Opinion by Mathew Carr (Updated Sept. 14)
Sept. 7-14, 2021 — Britain shouldn’t be raising national health insurance rates to fund a boost in social-care costs needed because of the pandemic and decades of neglect.
Prime Minister Boris Johnson and Chancellor Rishi Sunak should instead boost the world’s oldest industrial economy’s carbon price, which is already higher than in the European Union.
Here are a few reasons why this would be a better plan than the current health-insurance-based one.
1. It would use the urgency of the climate crisis to fund the social care crisis
The global climate is collapsing. The U.K. government is assuming much higher prices for carbon going forward — more than 200 pounds ($277) per metric ton of carbon dioxide in 2022 and 300 pounds in 2035. Its expectations range from 100 pounds to almost 600 pounds (see snip and chart here).
These assumptions are much higher than the current levels in the post-Brexit U.K. carbon market, which is about 53 pounds as of mid September.
At 200 pounds, a carbon price in the U.K. that covers all greenhouse gases would raise about 83 billion pounds a year, much more than the 10 billion pounds raised by an increase of 1.25 points for National Insurance cited by the Telegraph newspaper on its front page Sept. 7.
To be sure, the higher carbon revenue would be needed to compensate poor people facing higher ecnomic costs because of the more expensive emissions price.
Fossil fuels don’t just hurt the climate. The related particulate pollution damages health and makes people stupid and more emotional — in short – they are more likely to need social care. The time for system change is long overdue.
2. It saves breaking election pledges
Crucially, using the carbon price to raise the revenue will allow Johnson to say he hasn’t broken an election-manifesto promise not to raise National Insurance or income tax etc.
3. It’s done it before
Britain introduced a carbon floor support in 2013, which helped fill a budget deficit and burnished the country’s green credentials.
4. The timing ahead of climate talks
Great Britain is leading climate talks in Glasgow in November and, as one of the countries most to blame for the climate crisis on a per-capita basis, it wants to be “showing the world” how to save the climate, not just telling the world how to do it.
The U.K. is arguably the biggish nation most along its climate transition, so it already has some credibility and has been “showing by doing” to some extent.
Fee and dividend carbon pricing probably will be adopted in some form by the U.S., the country most to blame for the climate crisis and with only 4% of the world’s population.
The timing of the U.K. government’s social-care initiative is telling. There’s no reason why the British government should wait until two months before the climate talks to solve its decades-long procrastination on expensive health care reform. Yet, it has. It could have been clever statecraft.
5. It’s sensible for governments to take advantage of trends in markets — It’s the S in ESG, stupid
Climate-related markets are surging around the world. Not just carbon prices but uranium fuel, renewable energy certificates and natural gas (which is usually cleaner than coal).
Open interest, a measure on open bets on these markets, at a record, according to data from ICE, the exchange group.
Environment, Social, Governance (ESG) funds are hot hot hot — and I can’t see this changing while storms, floods, wildfires and droughts continue to dog countries around the world.
6. The G20 is on the case, sort of
The Group of 20 nations are considering deploying carbon pricing in a logical way around the world. Prices may be higher in developed nations, those most to blame for the climate crisis
Most logically prices would be at equivalent levels around the world. The carbon fee and dividend system gives governments a new haul of cash to use to help compensate poor people as economies build back better from the global health crisis.
The higher its carbon price, the more capital the country is likely to attract. So emerging countries may not want to miss the chance to leap frog the petro states.
Carbon pricing is set to be national, then regional …and I’m guessing as early as about 2024, linked and global.
Remember, G20 nations and dozens more have already agreed to deploy minimum corporate tax rates to prevent damaging competition between jurisdictions for factories.
Doing something similar for carbon pricing is a logical extension and could save the EU installing its planned border carbon mechanism in around 2023-2025 — that fee at the border is designed to prevent European countries from shifting economic output to countries with lower carbon prices.
