The price of carbon and the ethic of Cain

billmorris.pngWilliam Morris has been described by E.P. Thompson as one of the greatest of Englishmen, and as a revolutionary without a revolution [Persons & Polemics, E.P.Thompson, Merlin Press, 1994]. At the end of the nineteenth century this perspicacious man, who saw that economic relationships reflect and fashion moral relationships, rallied tirelessly against the ethic of Cain – the acquisitive society and deepening wealth inequality – in contrast to a society based on the ethic of community and a society of equals, and believing that that there could be no compromise between the two ethics set out to work for the revolution.

The appalling waste of life & suffering in the past 100 years would undoubtedly cause Morris pause for thought and probably less zeal for revolution. But his moral critique – following a long tradition of English dissenters – finds an albeit faint echo in Joseph Schumpeter’s concept of “creative destruction” which describes the uneven evolution of capitalism and corporatism, and their relationship to democracy, and which arguably has renewed relevance after twenty years of globalisation.

The question of how liberal democracies, entrepreneurs and dominant classes will respond to climate warming is now focused on the opening debate over carbon taxes, and is taking place against a background of stumbling growth and the unbridled greed of the financial markets added and abetted – in the UK – by the present and preceding New Labour administrations.

But the same Labour governments have also set two precedents: commissioning the Stern Report, and introducing the climate change bill. The first established that adopting measures to reduction carbon and other greenhouse gas emissions would cost less than failing to prevent climate change, and that such measures are affordable; the second includes a politically far-reaching timetable for mandatory cuts in targeted greenhouse gas emissions, based upon binding domestic carbon reduction targets, effectively establishing a pathway to make the UK a low-carbon based economy.

The Stern Report has been controversial, initially for the choice of discount rate, and more recently because of the assumptions and numbers used to estimate the consumption reduction equivalence (including putting a monetary value on human life), which have been used to estimate the social cost of carbon in the cost-benefit analysis for the proposed third runway at Heathrow. George Monbiot has taken umbrage that the “shadow price of carbon”, which is currently valued, human lives and all, at £25 a tonne. Human life is not a commodity, but it does have an economic value in many markets. The Economist response errs in overstating the capacity of future growth and material progress to reduce poverty in a world known to be bound by climate change constraints and the immediate necessity to reduce consumption.

Heathrow is now a lightening rod for climate change campaigners and regardless of government estimates that a new runway has a net economic benefit, it is unlikely to be built: innovative protesters plus MPs in London and Home County constituencies will ensure that profits take second place to environmental and political costs. Large infrastructure and technology projects have track record of cost underestimation and cost overruns. Hypothetical gains from growth in air traffic are not shared equally and nor are the costs: the extent to which scenarios have been developed that take into account the effect of a fuel levy on airlines, carbon taxes on airline tickets, and the cost of disturbance to Londoners remains unclear. The debate is really about re-appraising the UK’s aviation forecasts and policy in light of the need to cut emissions by 30% by 2020.

In the UK emissions are about 10 tonnes of CO2 equivalent per capita. With a population of about 60 million the current annual level of domestic emissions is 600 million tonnes. An initial low carbon tax of, say, £10 per tonne (US$15 per tonne) would generate £6,000m per year in tax revenues. Total UK tax revenues were £520,000m (about £8,500 per head) in 2006-07, of which income tax and national insurance payments represented 45%. The carbon tax can be introduced as a revenue-neutral measure, for example matched by reductions in incomes taxes – although strong arguments can be made for some carbon tax receipts to be ring-fenced to finance public support for carbon technologies, grants and subsidies to encourage the switch to lower carbon technologies for power, heat and transport, as well as part of UK contributions to international safety nets and adaptation funds for those poorer countries most likely to be directly affected first by climate change – for example to counter declining crop yields in Africa.

Faced with the social costs of their spending, consumers can be expected to reduce their demand for carbon emission goods and services, and companies will invest in more efficient technologies (Shell have called for a carbon price close to $100 – about £50 – per tonne of CO2 to justify investment in carbon-capture-and-storage schemes). Carbon pricing and supporting regulations need to be introduced quickly: the Stern report emphasised that price of delay will be higher mitigation costs.

billmorris1.pngShort of rationing only carbon pricing will induce the shifts needed for the UK to meet its commitment to reduce emissions by 60% before 2050 to about 4 tonnes per capita. Carbon pricing policies will raise many distributional issues, and open the debate on the nature of our society. William Morris would be working now to prepare the ground for a more cooperative social contract, and raging against the moral immiseration of the ruling classes, who “rather than lose anything which really is its essence, it will pull the roof of the world down upon its head.”

 

 

 

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