Business forums at COP26 revealed what company bosses need from carbon pricing to facilitate decarbonisation – and it is not ETS!

The recent Sustainable Innovation Forum 2021 and Hydrogen Transition Summit revealed that business leaders want to decarbonise but are held back by the lack of price ambition and predictability of the Emissions Trading Systems (ETS) carbon pricing regime. They argued for an economy wide, strong, predictable, preferably global, carbon price to facilitate decarbonisation, ….”The best (thing) governments can do to promote hydrogen is a global carbon tax” Seifi Ghasemi Chairman, CEO and President of Air Products.

The management consulting company Roland Berger advocates a high carbon price to render decarbonisation cost effective, at a level only currently found in Sweden and Switzerland (alongside ETS, with Climate Income in Switzerland). Stefan Schaible, Global Managing Partner, Roland Berger, stated that COP26 had been as he expected, not the lowest or the highest step in the right direction. There was however, a step change in opinion on the environment, (the German government even includes Green Party members!) so there is continuing pressure to reduce emissions targets……“We need action. We cannot go on like this for certain sectors such as energy and transport. Only with carbon at $100 per tonne will profits shrink dramatically or even halve so they (the industry sectors) have to move”.

Dr Irene Feige, Head of Circular Economy Initiative at BMW group stated that circularity only rises the price of a car by 2% but it is hard to achieve at scale because the economy is not geared up for well regulated and standardised recycling and carbon free processes are too expensive. We need a clear signal from politicians with a high carbon price in most markets…”The signals should be stronger and clearer so we can act now in order to get more circularity into the cars”.

At the Hydrogen Transition Summit Ian Parry (IMF) stated that carbon pricing must cover the bulk of global emissions and would need to be above $100 per tonne to give green hydrogen and biogas the level playing field they need. A Drax spokesman stated that such a carbon price would render green steel cost effective and a Mitsubishi spokesman pointed out that it already makes sense to buy a hydrogen truck in Switzerland (which costs £200k more than a diesel truck) because of the carbon price!

Meanwhile the proposed EU ETS solution to widening carbon pricing, a Buildings and Transport ETS is meeting a lot of opposition, especially from Eastern Europe. The UK has just done a volte face on the policy because the social costs will be too high!  Austria, Germany and possibly Norway, whose coalition government has produced a white paper on the policy, are adopting Climate Income alongside ETS.  Climate Income returns the carbon price to householders as a dividend to mitigate against rising fuel prices, thus enabling the carbon price to rise high enough to price out fossil fuels and price in decarbonisation. It can be done!

* Catherine Dawson is a Lib Dem member from Devizes.

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  • The Greens in Germany are driving the country to economic suicide. They propose to shut down the newest and most reliable nuclear stations thereby taking out 8.5 GW of base load energy. Germany can expect power cuts unless they fire up more coal fired stations as they have in the recent past. All of this when gas prices are soaring and Russia is gradually acquiring a strangle hold.

  • @ Peter “The Greens in Germany are driving the country to economic suicide”.

    That’s not what Politico is reporting : “As expected, party co-leader Robert Habeck will be in charge of steering Germany’s economy toward climate neutrality without killing off growth at the head of a new climate and economy ministry”.

    Do you think you know better ?

  • How are the Green’s driving the country to suicide, they are a minority government party in a three way coalition, The power is with the SPD.
    Interestingly latest oponion poll has the Greens on 16 and and FDP 14%, The Greens might become the third party of the trio.

  • Neil James Sandison 1st Dec '21 - 5:07pm

    The next industrial revolution has already begun starting with the circular economy . transitioning to an economy not based on fossil fuels or its derivatives requires leadership and direction currently not being provided by the old economics . carbon pricing that discourages cheap carbon based products flooding into our markets ,incentives to change production methods and ensuring fuel sources change without serious penalties to low and middle income households as outlined in carbon fee and dividend is catching on in many countries an EU ETS agreement whilst outside the EU would require and International bi-lateral trade agreement with Europe . Can the planet wait that long industry as outlined in thoughtful article indicates they will not .

