Guest Blog: Carbon Pricing and COP26

We wanted to have a better understanding of Carbon Pricing - what it is, how it works, why it matters (especially in the context of COP26), and how you can find out more. So we invited Hannah Dillon (@iamhannahdillon), Head of the Zero Carbon Campaign (@zeroc_official) to tackle these questions for us, which she has kindly done in this guest blog, which also comes with a reference to their very clear Beginners Guide.


COP26 - An opportunity to give carbon pricing the attention it deserves

In August 2020 environmental campaigner Georgia Elliott-Smith mounted a legal challenge against the UK Government, arguing that their proposal for pricing Greenhouse Gas (GHG) emissions on leaving the EU did not comply with the Paris Agreement. She was referring specifically to the fact that emissions produced from the burning of waste were not going to be included in the UK Emissions Trading Scheme (UK ETS), in spite of their contribution to global warming. This is the sort of attention that carbon pricing desperately needs, but rarely gets. 

Understanding carbon pricing 

One of the reasons that carbon pricing so often fails to capture the headlines is that it is immensely complicated, and can easily be misconstrued; not enough attention has been paid to helping people understand how it works. That’s why we launched the Zero Carbon Campaign, and why we’ve created a Beginner’s Guide to help people understand what carbon pricing is and why it matters, so we can collectively push it further up the environmental agenda. 

Why carbon pricing matters

There are plenty of reasons for taking carbon pricing seriously. 

We need to reduce GHG emissions by about 7% per year if we want to achieve the temperature targets laid out in the Paris Agreement. According to this report from the CPLC, carbon pricing is the single most effective way of achieving this goal, because placing a price on carbon (and equivalent GHG emissions) causes those who produce and consume high volumes of GHGs to move quickly towards lower-carbon alternatives. 

It is not just the environmental costs of our addiction to fossil fuels that we need to worry about; the production of GHGs also carries immense health and social justice implications. In the context of waste incineration, Elliott-Smith argues that - as well as contributing almost 7 million tonnes of Co2 emissions to the UK’s carbon footprint in 2019 - the UK’s waste incinerators are three times as likely to be situated in areas of high deprivation. The pollution they cause - which remains unpriced and unchecked - is wreaking havoc on the lungs of young children, whose parents can’t afford to live anywhere else. 

The UK pricing landscape:

Waste incineration is not the only area in which UK GHG emissions have been neglected. The UK’s carbon pricing landscape as a whole is sporadic and inconsistent, only covering approximately ⅓ of UK emissions, at prices that are not yet consistent with the UK’s 2050 target. It is also riddled with subsidy, resulting in large emitters being given ‘free allowances’, whilst consumers are left to pay, via opaque decarbonisation costs that are placed onto their energy bills.

That’s not to say that there haven’t been some success stories. Where we have implemented carbon pricing in the UK, it has had hugely positive effects on emissions reductions. The introduction of the Carbon Price Floor [Note 1] in 2013 drove a reduction in the volume of coal-generated electricity on the UK grid, decreasing from 40% in 2013 to less than 3% in 2019 [Note 2]. The UK has demonstrated global leadership on carbon pricing before, and it can do so again.  

Pricing around the globe: 

To achieve the emissions coverage required under a 1.5C scenario, we not only need to accelerate the progress of carbon pricing policy around the world, we also need to ensure that carbon prices are introduced at a level consistent with the change required to achieve ‘net zero’ emissions. 

Currently, roughly 80% of annual greenhouse gas emissions remain unpriced, and the average global carbon price is approximately $2USD per tonne of CO2. According to the High-level Commission on carbon prices, the carbon-price level consistent with achieving the Paris temperature target is at least US$40–80/tCO2 by 2020 and US$50–100/tCO2 by 2030, provided a supportive policy environment is in place.

The role of COP26:

As hosts of COP26, the UK has a vital role to play in driving global ambition against climate change. But they also need to get their own house in order before they can authentically encourage others to do more. Given the UK’s historic leadership on this front - and the huge scope for them to price emissions across more of the UK economy - a renewed commitment towards cabron pricing seems like a good place to start. 

That’s why we’re calling on the UK Government to introduce stronger and more consistent carbon pricing as a core pillar of their net zero strategy, so they can authentically push other jurisdictions to raise carbon pricing ambition within their Nationally Determined Contributions or ‘NDCs’. We’re also asking them to use their COP26 diplomacy to make progress towards achieving global agreements on carbon pricing - specifically around the implementation of a global carbon price benchmark or floor.

Conclusion: 

It may take a while to understand carbon pricing, but that time investment is a small inconvenience compared to the challenges that we will face if we fail to move quickly to place a substantial price on the production of greenhouse gas emissions across the globe. Carbon pricing is a tried, tested and proven policy instrument, which has a vital role to play in driving the levels of decarbonisation required to achieve the objectives of the Paris Agreement. As such, COP26 provides a vital opportunity for the UK Government to finally give carbon pricing the attention it deserves.

[Note 1]

The Carbon Price Floor is a combination of the EU ETS price, and the ‘Carbon Price Support’ (CPS), an additional tax levied on the power sector to help decarbonise the UK’s energy mix. The tax was due to rise every year until 2020 (to a price of £30/tCO2) but the CPS component of the floor price was capped at a maximum of £18/tCO2 from 2016 to 2020, to limit the competitive disadvantage faced by business and reduce energy bills for consumers.

[Note 2]

A tax on carbon dioxide emissions in Great Britain, introduced in 2013, has led to the proportion of electricity generated from coal falling from 40% to 3% over six years.” UCL (2020), The Value of International Electricity Trading: Annex, p. 2. Available here.

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