And also need to minimize adverse media because we've got to bring other countries with us, which means we have to cut emissions in ways that work.
Jason: And we've lost Julian; this is going really, really well um yeah a good pitch for improved broadband into rural or even urban areas I think! Duncan at this point can I bring you in until we can resolve the issues around Julian and Keith and tell us what you were can .. What can you tell us?.
Duncan: Sure. So first I ought to check, can you hear me okay? Yes good that's good news. So I'm speaking from headquarters, LibDem headquarters, because I'm a member of the Conference Committee and I've been doing Conference Committee things this afternoon. So much of the bandwidth is being taken up by organizing conference that actually, the wi-fi connection here is really rubbish so I hope I don't drop out as well, but cross-fingers it seems to be all right at the moment. So the reason I'm speaking is primarily as a member of the Federal Policy Committee and also the Chair of the Party's Climate Change Working Group that produced the paper tackling the climate emergency which we debated at our conference last year and adopted. In my professional life I'm also, I used to work for Chatham House Royal Institute of International Affairs on international environmental issues. I still do some work for them and quite a while ago now I published a really boring book called Trade and Climate Change which went into quite a lot of the sort of cross-border issues we've been talking about and had quite a complex .. Okay do you want to go back to Julian, Jason, I hadn't got very far
Jason: No, John if we come back to you and come to Julian after Duncan and we'll come back to John later. Okay sorry
Duncan: so I carry on then, yeah..
Duncan: Yeah so the book looked at border tax adjustments I'll come back to them in a moment. But my main reason for speaking to you today is to point out what the policy paper that Conference agreed last year said, and we had quite a big section on greening taxation and we proposed a whole set of sort of relatively minor issues widening the list of energy and emission savings products enjoying the lower rate of VAT, graduating stamp duty land tax by the energy rating of the property (which is quite a big impact), graduating vehicle exercise duty by fuel efficiency, reducing company car tax rates for electric vehicles, reinstating the exemption for renewable electricity from the climate change levy, increasing the carbon price for fossil fuels, which is the kind of sort of proto-carbon-tax that British economy has at the moment, and reforming air passenger duty to target the most frequent international fliers.
So it wasn't like we were shying away from tax changes; some of those are really quite big and substantial. But the point Hannah was making I think: that the structure of energy and carbon taxation in the UK economy is quite incoherent at the moment. So what we said as well was that proposals were often made for an economy-wide carbon tax in the UK, but the combination of the carbon price floor, the climate change levy and road fuel duty for transport already raised the prices of the bulk of fossil fuel use and the proposals that I just talked about would tilt the balance further towards renewables and electric vehicles.
But there do remain parts of the economy where carbon emissions are not priced and given all everything that everyone's talking about the urgency of the climate change crisis etc. etc., we would review the potential for the more consistent application of carbon pricing in the UK. No major reform would take place however until our energy efficiency policies have been effective in addressing fuel poverty and this is what the Policy Committee is now about to do. We are setting up a group, a subset of the working group that produced the climate change paper and we are starting work immediately after Conference on coming up with detailed proposals which we hope to bring to you, FPC willing, to the next conference and we'll certainly look forward to talking to Hannah and colleagues in in doing that and I was on the the call where she launched her paper earlier in the week. It's really interesting stuff there.
But I do want to stress that point we made at the end. We set out in the paper a 10-year emergency program of insulating basically every domestic house in the UK. We think it could be done over 10 years. It's a massive effort but it is the first thing to do in reducing emissions from housing, from the building sector and the problem is it is true that energy use varies with income and by and large richer households tend to use more energy and emit more carbon but the other well, an other major source of variation is the energy efficiency of the building they live in and so you do have quite a lot of poor households particularly in the private rented and private owner occupied sector (not in social housing which, by and large has done much better in improving the quality of their homes) but in the private sectors you do have quite a lot of low-income households who live in really crap housing and they leak energy through their roofs.
And the problem is if you raise energy prices for these people, what do they do about it?
