The false economy

4th July 2014

Related Topics


Victoria Denner

The reluctance to put a realistic price on carbon because of fears it will damage competitiveness is a false economy, as the costs of curbing emissions will only rise, argues Paul Suff

Economists have again attempted to estimate the price of carbon to avoid dangerous climate change (p.8). By revisiting a standard economic model, Lord Stern and Simon Dietz have calculated that a tonne of carbon in 2015 needs to cost between $32 and $103 to prevent warming above the 2ºC threshold scientists believe is the limit to prevent unprecedented change. And, by 2035, the price should rise to between $82 and $260.

The authors say that such figures would, according to the model, keep the expected atmospheric stock of carbon dioxide to a maximum of 425-500 parts per million and the expected increase in global mean temperature to 1.5–2ºC above pre-industrial levels.

Today, the price per tonne of carbon under the EU emission trading system (ETS) is around €6, while the price of allowances sold at the most recent auction for the cap-and-trade scheme (the regional greenhouse-gas initiative) covering nine US states was just over $5. So the price needs to climb significantly to reach even the lower Stern-Dietz estimate.

The European commission plans to backload ETS allowances, under which 900 million permits will be temporarily withdrawn from the scheme, will push prices higher – possibly to €19 in 2015, according to the best estimate – but not by nearly enough. It is worth remembering that in 2000 the commission projected that the price of an ETS allowance, which is equivalent to one tonne of CO2, would be €33.

In April 2006, just over a year after the system started, the price of allowances peaked at around €30, but have come nowhere near such heights since and there is no guarantee that backloading will see prices rise sufficiently. In the UK, the carbon price floor (CPF), which places a charge on every tonne of CO2 emitted by high-carbon energy generators, was, under George Osborne’s original plans, supposed to rise from £16 per tonne in 2013 to £30 by 2020. However, in a rethink, the chancellor announced in his 2014 budget that the CPF would remain at the planned 2016/17 level of £18 per tonne until at least 2019/20.

Policymakers, often after intense lobbying, are reluctant to pursue action to raise the cost of carbon to anything like the level required to prevent temperatures spiralling because they fear that intensive energy users will decamp to countries without similar pricing mechanisms. Hence the political haggling last year over whether to support the backloading proposals and Osborne’s backtracking on his own policy.

But a reluctance to take measures now to raise the cost of carbon is ultimately a false economy: it means the costs of curbing carbon emissions and dealing with the damage wrought by the changing climate will escalate.


Subscribe to IEMA's newsletters to receive timely articles, expert opinions, event announcements, and much more, directly in your inbox.

Transform articles

How much is too much?

While there is no silver bullet for tackling climate change and social injustice, there is one controversial solution: the abolition of the super-rich. Chris Seekings explains more

4th April 2024

Read more

One of the world’s most influential management thinkers, Andrew Winston sees many reasons for hope as pessimism looms large in sustainability. Huw Morris reports

4th April 2024

Read more

Alex Veitch from the British Chambers of Commerce and IEMA’s Ben Goodwin discuss with Chris Seekings how to unlock the potential of UK businesses

4th April 2024

Read more

Regulatory gaps between the EU and UK are beginning to appear, warns Neil Howe in this edition’s environmental legislation round-up

4th April 2024

Read more

Five of the latest books on the environment and sustainability

3rd April 2024

Read more

Ben Goodwin reflects on policy, practice and advocacy over the past year

2nd April 2024

Read more

In 2020, IEMA and the Institute and Faculty of Actuaries (IFoA) jointly wrote and published A User Guide to Climate-Related Financial Disclosures. This has now been updated to include three key developments in the field.

2nd April 2024

Read more

Hello and welcome to another edition of Transform. I hope that you’ve had a good and productive few months so far.

28th March 2024

Read more

Media enquires

Looking for an expert to speak at an event or comment on an item in the news?

Find an expert

IEMA Cookie Notice

Clicking the ‘Accept all’ button means you are accepting analytics and third-party cookies. Our website uses necessary cookies which are required in order to make our website work. In addition to these, we use analytics and third-party cookies to optimise site functionality and give you the best possible experience. To control which cookies are set, click ‘Settings’. To learn more about cookies, how we use them on our website and how to change your cookie settings please view our cookie policy.

Manage cookie settings

Our use of cookies

You can learn more detailed information in our cookie policy.

Some cookies are essential, but non-essential cookies help us to improve the experience on our site by providing insights into how the site is being used. To maintain privacy management, this relies on cookie identifiers. Resetting or deleting your browser cookies will reset these preferences.

Essential cookies

These are cookies that are required for the operation of our website. They include, for example, cookies that enable you to log into secure areas of our website.

Analytics cookies

These cookies allow us to recognise and count the number of visitors to our website and to see how visitors move around our website when they are using it. This helps us to improve the way our website works.

Advertising cookies

These cookies allow us to tailor advertising to you based on your interests. If you do not accept these cookies, you will still see adverts, but these will be more generic.

Save and close