Use Carbon Pricing to Fund Energy Efficiency, Build Political Will, EU Analyst Urges
The climate community should think of carbon pricing as “a hammer in need of a toolbox”, rather than a single, all-purpose tool that can usher in a post-carbon future on its own, writes Richard Cowart, a Brussels-based director of the Regulatory Assistance Project, in a recent blog post.
“To many economists and carbon market enthusiasts, putting a price on carbon is by far the preferred tool to drive down carbon pollution,” Cowart writes. So, whenever carbon prices fail to reduce emissions fast enough, those advocates simply conclude that the priceisn’t high enough. The real message should be that price alone isn’t enough.”
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Under the European Emissions Trading System (ETS), the UK set a 2030 target of £70 per tonne for its carbon price, but froze the price at £18 per tonne in response to public concern over its “high cost and modest benefits,” he notes. The Netherlands and France are considering higher price thresholds. But Cowart still sees a better way to hit low-carbon targets.
“Higher carbon prices by themselves are both too expensive and too limited in what they can deliver,” he writes. “We will not achieve our Paris objectives if we continue to overlook and underfund the other useful tools in the low-carbon toolbox. The policy mix should be guided not by a goal of high carbon prices, but by the principle of carbon efficiency: How much does a given policy cost the public per tonne of carbon actually reduced? Carbon prices can be important—but their contribution will be much greater if we pay close attention to how the resulting carbon revenues are spent.”
Cowart notes that EU electricity markets as they’re currently structured magnify the consumer cost of carbon prices, driving up the cost of low- as well as high-carbon generators. Rather than relying on that mechanism, he urges policy-makers to link carbon prices and carbon revenues in a “virtuous circle” that “can sustain the political will to achieve economy-wide decarbonization.”
And one of the keys to that solution is energy efficiency.
“If the purpose of a carbon price is to actually reduce emissions, and it’s not just a tax-raising scheme in disguise, designers should look for the lowest-cost way to rapidly reduce emissions, using both carbon prices and carbon revenues as tools,” he argues. “Across Europe, there are many low-cost energy efficiency options where well-run programs can cut energy bills for families and businesses while reducing emissions. Carbon revenues are an ideal source of funding for these efficiency programs.”