For heating the only option they have is to turn down the heat which is what a lot of them do at the moment, which is why we have a problem with fuel poverty. Or they need to shell out a large amount of money to put a better boiler in or preferably, insulate the house. If they live in the old solid wall houses you're talking about tens of thousands of pounds there. So what we said in the paper is that we would do this work, we would do it free for low-income households through government programs over 10 years before we brought in any major impact major carbon tax change that would affect their standards of life.
Now the clearly you can use the revenue from carbon taxation to compensate people; I agree with that entirely. I really have difficulty with the idea of a per capita dividend across the whole of the UK population because that is really, I mean you could say it's not targeted, badly targeted; it's not targeted at all. And if you think about it, large families living in well-insulated houses would be massive gainers from that because they already don't use much, spend much, on energy because they live in a good house.
There are lots of them so
benefit from the per capita dividend, whereas the single old pensioner living in a really old, big house that's badly insulated, would almost certainly suffer.
And there are also impacts of course from the carbon tax on business and manufactured products prices that you have to consider as well. So we're not saying despite all of what I've said, we're not saying that the idea of an economy-wide carbon dioxide is a bad thing, we're saying we just need to look at it carefully before we come out with any proposals that would be put into a manifesto and those of you who've been around in the party for longer than 10 years might remember the row we got into over the mansion tax proposals in 2009 to 10 or our local income tax proposals in the 2005 election. And both were good policies but the problem is gainers from these policies, they don't change their vote, they don't make any sound during the elections at all because by and large, they don't believe they're going to get the benefit until they see it.
Whereas losers from the tax changes (and we know perfectly well that the press and the other parties will identify exactly who the losers will be), they scream and that's what all the focus is on.
So if we're going to propose major change changes like this we really have to be very careful and that's why we're saying we will set up a group to try and look at the impact in more detail talk to people I will absolutely want to talk to the Green Lib Dems and I do pay tribute to you for raising these issues and just think through these things in a bit more detail. So that's mainly what I wanted to talk about.
I just want to add a couple of things about emissions trading scheme because in my work for Chatham House that I was talking about before, we did look a bit about taxes and emissions trading schemes and there are benefits and costs to both and John and Julian are both right; neither of them are ideal, they both have good points.
There is one additional problem with an emissions trading scheme that you don't see with the tax, which is that because you have to have somebody who is going to hand out the allowances to set the level of permits at the beginning, that process itself is really subject to political lobbying and we've seen that in the EU emissions trading scheme and it's very very difficult to insulate a scheme from that and you don't have that to the same extent for carbon taxation, though of course you will have industries, heavy industries calling for exemptions and stuff like that, so you get a bit of it but it is a major issue with the emissions trading scheme.
And I would also say, so the final point is, don't get obsessed with pricing. I always like I it when I hear people say that economists have argued that, you know, carbon pricing is essential to reduce emissions.
Well you know economists don't fight elections and so you have to think about the impacts on votes, as I said, but also there is actually quite a strong, there is I think, in general, a stronger case for regulation in achieving our aims and actually that's why the bulk of the policy paper that you approved last year talks about regulation and not about pricing instruments, though I think definitely pricing instruments have a role to play.
For example, although the carbon price floor has helped to drive coal off the electricity grid, it's the Contracts for Difference system and the old Renewables Obligation that has actually boosted renewables on the grid, and that's not a pricing element at all, that's a regulatory instrument. So don't get obsessed with pricing; it has its role but it's not the only thing. Thanks very much.
Keith: Okay can you hear me now? Whoa! Hello, folks. I am so sorry!! I've no idea what's going on; we will try and sort out the technical hitches I'm smiling outside I'm not sure I'm smiling at the moment inside so I have been hearing quite a lot of what was going on even when you couldn't see me and I am delighted to be able to say that you can now hear what I have to say so can I add my welcome to everybody on the speakers panel.
I'm not sure John was able to hear Duncan I'm not sure yet whether Julian is back, just a minute let me see, Julian can you speak?
Jason: Can we hear you, Julian?
Julian: Yes, I'm back.