  • Germany invested heavily in renewables as part of their Energiewende transition. The result is that they now have the highest electricity prices in Europe. When the wind is low, Germany is prone to power cuts and some outages have damaged energy intensive industries. When the wind is high, the turbines produce more electricity than the country can use. Since supply must balance demand and energy cannot be destroyed, the electricity is sold at negative prices to avoid damaging the grid. Paying other countries to take the excess tends to destabilise the energy markets and since neighbouring countries also have turbines and similar weather, they are not always willing customers.

    The high electricity price is making German industry less competitive than it once was and energy intensive industry is now threatening to relocate. The main problem is when there is insufficient wind because Germany is running out of alternatives. They are closing down all nuclear stations following the Fukushima disaster and Germany is dependent on Russia for gas, but Nord Stream 2 is blocked by strategic and political issues, not least the power it would give Putin.

    The answer to intermittent wind is therefore coal and Germany last year commissioned Dattein 4 , a 1,100MW coal fired station. The Greens will close this down, together with the rest of the Coal and nuclear generation. With almost all of its reliable baseload generation gone, it is difficult to see how Germany will keep the lights on.

  • Christopher Moore 1st Dec '21 - 6:58pm

    Merkel took the decision to shut down Germany’s nuclear power plants early, following Fukushima and a marked rise in the poll ratings of and pressure from the Green Party (and other environmental groups.)

    Given that the large start up and shut down costs of nuclear plants have to be amortised over their long life, this was an economically and environmentally poor decision.

    Germany is not in an active earthquake zone. There are no geological risks to nuclear oower, as in Japan.

    Waste disposal is a serious issue, but the issue isn’t qualitatively changed by the physically small volume of waste created by the annual running of the German nuclear power plants.

    They should have been run till the end of their lives. This would have allowed a more orderly Energiewende.

  • Peter 1st Dec ’21 – 6:25pm:
    With almost all of its reliable baseload generation gone, it is difficult to see how Germany will keep the lights on.

    As I understand it, they are proposing to build more gas-fired power plants…

    ‘The green energy transition has failed’ [November 2021]:

    Government relies on gas-fired power plants

    In the coalition negotiations, the SPD, Greens and FDP agreed to build new gas-fired power plants. At the same time, the Greens also want to phase out gas-fired electricity from 2040. With a normal time for planning, approval and construction of a gas power plant of four to eight years, a potential operator would be able to operate such a plant between 10 and 14 years. During this period, a gas-fired power plant can only pay for itself if electricity costs are extremely high. It is questionable whether it will be possible to find investors who will take the risk without government guarantees that a profit can be made.

    With the shutdown of the last nuclear power plants, these gas-fired power plants would have to compensate for the deficit in electricity generation. However, this worsens the CO2 balance, because gas-fired power plants also emit CO2. You cannot achieve the climate protection goals in this way; on the contrary, you move even further away from them.

    Electricity shortage economy the most likely scenario

    That is why we are heading towards an electricity shortage economy, with all the consequences that this entails. Electricity costs will continue to rise and more and more industrial companies will leave the country. This will inevitably lead to a reduction in our economic output. This also has consequences, namely on income from taxes and social security contributions, which are then no longer available.

  • @Christopher Moore – Correct. It is even more of a strange decision, given that the actual damage in Japan was due to a Tsunami acting on a poorly protected coastal reactor situated on an island.

    Merkel made the strategic decision but details like timing will probably be determined by the Greens. The amazing thing for me is that ideology appears to outweigh logical outcome. I have made great effort to avoid the phrase, “common Sense”.

  • Chris Moore 1st Dec '21 - 8:41pm

    You are right, Peter, that it was the tsunami after the earthquake that did the damage.

    I lived in Japan as a child and follow Japanese developments quite closely. The Japanese nuclear industry has a very poor culture of secrecy and resistance to criticism. Reform since Fukushima hasn’t been thorough at all.

    Unfortunately, in spite of improvements in nuclear plant design, there remains a tiny chance of a catastrophic nuclear accident somewhere in the world. Sadlydefensive institutional imperatives in the nuclear industry tend towards the Japanese

    I’m a pragmatist. I think nuclear has to be part of the response to global warming. But I wish it weren’t in view of that tiny risk.

    The Greens in Germany have been irresponsible on this issue, as has Merkel.

  • Chris Moore 2nd Dec '21 - 7:12am

    What it does show is that the Green Party – in Germany at least – can’t be trusted on the issue of global warming.

