Magazine article Public Finance

Counting the Carbon

Magazine article Public Finance

Counting the Carbon

Article excerpt

Despite the changeable nature of modern politics, the environment has succeeded in capturing the attention of all the main parties - just witness Alistair Darling's recent Budget, with its range of green measures.

But at the policy level, environmental concerns are sometimes overshadowed because they are not articulated as clearly as others. Health, education and economic growth, for example, have organisations speaking powerfully on their behalf. So how does the environment get a seat at the table on anything like an equal footing with social and economic concerns?

The current solution is to put a financial value on the environment. This is not a new idea, the fuel duty escalator and landfill tax being recent examples. But the urgency and magnitude of climate change have moved it on to a new level.

In December 2007 the government decided that the price of a tonne of carbon was ?25.50. This is the figure that decision makers can use in their cost-benefit calculations for projects and policies. It is likely that local authorities will be expected to use it when deciding on projects such as community power schemes, energy from waste options and even trunk roads.

At the time, the government heralded the arrival of a 'new currency'. Some might have thought that a corner had been turned and now any new action that contributed to climate change would be summarily dismissed. The reality has been less inspiring. The first real test of this new number, branded the 'shadow price of carbon', was used to justify the fifth terminal at Heathrow, opened with much fanfare a fortnight ago by the Queen.

The scale of the threat from climate change has provided the impetus to consider adopting radical solutions. The Intergovernmental Panel on Climate Change, which operates under the aegis of the United Nations, agrees that global average temperatures will rise by two degrees, causing a rise in global sea levels, the melting of ice caps and changes in rainfall patterns.

The panel is also clear that these effects are the result of man-made emissions of greenhouse gases. Of these gases, carbon dioxide accounts for almost twothirds of the warming effect. The governmentcommissioned review by Sir Nicholas Stern explains that the sooner action is taken, the cheaper that action will be. He argues eloquently that action on climate change will help, rather than hinder, the UK economy.

The main reason that modern societies cause so much harm is that the environment is treated as a free good. Giving it a price means it shows up on the balance sheet and gets attention, but there are bound to be difficulties getting the price right That is why it is more sensible to try to create a proper market in carbon, where consumers set the price.

That is what the Climate Change Bill will do. It will enable the government to set up carbon trading schemes. The first, the Carbon Reduction Commitment, to be run by the Department for Environment, Food and Rural Affairs, will start in January 2010. It will cover any organisation that produces more than 6,000megawatt hours of electricity per annum. Therefore, it is likely to capture most upper-tier local authorities and certainly all metropolitan boroughs within its remit.

The basic idea is simple. The amount of carbon emitted by each organisation covered by the scheme is measured, and then the government sets an emissions cap that is lower. Organisations can implement measures to reduce their emissions, or overshoot their targets and buy credits from other organisations to bring them back down to the capped level. …

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