Keith: Okay well we will come back to you very briefly, Julian. I'm unable to see you at the moment, but we can hear you apparently so one of the things that I would say is that we are I think Jason can put his thumbs up if I ask him the question: we have arranged a Zoom meeting after this so Jason will put a Zoom link into the chat box, so anybody who wants to come with us to a Zoom meeting afterwards, we can continue this discussion and our experience with Zoom over the summer, with 40 plus events, was perfectly okay so I am hoping that we can go to a Zoom meeting and continue some of the discussions and some of the debates. I missed some of the nuances between carbon tax and carbon emissions. I'm sure the audience has probably picked up more than I have with that and we will have a discussion later on. So Julian, come back and finish your arguments, if you are able to please.
Julian: Right thank you very much Keith. First of all I haven't heard everything but I heard most of what Duncan said. It was quite impressive. I don't necessarily agree with it all but it's definitely food for thought, which we need to take on board. He's also stolen some of the things maybe that I was going to say about ETS but if I can comment on that briefly: central authorities set targets for emissions and sell or give permits to polluters. The best known ETS scheme is the EU scheme and it's seen quite a few problems, like overallocation windfall profits and so on and as with Duncan I think any ETS risks similar problems because the central authority has to make complex decisions about particular sectors based on limited knowledge, and the people ultimately responsible are politicians.
Complicated plans and processes tend to go wrong because people in positions of power overestimate their own abilities and, sorry to labour this, but this is important throughout the way the world works and I see it regularly in my work (computer systems development) which go wrong so often to the point that the fashion now is to pretty much junk complicated plans and move to a small scale agile methodology.
A carbon tax won't automatically work well but it's more likely to work well because it's simpler and it is much more transparent. There's also this argument about appropriateness that by implementing an ETS the UK can somehow prevent us from passing thresholds which will lead to catastrophic changes. The first thing is, whilst there may be some tipping points, a lot of the processes that actually happen that affect global warming are continuous rather than leading to sudden jumps, so
you know if you melt a small amount of ice in the arctic it slightly reduces the amount of light reflected back into space; it doesn't lead to a massive change. Secondly, we would need to know what these thresholds are and what level of emissions would lead to a temperature rise which would then lead to particular, catastrophic changes. That's very complex and we can't work out exactly what those things are.
And thirdly, the UK is responsible for about one percent of emissions and it's far too small for our country on its own to stop us from passing thresholds and this sounds bad but it's not an argument for doing nothing and we need to do whatever works best. And my view is that we should be trying to focus on reducing our emissions as quickly and efficiently as possible rather than managing by targets. We shouldn't have a target of 2050 for zero emissions, we should have a target of doing it as soon as possible, which I hope would be 2040 to 2045 for territorial emissions and with luck, before 2050 for consumption emissions.
Now I think that a well-designed carbon tax combined with a dividend and border adjustment can help to do that. I take Duncan's comments into account, but I think they're more about how the process you go by in implementing them, as opposed to saying that they're not something that will help in the long run. There is some evidence of success. There's a long-running carbon tax which refunds most of the resulting revenues to people in British Columbia. It's quite popular and there is some evidence that it has reduced emissions without significant economic damage and to come back to Duncan's point, obviously we still need policies to reduce emissions by sector: insulation, renewable power, electric cars, and so on and I think that most of policy paper number 139 which lists all these is actually very good indeed. But a carbon tax will incentivize these so it can complement them and thank you very much for listening.
Keith: Okay Julian, thank you, thank you very much. I am interested in the fact that we have got really quite a lot of time as far as elections are concerned to get this right and I think we should take our time to do that. I think we need, we had a debate yesterday about universal basic income and there are a couple of views on that and I know Steve Mason has a view that we should not be using carbon tax income to fund universal basic income, although it may be a way of getting dividends to the general population, in a way that is progressive rather than regressive.
So there are so many complications that I think rather than go and set up a policy that is going to be as Duncan suggested, not electable, we do need to make sure that we get the whole of this sorted in a way that is not only sensible politically but also sensible from the voting public's point of view. Hannah you've been listening to all of the debate; have you a view about the balance between the ETS and carbon tax and what are your thoughts about the carbon dividend and how we might use that, because the carbon dividend is that is the element of it that makes it more appealing to the voter, I think.