    Sadly, the same lack of seriousness and over-riding populism can be observed in the UK Green Party.

  • Brad Barrows 2nd Dec '21 - 7:25am

    @Chris Moore
    FYI, there is no ‘UK Green Party’. There are a few independent green parties in the UK, the largest of which is the Green Party of England and Wales.

  • The possible conflict between Russia and Ukraine would lead to severe sanctions being imposed on Russia by the West. The EU would ban imports of Russian gas which would be devastating for Germany. There is an important lesson here concerning strategic energy security.

  • Peter: sanctions are meaningless, it is military support that the Ukranians will need, otherwise they will be overrun .

  • Peter Martin 2nd Dec '21 - 11:28am

    If anyone is going to drive Germany to economic suicide, my money will be on the FDP who will take a far too narrow view of the country’s responsibility to the EU as a whole. That’s a worry if they have too much say in fiscal and monetary policy both domestically and within the EU as a whole. Germany has linked its own economic fortunes to those of the EU. If the EU fails so will the German economic policies of the last few decades.

    Having said that the German Greens aren’t quite so green as they might once have been:

    “The Greens are now centrist, eager for power, with a surprisingly gimlet-eyed view of international affairs and of how Germany needs to change without alienating big business.”

    Whether they will also compromise on their well known “atomkraft nein danke” slogan remains to be seen. But it is hard to see how Germany can possibly meet meaningful commitments to reducing CO2 emissions by closing down is nuclear power stations.

  • Peter Martin 2nd Dec '21 - 12:09pm

    @ Catherine Dawson,

    “Climate Income returns the carbon price to householders as a dividend to mitigate against rising fuel prices, thus enabling the carbon price to rise high enough to price out fossil fuels and price in decarbonisation. It can be done!”

    Can it?

    Householders at the moment nearly all are net emitters of CO2. If our fossil fuel bills rise by an amount due to a price on carbon then giving us back the same amount simply enables us to afford the higher prices.

    In any case suppose most people did the desired thing and there was a very low level of fossil fuel usage, as we would like, there wouldn’t be enough revenue collected from a price on that to be able to support the higher prices for a greener alternative.

    Unfortunately for any pricing structure to work there has to be both an advantage in going green and a disadvantage in not doing so. If we are to make the transition from something which is cheap but environmentally costly to something more expensive but environmentally better then someone ( ie us! ) will have to pay.

  • Catherine Dawson 2nd Dec '21 - 4:11pm

    This was the experience in British Columbia which has had CF&D since 2008. The policy has cut emissions by 5 to 15% from what they would have otherwise been, encouraging the purchase of more fuel-efficient cars, and decreasing consumption of natural gas use, all while supporting increased employment.

    Analytical Advisors, an Ottawa-based firm that monitors Canada’s clean technology sector, reported in CCL news in (20/9/16) that sales in British Columbia’s clean technology industry increased by 48 percent in two years after the introduction of the province’s revenue neutral carbon tax in 2008.

    Other policies should support retro fitting, either paid for by other funds or as Policy Exchange has suggested allowing people to have a loan based on future carbon payments. The rising price of carbon will incentivise industry and consumer more than the market led price as shown by the Swiss truck example. The dividend will fall as carbon gets priced out which is a danger of promoting it as an UBI but by then greener goods and services will have the market share. The policy has survived two elections in Canada since it was introduced.

  • Neil James Sandison 2nd Dec '21 - 8:37pm

    The more we dither and dont do . the higher the emission levels rise the more damage we do to the environment .The more polluters will find loopholes in ETS schemes led by weak governments . Peter Martin i agree with your last paragraph that is why there needs to be a dividend for low and middle income households as part of a carbon pricing policy .

  • Neil James Sandison 2nd Dec ’21 – 8:37pm:
    …the higher the emission levels rise the more damage we do to the environment.

    On the plus side, rising CO2 levels are greening the earth…

    ‘Carbon Dioxide Fertilization Greening Earth, Study Finds’:

    From a quarter to half of Earth’s vegetated lands has shown significant greening over the last 35 years largely due to rising levels of atmospheric carbon dioxide, according to a new study published in the journal Nature Climate Change on April 25 [2016]. […]

    The greening represents an increase in leaves on plants and trees equivalent in area to two times the continental United States.

