Some thoughts on putting a price on carbon emissions

Some people say: “If you put a price on carbon dioxide emissions, then people will use less energy, buy lower carbon products etc.”

And from this they conclude that the way to cut emissions is to put a price on them.

So we ask Gunther, the policy guy: “What should the price be?”

Gunther says: “We don’t set the price. It gets set by the market.”

So you say: “And how does the market know what price to set?”

Gunther: “The price is set by demand and supply.”

You: “And what determines supply?”

“The government, of course. It sets a limit on emissions and that gives rise to a price. That is the price which is enough to bring emissions down to the level you want.”

“Aha,” you can say. “So what you are saying, Gunther, is that you can get people to cut emissions by pricing carbon as long as the price is enough to get people to cut emissions.”

“Er … Yes,” says Gunther.

He’s right – it’s a true statement. In fact Gunther can’t ever be proved wrong. Even if the price of carbon if €500 per tonne, and emissions still aren’t falling he can say: “No, my theory is right, just the price isn’t high enough.”

It sounds like Communism where the theory is right, but people aren’t nice enough. In fact you could replace “pricing carbon” with anything and the statement would be as true: “You can get people to cut emissions by getting them to eat enough Mars Bars for them to start cutting emissions.”

As we chase the carbon price up to find the price at which people might cut down on energy use, we could be missing out on all sorts of other, cheaper ways of implementing reductions.


What is it we value so much that pricing carbon as a property right is seen as the be-all-and-end-all?

First, we value freedom of choice for the man in the street. Other measures involve constraining people’s freedom. Pricing carbon also constrains people’s freedom, but we overlook that. If it takes a carbon price of £1,000 per ton to get someone to change behaviour (that’s the price you need to get people to switch from flying long distances to taking the train), it’s such a high price that it’s tantamount to saying: “You can’t do that thing.”

The second, more important thing, is that we leave choices to “the market” because the market is better at allocating capital efficiently than government. This is true. But now we should not be optimising for efficiency. We should be optimising for quick impact. That requires a different way of thinking.

For some reason freedom of choice – of the end-user and of the emitter – overrides all other considerations. Following this route we will end up with people having no choices left at all.

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