Examination of Witness (Questions 140-159)
PROFESSOR PAUL
EKINS
8 FEBRUARY 2006
Q140 Chairman: Other members will know
you well. Thank you for coming. I am sorry we are running slightly
late. You will have heard the previous discussions. To kick off,
the latest Pre-Budget Report, the first one in this Department,
what is your overall assessment of it in terms of the way it is
addressing the environmental challenges?
Professor Ekins: I think it was
very much more of the same from the previous Pre-Budget Report,
and I think that was disappointing, in view of the previous two
new Labour governments in 1997 and 2001. Very quickly they produced
a very short document called the Statement of Intent on environmental
taxation which then proceeded to do quite a bit of work, and we
had very significant initiatives on environmental taxation over
the subsequent years. In 2002 we had a much longer document on
environmental taxation, which essentially restated some of the
objectives with an awful lot of, in my view, rather irrelevant
padding, and that document did much less work over the subsequent
years in terms of significant new initiatives. Now, it seems,
we have no new statement at all, but we do have a PBR with practically
nothing environmentally significant in the environmental chapter.
The real environmental impacts are elsewhere, as in the new house-building
programme, which is mentioned at some length in the productivity
chapter. I think that says quite a lot about how environmental
impacts are being perceived.
Q141 Chairman: Do you think the Treasury
is losing interest in this? Is it cooling off, or is there a lot
going on behind the scenes which we are not yet able to detect?
Professor Ekins: I am not an insider.
Obviously I try to keep my ear close to the ground, and I do not
hear anything. That is not to say that it is not happening in
some recess that is very far from the ground that I am listening
at but, if it is, it is very well hidden.
Q142 Joan Walley: If you were, in this
third term, Special Adviser to the Treasury and dreaming the possible,
or dreaming the impossible, what would you say should be included
in terms of the tax proposals coming from the Treasury?
Professor Ekins: I think we do
need a restatement of the principle, because the problem with
the document in 2002 was that it was very long—it was rather
like a text-book in terms of setting out all kinds of optimal
arrangements that have very little real purchase on the political
process, whereas I think the Statement of Intent essentially said
that we need a tax system which focuses more on bad activities
environmentally rather than on good activities in terms of productive
activity, labour taxes, capital taxes and we will achieve a shift
between those. That was the central message of the Statement of
Intent. It is still, in my mind, both a very reasonable and desirable
statement and I think we need to get back to it. If one looks
and sees what has happened since 2000, it is quite clear that
we have achieved a tax shift in the reverse direction to that
which was set out in 2002, and so we need to look again at the
big earning taxes, mainly taxes on energy, and work out how we
can again start to derive significant revenues from them, which
then, of course, will allow other taxes to be reduced elsewhere.
Q143 Joan Walley: We heard a little bit
earlier on about NIMTO ("not in my term of office").
Do you think the Treasury is becoming too politically scared?
Is it too dangerous an issue to tackle? It has got to be tackled,
so how do you feel the Treasury could be winning the public round
to gain support for the long-term changes that are needed?
Professor Ekins: I think the big
political point, which I do not think anyone has yet managed to
put across, is the reality of the tax shift as opposed to the
tax increase. If one was able to put across the fact that one
is talking about deriving more of necessary taxation from activities
which we wish to discourage and allowing people to have more money
in their pocket because of reductions in, for example, employees
National Insurance contributions, that seems to me to be politically
quite a saleable message were it to be put across in a credible
way. The problem with this whole issue is that Chancellors in
the past have found it very difficult to command credibility with
the notion of a tax shift, because everyone imagines that what
they mean is a tax increase and they are simply engaging in some
form of spin, which the public does not really buy. I think there
is a serious problem but, if it were possible to get cross that
essential message, I think it could be politically extremely attractive.
Q144 Joan Walley: If we are trying to
get that message across, how much do you think an all-party consensus
is important for that? How much do you think transparency is important
as well so that we are not giving out mixed messages?
Professor Ekins: As politicians
you know better than I how difficult it would be to get total
consensus on tax matters, which inevitably have to be a major
part of the political battleground on which politics engages,
but I do think that there are a number of principles that could
be enunciated. The first is quite simply the "polluter pays"
principle. This is the oldest principle of environmental policy;
it is also largely ignored. A robust restatement of the "polluter
pays" principle from all parties might lead to a level of
consensus around that which would at least make it more difficult
to move away from taxing polluting activities towards subsidising
their cleaning up, which is still very much the way political
debate seems to go. The second issue where I think potentially
there could be consensus is, again, this issue of a tax shift.
