Please note that these essays are not the official view of CCL UK but of some of our members…..

Carbon Fee and Dividend is structured to provide subsidy to ordinary householders as they begin to confront the costs of transitioning to a net zero carbon economy.  

In addition, Carbon Fee and Dividend can be expected to accelerate the overdue reallocation of capital towards regenerative enterprise that fossil fuel divestment, by for example pension funds, has already provoked.  For the mainstream of society this is vital, since a transition to a low carbon circular economy based on regeneration and sustainable limits will provide the worthwhile and purposeful new jobs needed.  Hopefully, much of this innovation will be local or even community based and so lead to a multiplier effect as more of the money circulates locally and in turn leads to yet more enterprise and benefits. 

A capsule of the actual problems lying behind Alok Sharma’s IPPC derived warnings might read: 

The words assumption, belief, self-interest and delusion are all words that apply to the economic model (Neoliberalism) that has grown ever since money was finally liberated, in 1971, from the limits that being tied to the gold standard imposed.  There were no externality (environmental) costs built in, not least because of lobbying and deception strategies operated by large corporations.

They appear to overlook that their concept is also the source of inequality; or put another way “too many in Maslow Deficit” (lower 3 tiers) and moreover, that their concept is the source of the debt which begets the growth dependency needed to pay it down.  With externalities largely ignored this all translates into the environmental destruction / climate breakdown that is bringing the world to its knees!   

Andrew Stott

On the 9th August 2021, the Intergovernmental Panel on Climate Change (IPCC) released the first part, ‘Working Group I’, of its Sixth Assessment Report. Compiling over 14,000 scientific papers, the work of 234 scientists from 66 different countries, the report outlined and emphasised the need for immediate and drastic action to avoid a rise of over 2°C in the global temperature. A system where fossil fuels are taxed and the money returned to the public is one way to approach this, tackling both the environmental concern and dealing with the required economic traction to get it started. This is known as a carbon fee & dividend (CF&D) scheme.

The declining cost of renewables

Renewable energy prices are at the lowest they’ve ever been (according to an analysis by Lazard Ltd.) and the UK government predicts that levelised cost of electricity (LCOE) prices for renewables will drop even further while prices for fossil fuels will largely remain the same. 

Figure 1 – Table showing LCOE for the next 20 years in £/MWh as predicted by the UK government in their 2020 report on Electricity Generation Costs.

The earlier a complete change to renewable energy happens, the more money that will be saved in the long run. A myriad of reasons have prevented the switchover to renewables, despite the apparent advantages they currently have over fossil fuels. The associated costs with starting a new energy plant, new fracking technology significantly lowering the cost of natural gas, existing contracts tied up with fossil fuel suppliers, increased electricity bills for the general public and seasonal inconsistencies with renewable electricity generation are just some of the reasons why, initially, a switch to renewables may not be as economically attractive as one first expects. This is why a carbon tax would ‘even the playing field’ so to speak and incentivise investment into renewables.

The EU ETS and Britain’s departure

Economic incentives for reducing carbon emissions are not a foreign idea to the UK. The country used to be part of a cap and trade scheme used throughout the EU. The European Union Emission Trading System (EU ETS) is the largest of its kind in the world and consists of a scheme designed to limit the CO2 released into the atmosphere by allocating emissions allowances to member nations. If a country needs to generate more emissions they can trade for these allowances from a country that has successfully reduced its own. Thus, creating an economic incentive for a country to reduce its emissions. 

Unfortunately, on the 31st January 2020, Britain left the EU and with it the EU ETS. A similar system was designed and incorporated known as the UK ETS. Emissions trading would continue but between the 4 nations of the UK rather than the 27 member nations and 3 trading partners (Norway, Iceland and Liechtenstein) of the EU. However, the Grantham Research Institute on Climate Change and the Environment (GRICCE) indicated in their 2019 study that this would be “suboptimal” and a carbon tax would be more beneficial in reducing carbon emissions. Again, in 2019, the GRICCE theorised that “a tax of £40 per tonne of CO2 equivalent emissions turned into a £1000 annual return for UK households” would be one of the most ideal ways at reaching net zero emissions by 2050. It also recommends the £40 per tonne tax is just a starting point and the price should slowly be increased.

How will the money be used?

One of the main arguments against a carbon fee & dividend scheme is that the general public will bear the brunt of the tax and although environmentally beneficial, it will increase the cost of living. To low income families, an increase in the heating or electricity bill every month is very unappealing, especially as they would not experience the immediate benefits of reduced CO2 emissions. However, the scheme ensures that the money is equally distributed to everyone in a monthly dividend.

Figure 2 – Courtesy of the Grantham Research Institute at LSE. Graph showing tax payments and dividend received by income decile.

Looking at figure 2 we see that the lowest income decile households (1) would be better off with the flat £1000 dividend as it is a larger percentage of their total household expenditure. 

Canada has a similar system and has been using it since as far back as 2008 (in British Columbia). Helen Mountford of the World Resources Institute states that citizens of Manitoba province, for example, would expect to see a rise of $174 CAD in cost due to the carbon tax. But receive a total rebate of $252 CAD resulting in a net gain of $78 CAD (~£45). Canada may only have a population of just over half of the UK but its CO2  emissions almost treble ours. If an industrial giant like Canada can implement a CF&D scheme and make it work, then so can we.

The benefits of a CF&D scheme are clear. A switch to a more modern, cheaper and greener economy that will see benefits not only for our children and our children’s children but also us, we who are living currently. Alok Sharma’s warnings, ahead of COP26, are dire and desperately need to be listened to. Change is hard but if we don’t, our planet will.

Luke Clews