7. It will narrow the gap between rich and poor, if done well
The pandemic has worsened unfairness across the world, with the World Bank estimating about 150 million people falling back into extreme poverty last year. The selling of the right to emit will create a pool of money that can help eradicate such hardship, which will benefit social wellbeing.
*******
NOTE: Some of PM Johnson’s conservative party colleagues will be shocked by the game-changing nature of this plan. They are already frightened of swinging too far to the left, based on the speculation on higher National Insurance rates.
But, using carbon pricing to raise government revenue is the right thing to do because, it will help close the divide between rich and poor and make the world safer for future generations in multiple ways.
*Warning — I’ve predicted this shift to higher carbon prices by the U.K. before … and I was wrong. I still might be over-estimating Johnson’s bravery.
(Adds March story below; chart)
See this from March:
Nudges, Tax and Trade: Boris Johnson, Rishi Sunak Can Set Their Legacy Today; There’s a Small Chance They’ll Do it (3)
–Push for carbon border adjustments seen in drive for climate justice, higher CO2 prices and steeper tax rates
–Governments can also “nudge” change, not just force it
–Post-Brexit British system can be model for the world
–NOTE: Johnson and Sunak didn’t step up
By Mathew Carr
March 2-3, 2021 — LONDON: British Prime Minister Boris Johnson and Chancellor Rishi Sunak have a chance to change U.K. and global history today; there’s only a small chance they’ll take it.
Challenging the people (Conservative Party members) who put you in power takes courage. I’m not sure these gentlemen have enough bravery, but I hope I’m wrong.
What the pandemic has clearly shown is how fragile health, economy and society is.
Some libertarians in Johnson’s party no doubt believe conservatism and freedom equals pretty much doing what you damn well please. This notion goes against what the pandemic has shown us.
No, burning the crap out of fossil fuels does not equal freedom. It’s clearly going to ruin the life of pretty much everyone on earth as the climate changes, bringing floods, droughts, wildfires and disasters.
Helping lead the G7 countries gathering this year and the United Nations climate talks in November, Johnson and Sunak right now have a rare chance to SHOW the world a better way. Unless they do it today however, the chance will have been lost until the UN negotiations, when they will only be able to TELL the world, not SHOW it. That’s a much weaker position.
Changing the tax system to focus on adjusting bad behavior, including the burning of fossil fuels, makes a lot of sense. Polluters need to start paying for the damage they cause.
The U.K. is already well ahead on this front, with carbon prices set to be above those even in the European Union, which the country has just left. See this:
http://carrzee.org/2021/02/24/five-years-later-and-after-the-fact-brexits-still-set-to-roil-europes-carbon-market/
It and other EU nations made more than 57 billion euros selling EU allowances until the middle of last year. After the U.K. introduced a carbon floor support in 2013, it made even more. That floor helped fill a gap in the country’s budget after the global financial crisis more than a decade ago, so there’s a precedent. The pandemic has left a huge gap and the money from the floor as well as the country’s new U.K. market is set to bring in the cash.
The higher the price, the bigger the revenue. Here is an earlier scenario from Vivid Economics setting out the range of possible prices:
A U.S. professor has been advocating for Britain to showcase the fee and dividend model because U.S. lawmakers are too beholden to oil, natural gas and coal:
The freedom delivered by Brexit allows Sunak to adopt an aggressive, post free-market capitalism model and make a few more important tweaks during the next eight months, before the climate talks in Glasgow. Here’s a little roadmap:
- Flag to U.K. voters that the country’s poor will be protected from cost increases that hit them because of higher carbon prices. The carbon “fee and dividend” system can become a global standard. Britain is already doing this to some extent because it has energy regulations that protect those in “fuel poverty”. In a related move, fossil-fuel subsidies can be dropped, saving taxapayer money (Fossil-fuel subsidies are effectively negative carbon prices.)