Hannah. Thank you, Keith, and thanks everyone else for your comments. I think that it's important to remember what the current proposals are on the table for the UK, because if we're talking about a debate between tax and ETS, which is the situation the UK is currently in, we don't actually know which one of those is going to be implemented from January. They're actually much of a muchness, because the carbon emissions tax that's being proposed, and is currently under consultation, has free allowances embedded into it, and that's based on the ETS system, so that big emitters would only pay above the allowances that they've already been given. So, in that context, it's not hugely different.
I agree with what's been said about it being easier to legislate for a cap on a trading system than it is to legislate for a set price trajectory of a tax. Taxes are easier to change than emissions caps, but I also totally agree that - and actually from a lot of people we've spoken to throughout the course of our commission, we've had lots of evidence sessions, and the idea of a price, if it could be protected from change, or be guaranteed in some way so you see that long-term trajectory, that is what gives people and investors the confidence to make the changes that they need to become net zero ready. And what I would say about an ETS, especially where free allowances are involved, is that prices are often low enough that you don't even necessarily have to avoid the price, because, for example with aviation, 90% of those emissions are free allowances anyway. So I think if we're talking about deep decarbonization across the economy, whether you're doing this with a tax or a trading system, you need to get to a point where there are no more free allowances, and that's where this question of Border Carbon Adjustments comes in.
In terms of the dividend, we've done a huge amount of polling around pollution pricing. We did it during coronavirus, which is even more striking that, even during that time, we still found quite high levels of public acceptability, but that increased when it was seen to be part of a kind of system-wide approach to decarbonization, and I think that's really important.
I think the idea of a dividend, absolutely for the poorest in society, does improve the popularity of the concept, but we've also seen that - I've seen quite a lot in the chat about people talking about - hypothecated taxes in other areas of the world where the revenue is being seen to invest further in the Green Transition, then generally it seems to become a bit more popular. And in our polling, certainly even in the height of coronavirus, people wanted the revenue from a carbon tax to go into green energy solutions rather than even necessarily things like the NHS, so I think that's interesting too.
And then just quickly, I'm aware I'm stealing time, but given that I have the floor, just to respond to something that Duncan said, I think this point about having a gap between when you announce the tax and when you introduce it is really important. Where we've seen carbon pricing go wrong before, is where people haven't had alternatives and they've just been saddled with big costs and they haven't been able to, for example, switch to an electric vehicle or insulate their homes. We've made the point that electricity is different; we've made a lot of recommendations around how you can bring
down the base costs of electricity bills anyway, by taking decarbonization levies off them and moving them into general taxation, because we need electricity to be cheaper than more polluting sources, and it's not at the moment. As you said as there's lots of people living in rented accommodation; they can't do much about energy efficiency. So we've said the government's target is to have all buildings in all residential buildings in the UK to be EPC band C by 2035. We can debate that date, but what we've said is there needs to be a landlord obligation on things like that, as well as ending the sale of gas boilers by 2030 etc. So there's a lot more other regulation that can feed into this, but absolutely the crucial point is that we need to help use this as a behavioural change model to help people switch to alternatives. We can't just saddle people with huge costs; and on the dividend, I personally think it's incredibly inefficient to use all the revenue to pay high income households back for something when actually what we could do is certainly use it to cushion costs and alleviate fuel poverty. But can we not invest that revenue elsewhere, to help further the impacts of the carbon tax, and invest in the Green Transition?
Keith. Okay the one thing you have done just now, Hannah, is to make clear that it is an extremely complex situation. There are so many variables and getting the balance between them correct is complicated. I have just noticed in chat a comment from Jane Anderson. I did have the heretical thought that when hard to insulate homes are badly damaged by fire, flood and so on they should be demolished and replaced, rather than repaired, on environmental grounds. That's an interesting question about embedded carbon costs of buildings. Do you want to pick up on that, Duncan, and suggest whether the demolishing rebuild is a strategy we ought to do? It certainly didn't seem to be working in the 60s because we've had to demolish a lot of 1960s flats that were badly built.
Duncan. Depends how fast you think houses are going to be badly damaged by fire, flood etc. I'm not sure it's a very systematic approach to the problem.
