Energy Systems Catapult outlines options to harmonise carbon pricing

The Energy Systems Catapult has outlined a series of options to harmonise carbon pricing, ranging from tweaks to existing policies to an economy-wide carbon tax charged directly to consumers.

The new report is the latest addition to its Rethinking Decarbonisation Incentives initiative. The organisation revealed in June that the “effective carbon price” in the UK varies by up to £700 per tonne.

Energy Systems Catapult head of policy George Day said: “There is little argument that better carbon pricing would deliver economic benefit – by allowing the market to find the lowest cost way of cutting carbon emissions.

“Currently we have a complex combination of taxes, subsidies, contracts and regulations, that means the price we are paying to reduce carbon emissions in different sectors of the economy varies by hundreds of pounds per tonne of carbon dioxide.”

The organisation has settled on five options for reforming carbon pricing, which are as follows:

• Aligning sectoral policies for carbon – Adjusting existing policies and taxes to ensure that the resulting effective carbon price is broadly consistent across the economy and high enough to meet carbon targets.
• Taxing carbon upstream – Replacing current policies with a near economy-wide carbon tax on all fuels and direct sources of emissions from industry, waste and agriculture.
• Introducing a UK emissions trading system – Replacing existing policies and membership of the EU Emissions Trading System with a UK version, covering a wider span of fossil fuel uses.
• Setting standards for carbon intensity – Setting carbon intensity standards that tighten over time. These could potentially cover all forms of energy, including electricity generation and fuels for transport and heating, or be applied progressively to particular energy uses or sectors. Energy suppliers would be able to buy or sell credits to meet the standard.
• Taxing carbon at the point of consumption – Applying a carbon tax on goods and services at the point of consumption, taking account of full lifecycle emissions for both imported and domestic production. Carbon labelling would provide visibility to consumers.

Implementation issues

Source: Rethinking Decarbonisation Incentives: Reform Options, Energy Systems Catapult

“Our ultimate aim is to stimulate and inform a wider and more active debate on how the UK can move towards a coherent set of policies to drive decarbonisation efficiently across all sectors of the economy,” said Day.

“Twenty five years ago, the UK led the world in privatising the energy market. Ten years ago we led the world by introducing climate change legislation. Could we lead the world again by pioneering economy-wide carbon pricing?”

An economy-wide carbon tax was on the of the key recommendations of Dieter Helm’s cost of energy review published in October 2017.