- Say to airlines landing or taking off in Britain and their customers that the price offered online MUST INCLUDE the cost of offsetting the carbon dioxide caused by a flight, starting in July this year. (Britain has already flagged it plans to do this and this timing will allow the nation to capture the post-pandemic holiday exodus). This forces buyers to think, requires them to uncheck a box saying they are unwilling to pay the offset costs. Importantly, offsetting should start as a “nudge” rather than a mandatory requirement. Rich people should be discouraged from unchecking that box. Sunak could also announce bringing this mandatory offset offering to the petrol pump as soon as possible. Only the poorest in society should tick the box on the pump that allows them to wiggle out of the environmental cost of their fuel. Such a system would help companies seeking to hit net-zero emissions targets.
- Plan to adjust the tax system so that it’s more sustainable as soon as possible, meshing it with the carbon pricing and green-trade rules. The widening gap between rich and poor will be addressed at some point. Should the Conservative party undertake this difficult task, it’s likely to take away the political opportunities of the opposition party, Labour. The government is already planning to include climate risk disclosure into accounting rules as mandatory starting from 2023, so tweaking capitalism a little more to make it target goals other than profit would be the right thing to do right now.
This three-point plan may not be as unlikely as it seems. The U.K. is already seeking to position itself as a global climate and tax leader, including via its G7 role.
A person familiar with the government’s situation said this:
Climate change is a key priority of the British government’s G7 Presidency, including a push for “a lasting green recovery.”
It’s much easier said than done. G7 leaders published a statement Feb. 19 outlining climate priorities including for a just transition to net zero, including tax reform. The G20 and China is also in the frame.
Emerging nations are worried rich-country climate policy might limit their exports.
Britain is seeking to deal with that concern. The U.K. will continue to work with developed nations on how to best reduce emissions, including industrial production gases, in a way that does not disadvantage developing countries, the person said.
One way of ensuring the U.K.’s climate policy doesn’t lead to increased emissions elsewhere are Carbon Border Adjustment Mechanisms, one of which is planned by the EU by 2023. This could further increase government revenue.
Energy intensive goods would face a “price adjustment” if they are coming from countries with lax climate policy.
See: Interim report of the Net Zero Review for a range of approaches could potentially protect green industries.
“Carbon border adjustments should be treated as a part of an international, multilateral effort which is the best way to prevent carbon leakage,” the person said.
As the Business Secretary said in the U.K. parliament on Dec. 16 (while Energy Minister): “…if we impose a tax unilaterally on carbon-emitting products coming into this country, we may well be disadvantaging our own consumers if others around the world are not placing such a tax. The Government feels that multilateral co-operation in this regard is by far the best way to prevent carbon leakage.”
Further investigation is needed in order to understand how such a measure would be implemented, whether it would comply with World Trade Organisation rules, and how effective it would be, the person said.
Some Conservatives are calling for immediate tax rises, so there’s hope.
See this: Budget 2021: https://news.sky.com/story/budget-2021-lord-hague-throws-his-weight-behind-calls-for-rishi-sunak-to-raise-taxes-to-deal-with-covid-spend-12233373
On the other hand some are arguing “now is not the time,” for tax increases, blaming the pandemic.
This seems wrong headed. The pandemic provides a perfect reason (not an excuse) for clever tax rises, especially where they help show the world how to save the climate.
NOTE: Sunak is set to launch world first green bond today:
https://www.ftadviser.com/investments/2021/03/01/green-bond-growth-welcomed-after-sunak-launches-world-first/
(Updates with carbon revenue context, floor, professor, Vivid chart, updates carbon revenue; adds “NOTE” at the top under the headline on March 9)
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Published by mathew carr
Hi – I’m Mathew Carr — a reporter with 30 years experience covering markets, business, politics, finance and marketing. I’ve worked for news outfits huge and small, and was one of the first to recognise the importance of the EU carbon market 17 years ago, which is becoming the global benchmark in climate protection View all posts by mathew carr