William Sunnucks is Chairman of Land Management Limited. He is a candidate for Colchester Borough Council.
The Conservative party has usually stood for market solutions and fiscal prudence. Unfortunately its current approach to climate change is heading in the opposite direction and needs a reboot. Following COP26 we have the targets but little in the way of a policy to deliver them.
We now need a coherent policy framework that is a) credible on delivery and b) built around a clear political message. Just at the moment we are heading for a major setback as energy prices soar and Labour takes the initiative with its windfall tax on North sea profits.
Meanwhile the Conservative answers are based on deficit spending and regulation rather than long term market solutions.
As usual these problems are a long time in the making. They can be dated back to the abandonment of the Fuel Price Escalator by Tony Blair, the last serious attempt to use Pigouvian economics to change behaviour.
The Fuel Price Escalator policy increased fuel duties by up to six per cent each year in real terms. It was introduced by John Major’s government in 1993 and offered the prospect of reducing gas-guzzling car transport, easing congestion on the roads, raising significant revenue and encouraging innovation and modal shift.
It was abandoned in 2000 following a spike in road fuel prices and truck driver blockades, an event that serves as a warning against heaping the cost disproportionately on one section of the population.
Since the escalator was dropped transport has increased its share of UK emissions from 22 per cent to 33 per cent, and our roads have become more congested. The story provides a useful case study for the wider question – what sort of government interventions are needed to address what economists call the “biggest externality”? I list some of them below.
During Cop26 the Government focussed almost entirely on two and three, deficit spending and moral suasion, or ‘boosterism’ as the newspapers call it. Greta Thunberg is too unkind when she calls it “blah, blah, blah”, because a clear direction of travel has now been established. But the real impact will be limited when the COP26 publicity dies down and government funds run dry.
A Conservative climate change policy should focus on four, five, and six – the use of markets and pricing to change behaviour. Different solutions are needed for different sectors such as transport, building, electricity, manufacturing and agriculture. Our broad argument should be that deficit spending and good intentions won’t produce results: but economic incentives will.
Within this broad theme we need detailed discussion and research around the following questions before developing slogans and headlines:
- How can we eliminate green premiums? Bill Gates produces technological solutions in his excellent book “How to avoid a climate crisis”. Would complementary taxes incentivise the necessary innovation and investment, as well as reducing the deficit?
- How should green tax revenue be split between R&D and compensating the groups most affected by the price rises? Is 50/50 the right figure?
- Can strict carbon taxes cope with market price fluctuations, such as the current problem with high gas prices? Tony Blair’s experience with the fuel price escalator is highly relevant.
- Are carbon import taxes needed to level the playing field internationally? Could they be used to encourage other countries to introduce similar taxes, thus magnifying the impact of our national effort?
- Who should develop the policy? Think tanks have the expertise, party members have the enthusiasm, non-party members are there to be engaged and recruited. How can the party lead the debate, establishing its passion and expertise and thus converting it into a campaign tool?
By now the reader will have detected that I personally favour using green premiums as a framework to draw policy together: they focus on the consumer, not just the producer, are easier to understand than cap and trade, and are more flexible than strict carbon taxes.
If the Conservatives are to get over the forthcoming fuel price crisis and build a credible green platform for the next election, we need to get busy with a distinctive policy now. It isn’t a subject to be avoided in hopes that it will just go away.