I did want to say something about border tax adjustments if that's okay. The theory is nice that you protect your own industry from the added costs of a carbon tax by rebating the tax at the point of export or applying the tax at the point of import equivalent to what they would have paid if they've been produced in the UK. The problem with that is … There are huge practical problems. You need to know the embedded carbon in every manufactured or processed product. If you're going to do a system comprehensively, you need to know the embedded carbon in every product and every commodity that's imported, so that is a mixture of the energy used for extracting the raw materials, for processing it, for manufacturing and for transporting it to your country. International supply chains being what they are at the moment, that means crossing several countries, probably going through elements of production or processing in several different countries and you need to know, for example, the carbon intensity of the electricity grid in each of those countries - and that's not static, because almost every country is decarbonizing so you know something produced now in China will be less carbon intensive than something produced five years ago in China. So, if you start to look at that, it becomes effectively (I agree with the point that it probably is compatible with WTO rules and actually that's partly what I was writing about at Chatham House about 20 years ago, whether it's practically possible to do that) very difficult.
So, in practice, what you would have to do is focus just on the small category of the most carbon intensive products you import or export. Things like, you know, heavy machinery, cars, metals, stuff like that; but again, you just have to think through - you can't just say oh we can solve the problems with Border Tax Adjustments - it's far more complicated than that.
Keith. Okay. We were supposed to finish by half past seven. I understand, I think, we may have another four or five minutes leeway before we actually get thrown out of here physically by headquarters, but if people want to start going to the link that Jason put in the chat. I don't know if you can put it in the chat again, Jason, if it's disappeared from everybody's view; and if Jason goes to that room to ensure that when we - when people - get there, so that we can start that meeting. I will carry on here for another minute or two with our speakers, and then we will try and join you and carry on this debate, because it is a very complex area, and I would like to think that the Green Liberal Democrats can lead the way in discussing this. We talked yesterday about UBI, and that raises a whole different set of issues in terms of taxation and benefits, which I think we probably need to have a complete rethink about the economic structure of governance in this country, and I think we do have time to do that as Liberal Democrats; it may well be the big idea that actually gets us back into a situation where we can have some political influence. Let's hope. Julian, are you still with us? No apparently not.
Julian. I am still …
Keith. You are still with us! I was going to ask you briefly about your thoughts on the dividend and what we should do with the dividend in your view.
Julian. The idea is to use it to do good, as well as being politically popular. I mean it's usually sold as a way of getting people to support us, and I think it would be effective on that basis, but actually we don't want to make poor people even poorer (that's an increasing problem in the country). Hannah and Duncan's comments are very pertinent, but I don't think they're an argument for not having a carbon tax dividend; I think they're an argument for thinking more carefully about what you do with the money that includes
but that includes not just topping people's benefits up in the short term because they've got a bad landholder in a badly insulated house you've actually got to fix the longer term problem with that house and if necessary fix the problem with the landlord. I mean this sounds like a case for sticks and carrots to me.
Keith. Okay, thank you. I see Jason is with us. Is the zoom room open, Jason?
Jason. It is I'm just checking with moderators to make sure that, if I leave, I don't suddenly close this session first, that's the issue.
Jason. The Zoom meeting is open, and I'll be over there.
Keith. The Zoom meeting is open. Okay, well if everybody makes a note of that link, we hope to see you in Zoom. I shall feel happier in Zoom because at least I know I can work Zoom with my computer. It's been a bit embarrassing this time yeah. Okay before we go let me say I want to say very much thank you to Hannah, I want to say thank you to Julian and John for presenting their sides of the case, thank you to Duncan for filling us in in terms of what we are capable of as a party in terms of developing this, and indeed, you know, the things you said in terms of leading us on the policy. So thank you all, and thank you to the audience. The audience numbers are going down - I hope they're going down simply because they're going off to our Zoom room. So I am going to take myself off to the zoom room next, and hope and see you all there.
Duncan. Thanks very much Keith, thanks to Green Libdems for organizing this.
?? Thank you, Duncan, thank you Hannah, thank you.
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