Although the prime minister has insisted that the Cop26 summit in Glasgow is the world’s “moment of truth”, there is a high chance it will actually amount to little more than a fortnight of posturing, photo opportunities and the issuing of vaguely worded communiqués. The gathering is already beset by a range of problems which may combine to thwart a rational or serious outcome.
First, if China and India are not committed to a substantial curtailing of carbon emissions then targets set by countries such as the UK are unlikely to register as much more than a rounding error. A theoretically optimal policy solution pursued in one corner of the world will be of highly dubious efficacy, unless similar strategies are pursued elsewhere.
Second, because of the way politicians tend to operate, almost all policy proposals are framed in the form of very specific targets — around temperatures or dates — rather than planning for a range of outcomes over a substantial time period. The professed aim of many world leaders to keep temperature rises to under 1.5C by the end of the century is an example of this. Warming of 1.49C by 2100 is unlikely to be much different in consequence to an uptick of 1.51C. Such specifically stated goals may help focus the mind, but also tend to lead to binary thinking.
Third, there is limited discussion about the right balance to strike between prevention and mitigation. Those most exercised about climate change will argue that we need to do lots of both, but the more resources we devote to one, the fewer resources we are likely to have for the other.
Those gathered at Cop26 would be well advised to adopt a three-pronged approach, each prong being wholly consistent with living in a liberal, market economy.
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First, the price mechanism should be the principal tool of choice in seeking to rationally alter behaviour. Resources are inefficiently allocated if actors don’t face the real price of their activities. A classic example is a steel plant located right next to a river. If the owners are able to pollute the water supply without cost then steel will be over-produced to the detriment of those who swim or fish in the river. In the absence of a property rights solution — such as the owners of the river successfully charging the manufacturer for its negative impact — the sensible policy is to charge or tax the steel producers at the exact rate to reflect the damage they are causing.
The same rationale applies to greenhouse gases. If a flight emits carbon causing, say, £10,000 worth of damage to the environment, but this is not reflected in the prices faced by passengers or the airline, we will have more aviation activity than is optimal. It may not be easy to work out exactly the “correct” price for carbon. The Biden administration thinks it may be about $51 a ton, others put the number at about half this. Nevertheless, although there may be debate about the right price to apply, there should be agreement that we should try to discover it.
Sadly, in the UK at least, politically inspired exceptions to this approach seem to be more common than the application of a simple rule. Air passenger duty isn’t really a sensible carbon tax as it applies to the number of passengers on a plane not the actual pollution caused by the journey. Even so, an already sub-optimal tax has been made even more complicated by the chancellor’s announcemen in last week’s budget that domestic flights will be treated differently from international ones. On the other side of the aisle, the Labour Party is arguing for the abolition of VAT on domestic energy — which is already taxed at a very low rate. If you want people to be encouraged to insulate Britain, making households even less sensitive to their energy bills is an odd way of going about it.
Second, regulatory barriers impeding low-carbon alternatives to traditional fossil fuels need to be seriously questioned and — in many areas — removed. If carbon is correctly priced, entrepreneurs, inventors and businesses will already be incentivised to provide energy with fewer emissions. However, if regulatory hurdles block such innovation, their efforts risk being frustrated. This has been the fate of fracking in the UK where our emerging shale gas revolution was strangled at birth. In stark contrast, the emergence of shale in the United States has played a key role in their reduction of emissions by 20 per cent since the turn of the century. Natural gas now makes up about 37 per cent of US energy supply significantly outstripping coal — and greater than wind, biofuels and nuclear power combined.
Finally, there is good evidence to suggest that prosperity often goes hand-in-hand with greener behaviour.
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In environmental economics, the Kuznets curve stipulates that a country’s environment initially worsens in tandem with economic growth — but only until a certain income is reached. At some point, a nation’s environment then begins to improve. For deforestation, environmental economists have put it at about $6,300.
For example, China, Russia, India, Vietnam and Bangladesh are just some of the nations that have hit this forest transition phase and are now experiencing net afforestation.
In much richer places forest area isn’t just increasing, but we now have more forests than before industrialisation. Today the UK has more than twice the forestation as we did one hundred years ago, and we will soon reach forest levels equal to those registered in the Domesday Book almost a 1,000 years ago.
It may sound counter-intuitive, but the liberalisation of global trade and the spread of market capitalism seems to lead to greener outcomes.
If Cop26 embraces proper market pricing, deregulation and open markets, it will amount to a real moment of truth. Sadly, the early signs are not promising.
