150 Ways to Price your Carbon

Bruno Prior

Friday, 9 April 2021

Climate change

The Renewables Obligation, Renewable Heat Incentive and Feed-in-Tariffs renewable subsidy mechanisms generated nearly 150 different implicit carbon prices, from 1 to 300 p/kgCO2e (see linked chart). And there were plenty of other implicit carbon prices generated by other mechanisms. There should be only one.

Back in 2014/15, I did some work to convert the value of various renewable-energy subsidies into implicit carbon prices. I found nearly 150 different values, ranging from just over 1 p/kgCO₂e to 300 p/kgCO₂e, depending on the technology, scale, sector and counterfactual (i.e. the fuel it was displacing).

This was only a subset of all of the carbon valuations implicit in government subsidy. I didn't estimate the value of the nuclear subsidies, for instance. Nor did I look at the effect of several other policies. This covered only three: the Feed-In Tariff, the Renewables Obligation and the Renewable Heat Incentive. The reality must be at least 200 different carbon valuations.

You might think that, at any point in time, there is only one carbon value. And you'd be right. The environment doesn't care what technology is used, or at what scale, or in what sector. It cares only about the amount of carbon emitted. A tonne of carbon saved by one means has exactly the same value as a tonne of carbon saved by another.

Carbon tax reflects that reality. Winner-picking policy such as the UK has implemented for over 30 years, does not. UK policy, as always, assumes that our intellectual establishment knows what's best for everyone, and perverts valuations in order to ensure the outcomes that, if they were right, would be delivered anyway by mechanisms that did not pervert valuations.

The situation has not improved since 2014/15. We have new micro-targeted mechanisms since then (e.g. Contracts for Differences). We have more heading our way (e.g. the Green Gas Levy).

If we compare the performance of the UK against Sweden (which implemented a carbon tax in 1991, the same year that the UK implemented its first winner-picking mechanism, NFFO), it's clear that the UK Establishment's intellectual arrogance is not only irrational but also ineffective. The UK targeted electricity and did little about heat and transport. Consequently, we made decent progress on electricity, but not as much as Sweden. But on heat and transport, it is chalk and cheese. Renewables constitute around 6% of UK heat compared with 68% of Swedish heat (and they need a lot of heat for obvious reasons). Renewables also constitute around 6% of UK transport (if we take out the double-counting element in the Renewable Energy Directive). Sweden's figure is around 4 times higher.

This is just a little cover note to explain this graphic of implicit carbon prices in the RO, RHI and FiT mechanisms, which I wanted to put online for reference.

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