Some thoughts on Motion F12: Tackling the Climate Emergency: Proposals for Carbon Pricing

Motion F12 states that Lib Dem carbon pricing policy should be to reform the UK Emissions Trading System (ETS), and seek to return to the EU ETS. Carbon pricing was last debated by the party in 2005 and a simple carbon tax applied upstream to ‘primary fuels’ was supported then. Since then there have been several successful real world applications of the revenue neutral carbon pricing policy known as Carbon Fee and Dividend or Climate Income. In this system a steadily and predictably escalating carbon fee is placed on fossil fuels ‘upstream’, (i.e. at the point of extraction or production rather than consumption). This sends a clear message to producers and consumers, enabling them to plan ahead with the certainty that decarbonisation will be worthwhile.

Carbon Fee and Dividend is fair because the carbon fee is not treated by the government as a source of revenue. All or most of the fee is returned to the population as a ‘dividend’. This enables the fee to steadily rise to price fossil fuel based products out of the market whilst cushioning the effect of the rising prices to consumers. Where adopted the policy has worked alongside other measures to encourage decarbonisation, such as subsidies and grants, but it complements them by giving industries and householders a clear direction of travel which politically vulnerable grants and subsidies do not.

139A argues that carbon taxes are more volatile than ETS as vulnerable to government whims. Whilst this can be the case for carbon pricing which is expected to raise revenue for the government such as the blatantly unfair tax which triggered the Gilets Jaunes protests, the dividend system offers less chance to do this and a strong disincentive to remove the dividend once established.

In Canada 90% of the fees raised funds a dividend distributed to all adults and half dividend to the first two children with a 10% supplement to rural populations because of the reduced options for decarbonising in infrastructure and transport. Meanwhile other regulations and subsidies are designed to address the cost of retrofitting, 10 % goes to retrofitting public buildings (along with other financial measures).

The majority of people receive more than they pay out in added costs; there is no attempt to tweak the payments to make up for failings in the welfare system. Targeting only the ‘poor’ for dividends would remove the fairness element, increase administrative costs and render the system itself vulnerable to political whim. Who decides who are the ‘deserving poor’? Would, for example, the definitions of deserving recipients given in the Green Party backed IPPR report be fair and effective or just totally antagonise the middle classes who are expected to do most of the domestic retrofitting? Social inequality should primarily be tackled by other means, not a carbon pricing system.

The Green Liberal Democrat group is supporting an amendment to allow the party to

…explore in detail the introduction of a `carbon fee and dividend` structure, together with border carbon tax adjustments, to accompany the proposals set out in the paper, and to bring proposals to a future conference for debate.

Since publication of this article I have heard that the Amendment has been rejected and so can’t be debated at Conference. The FPC has however acknowledged the concerns of the GLD SIG that 139A hasn’t considered a wider view on carbon pricing in light of the changing political situation. The FPC is willing to extend the life of the working group, with more input from GLD, with ‘a view to working up a practical model of carbon fee and dividend to operate in conjunction with regulation and ETS approach’. I am glad that this offers the party room for further consideration of the issue. Do tune into the F12 motion debate!

There will be a longer version of this article on the Green Liberal Democrats website shortly.

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6 Comments

  • neil James sandison 13th Sep '21 - 2:42pm

    A well thought article and worthy of consideration .

  • Stewart Reddaway 13th Sep '21 - 8:07pm

    Lines 7/8 say “at the point of extraction or production rather than consumption”. I think better would be “at the point of extraction or import rather than consumption”

  • Duncan Brack 14th Sep '21 - 10:05am

    Just to correct the last point: the FPC hasn’t discussed this issue. I personally, as chair of the working group that wrote the paper, am happy to commit to work further with Green LDs to explore these issues, and I imagine that other members of the working group would too.

    However, the picture is not nearly as straightforward as Catherine’s article makes it appear. Section 2 in the policy paper explains why we think the ETS approach is better and what our reservations are with an economy-wide carbon tax. To summarise, what the paper’s proposals do is target the biggest polluters and those activities where emissions can most swiftly be reduced; and offer support and incentives to smaller emitters such as households to reduce emissions before applying carbon pricing to their energy bills.

    On top of this, energy consumption, particularly power and heat (i.e. not transport) does not just vary with income, it also varies with the energy efficiency of the property, which can be very different. So if you make the dividend large enough to compensate (say) a single pensioner living in a large and poorly insulated house, you would be delivering large amounts of dividend to (say) a large family living in a smaller modern house, for no real climate benefit. We don’t think that’s a good use of the revenue. Our proposals focus instead of using income from the ETS and other taxes to provide direct support to households to insulate their homes – free for low-income households, subsidised for better-off – and other measures.

    I encourage everyone to read the paper – it’s not a very long one! Available here: https://www.libdems.org.uk/a21-carbon-pricing.

  • neil James sandison 14th Sep '21 - 10:54am

    All systems can be dogged by what if and but maybes what is important is clarity of message ,That the polluter will pay and not escape through ETS loopholes those in fuel poverty will not be overly burdened by price hikes as we move from fossil fuel taxes to carbon fuel taxes and of course we are aware of the cost of retrofitting homes for those on a fixed income, A simplistic either or solution is not the best way and we should be prepared to research best practice beyond GB and Europe .

  • Stewart Reddaway 14th Sep '21 - 9:08pm

    Duncan makes several points.
    On an economy-wide carbon tax he says: “what the paper’s proposals do is target the biggest polluters and those activities where emissions can most swiftly be reduced; and offer support and incentives to smaller emitters such as households to reduce emissions before applying carbon pricing to their energy bills.” This ignores the fact that many studies have shown that, if all money raised is used to pay an equal-per-head dividend to all UK residents, then all people in poverty (including those in poorly insulated houses) are made better off overall because their poverty means they have a below average total carbon footprint.
    The above quote also favours targeting, which means politicians choosing who to tax, rather than a Polluter Pays tax on all polluters.

    Duncan also says: “So if you make the dividend large enough to compensate (say) a single pensioner living in a large and poorly insulated house, you would be delivering large amounts of dividend to (say) a large family living in a smaller modern house, for no real climate benefit.” This smacks of the Victorian concept of the deserving and undeserving poor. The climate benefit is from the tax encouraging emissions reductions.

  • I’m confused about the policy on climate change..

    Feb 2021…Ed Davey..”It’s astonishing that a new coal mine in Britain is even being considered — particularly the year we are hosting the vital COP26 conference. If Boris Johnson is serious about climate action he will call on Cumbria county council to scrap the mine…
    Today at PMQ’s Jamie Stone (Lib Dem) asks the PM to back a space project in Sutherland (Johnson welcomes the project)..

    Do we only support action on the causes of climate change in the constituencies of other parties?

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