  • Peter Martin 3rd Dec '21 - 3:49am

    @ Jeff

    So, carbon dioxide (CO2) being released by the burning of fossil fuels is actually good for the environment? If plants need CO2 for their growth, then more of it should be better. We should expect our crops to become more abundant and our flowers to grow taller and bloom brighter.

    However, this “more is better” philosophy is not the way things work in the real world.

    Another quote from the article you linked to is:

    ‘The beneficial impacts of carbon dioxide on plants may also be limited, said co-author Dr. Philippe Ciais, associate director of the Laboratory of Climate and Environmental Sciences, Gif-suv-Yvette, France. “Studies have shown that plants acclimatize, or adjust, to rising carbon dioxide concentration and the fertilization effect diminishes over time.” ‘

    I read recently that farmers in Greenland can now grow potatoes whereas once they couldn’t. So there are some benefits to a warmer world! But, we do need to ask: are a few extra potatoes worth the damage that is being done elsewhere?

  • Jeff is absolutely correct. CO2 is plant food, converted by photosynthesis to sugars which are the building blocks of carbohydrates, the basis of cellulose and plant structure. Commercial growers use high concentrations of CO2 in their greenhouses to boost plant growth. Satellites show the recent greening of the planet and food crops around the world are at record yields. If CO2 ever reduced to less than 200 ppm plants would suffer badly and at 150 ppm most life will have perished.. We are very much in sub-optimum territory at present.

    Some warming is actually beneficial. Life thrived during warm periods and almost died out during cold periods. Even in our current moderate weather, cold spells kill far more people than heat waves.

  • Jenny Barnes 4th Dec '21 - 9:51am

    @ Peter Martin
    “Householders at the moment nearly all are net emitters of CO2. If our fossil fuel bills rise by an amount due to a price on carbon then giving us back the same amount simply enables us to afford the higher prices.”

    Wrong. Suppose your gas heating system costs £1000 pa to run, while an equivalent heat pump system costs £1100. So you would stick with gas. Add a 20% tax on gas, and the gas system now costs £1200 to run, but you can still afford it, as you’re getting £200 back. Or you can switch to the heat pump, which costs £1100 and you get £200 back, so your now paying net £900. Sounds workable to me.

  • Peter Martin 3rd Dec ’21 – 3:49am:
    If plants need CO2 for their growth, then more of it should be better.

    Plants (including trees) evolved to grow best and have greater disease resistance with atmospheric CO2 levels higher than today…

    ‘How commercial growers improve crop yield’:

    Carbon dioxide levels on Earth have in the past been much higher. Plants evolved the capacity to use higher levels of carbon dioxide, but under modern conditions, the rate of their photosynthesis is limited. Waste carbon dioxide can be directed into greenhouses growing tomatoes. This extra carbon dioxide enables the tomatoes to photosynthesise faster, which increases sugar production, improving flavour and yield.

    ‘Bigger, better and tastier tomatoes with CO2’:

    Moreover, carbon dioxide fertilisation also produces earlier harvests and improves the ability of plants to resist disease and pests.

    However, this “more is better” philosophy is not the way things work in the real world.
    Another quote from the article you linked to is: […]

    Yes, beyond a few thousand parts per million of atmospheric CO2 there is little additional benefit.

    I read recently that farmers in Greenland can now grow potatoes whereas once they couldn’t.

    Back in the Medieval Warm Period the Vikings were able to grow crops such as barley in Greenland. Anyone trying to grow potatoes there today may already have had their chips – it’s getting colder.

  • Peter Martin 6th Dec '21 - 8:23am

    @ Jenny Barnes,

    If we, as a society, forego the use of a cheap but environmentally harmful form of fuel and switch to a more expensive but environmentally safer form, then there has to be a net cost which is shared out amongst us all.

    I’m not saying we shouldn’t do that, just the opposite in fact, and we can give tax sweeteners along the lines you suggest to encourage the process, but the underlying cost is still there.

    On the other hand, if we can make solar, wind power, and nuclear cheaper than fossil fuels there isn’t a cost at all.

  • Jenny Barnes 6th Dec '21 - 10:59am

    I think fossil fuels just look cheaper atm because we’re ignoring the enormous externality of potentially making the planet inhospitable to human life. If renewables are cheaper anyway, which is probably true for coal v wind presently, it really is a no-brainer.

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