Paying for net-zero – The fiscal framework for the UK’s transition to low-carbon energy

Topics: Mitigation, Economics and Finance
Type: Briefing paper
Publication date: April 2020

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Summary

Authors: Neil Hirst

Bank of England and the cityStrong action must be taken to achieve the UK’s target of net zero carbon emissions by 2050.  From a financial perspective, this will require a combination of carbon taxation, regulation and direct government intervention, and the willingness of the public to adapt will be crucial.  This paper reviews the options available and calls for wide ranging public debate.

Headlines

  • The changes required for the United Kingdom (UK) to reach net zero greenhouse gas emissions in 2050, unlike the reduction in emissions that the UK has achieved so far, will directly affect the way the public uses energy, for instance in transport and heating homes. The cost to the economy of these changes will depend, amongst other things, on the willingness of consumers to adapt.
  • The Committee on Climate Change (CCC) have estimated the various costs to society at 1-2% of 2050’s GDP (£20–40 billion as a share of 2020’s economy). It could cost less if technological and social innovation proceeds faster than expected. There are also a range of potential benefits to society, besides averting some of the effects of climate change.
  • The UK government will need to adopt a judicious mix of carbon taxation, regulation, and direct intervention to pay for and achieve its net-zero emissions target.
  • Direct technology-specific government intervention has proved the most effective way of bringing in new technologies, and driving down their costs, provided that the government chooses the right technologies.
  • Carbon taxes have been effective in influencing how consumers choose between existing competing technologies.
  • How the costs are distributed between energy consumers and taxpayers will depend on decisions made by the government.
  • The public may be more accepting of taxes and other charges that pay for specified low-carbon infrastructure than they are of those with less specific purposes.
  • The public will probably remain highly resistant to measures that appear unfair, for instance bearing disproportionately on low-income families or those (e.g. outside big cities), who are most dependent on their cars.
  • A range of options have been proposed for addressing the regressive nature (most affecting the poorest) of high energy prices and taxes.
  • A wide ranging public debate is needed to explore the most acceptable options and, hopefully, to win support and participation.

Download: Paying for net-zero – The fiscal framework for the UK’s transition to low-carbon energy [PDF]

Neil Hirst’s book, The Energy Conundrum, provides a comprehensive account of global energy policy in a complex and rapidly changing world, and is available to buy here. 

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