Governments risk losing public support for carbon taxes and emissions trading without better communication

Posted on 5 Dec 2011 in Press releases

Governments could fail to gain public support for carbon taxes and emissions trading systems if they do not explain more clearly why carbon pricing is an effective way of tackling climate change, according to a new report published today (5 December 2011) by the Grantham Research Institute on Climate Change and the Environment and the Centre for Climate Change Economics and Policy at the London School of Economics and Political Science.

The report by Dr Alex Bowen on ‘The case for carbon pricing’, which is published as governments gather for the second week of the United Nations climate change summit in Durban, South Africa, points out that a uniform global carbon price would be an ideal tool for reducing greenhouse gas emissions sharply in a cost-effective way, based on the principle that the ‘polluter pays’. It notes that many countries and regions have already introduced, or are planning, a carbon tax or emissions trading system.

But the report warns: “A major challenge for policy-makers is to communicate to businesses and the public why carbon pricing is a sensible option. To do this, policy-makers must explain very clearly the nature of the market failure that means the current prices of goods and services do not fully reflect the expected costs of climate change impacts which will be borne by future generations. A failure to explain the rationale for carbon pricing in terms of the ‘polluter pays’ principle could jeopardise public acceptance and support”.

The report suggests that a uniform global carbon price, delivered either by carbon taxes or emissions trading, would “act as a pervasive encouragement for businesses to adjust their investment, their mix of inputs and their innovation away from greenhouse-gas-intensive technologies, and for consumers to reduce their spending on high-carbon products”.

It also calls for other policies to complement carbon pricing, particularly to promote innovation and appropriate infrastructure investment, but warns that they “cannot be relied upon by themselves to bring about the necessary reductions in emissions”.

The report recommends that the UK and other countries “move towards a uniform carbon price across sectors so that the burden of adjustment costs is spread efficiently across economies and thus minimised”.

A number of possible problems arising from carbon pricing are outlined, including the potential for it to increase costs disproportionately for some businesses and households. This can be lessened because the potential revenue from charges on carbon or auctions of emissions permits can be used to compensate disadvantaged groups.

The report also assesses the possibility of companies escaping to ‘pollution havens’ to avoid paying a carbon price, but concludes that competitiveness difficulties are “unlikely to be substantial”.

Notes for Editors

1. The Centre for Climate Change Economics and Policy was established in 2008 to advance public and private action on climate change through rigorous, innovative research. The Centre is hosted jointly by the University of Leeds and the London School of Economics and Political Science. It is funded by the UK Economic and Social Research Council and Munich Re.
2. The Grantham Research Institute on Climate Change and the Environment  was launched at the London School of Economics and Political Science in October 2008. It is funded by The Grantham Foundation for the Protection of the Environment, which also supports the Grantham Institute for Climate Change at Imperial College London.