The long-term desirability of increasing the proportion of taxation
that comes from activities that we would like to discourage. We
know from such taxes that they can be a very stable tax base,
even if they do discourage activities that cause them, and it
is certainly going to be a very long time before fossil fuels
cease to provide a very substantial tax base. Although there are
issues of fiscal stability, they are by no means as important
as they are sometimes made out to be. If we were able to get political
agreement on those two core principles, I think it would be possible
to fashion something of this long-term direction in terms of pricing
signals which your previous witness was talking a bit about, and
engender a sense among people that, yes, we know where things
are going and we know that from this tax shift we are going to
have more money in our pockets, but we also know that if we choose
to spend that money on environmentally damaging activities, we
are going to be able to buy fewer of them. If we choose to spend
it on things that are not environmentally damaging, then clearly
we are going to be better off unequivocally.
Q145 Joan Walley: If we could get some
sign-up from the Treasury as to those two principles, do you think
that, in addition, there would be a need to have some kind of
institutional change? I know that you are familiar with previous
reports of this Committee when we have recommended in the past
a Green Tax Commission. Do you think we would need a new institution—it
could be that or it could be an energy agency of some kind or
another—whereby we could get a buy into this long-term changes
that would then help to get across to the public the importance
of changing direction and using tax in this way for the environmental
agenda?
Professor Ekins: I think the main
importance of a body like a Green Tax Commission is to do with
credibility. It is to enable this debate to take place at a pretty
high level without people being very suspicious about the motives
of the key players who were organising it. I am afraid, if the
Treasury were to be organising it, we would start from a very
significant disadvantage in that respect. If it were possible,
through this wide-ranging debate, to arrive at the kind of political
buy-in that I am talking about, then it seems to me that it would
be desirable for taxes to be more generally discussable across
government. I do hear, for example, that departments like Defra,
which clearly have an interest in environmental taxes of all kinds,
find it very difficult actually to have sensible conversations,
both among themselves and with outsiders, about environmental
taxes because the Treasury, of course, considers that that is
their preserve and no-one else may touch it. It will be highly
desirable for all the departments that have significant environmental
impacts, and that is most departments, to be able to talk about
these things in a joint forum, in a way that recognises that this
needed to be something that was joined up right across government.
Perhaps that would be an institutional innovation, but probably
the incipient institutions already exist through bodies such as
Green Ministers, or whatever. I think it does require a new paradigm
to be set, but thereafter it seems to me that many of the institutions
that we have can serve us pretty well.
Chairman: Maybe the time to tackle the
malign, excessive part of the Treasury is when the Chancellor
becomes Prime Minister!
Q146 David Howarth: Can I ask your view
on another possible barrier to the tax shift that we are talking
about, which is the Danish work showing that environmental taxes
tend to be regressive except for fuel taxes on transport which
are proportionate but are not regressive, and so you would have
to make the tax shift disproportionate into the lower end of the
income scale to make up for that. Do you agree that that is a
characteristic of environmental taxation, and therefore do you
agree that the political consensus would have to be around the
distributional issues not just about technical issues?
Professor Ekins: The distributional
issues are very important. I spent a certain amount of time academically
looking at those and produced a number of papers on a project
funded by the Joseph Rowntree Foundation. We looked in very great
detail at the distributional implications of household use of
energy, water, waste generation and transport. In all of them,
except for the household use of energy, it was clearly possible
to introduce charging schemes—let us call them charging
schemes rather than taxes for the moment—which at worst
were not regressive and at best could be highly progressive depending
on the political orientation. That certainly convinced me, for
example, that a lot of the debate about water metering that took
place at the end of the 1990s, to some extent at least founded
on this issue of regressivity, was in fact misplaced and that
it would be perfectly possible to introduce water metering in
such a way that it was not regressive. Partly, that is because
we have a water-charging system at the moment which is pretty
regressive and, therefore, there is quite a lot of scope to get
less regressive as you introduce different kinds of charging systems.
Energy is different, because even in the lowest income decile
there is an enormous variation of energy use. We identify the
difference as a factor of six between technically the twentieth
percentile and the eightieth percentile, which I know you will
understand, probably with all your other colleagues as well. Broadly,
it means that there is at least a factor of six difference even
among the lowest income households, which means that it is practically
impossible to compensate for any kind of carbon tax through the
benefit system, or whatever, which led us to recommend that you
needed a different approach. Part of the reason, at least, for
this is the very low energy efficiency of the housing stock, which
I know this Committee in the past has spent quite a lot of time
looking at. That is gradually being improved, but, in my view,
it is too gradual and it needs to be hastened. That could be done
through a mechanism such as we are advocating in a report that
was published today by the Green Alliance through council tax
advantages if people insulate their homes. We were advocating
a range of doing things. I think the distributional issue is terribly
important, I do not think it is a show stopper and I think it
can be effectively addressed.
Q147 Mark Pritchard: I was aware of that
report, and congratulations on the timing of that report.
Professor Ekins: It is a pure
coincidence, a pure fluke.
Q148 Mark Pritchard: I think the figure
mentioned was 5%—I do not know if it is correct—a
5% rebate on council tax for energy-efficient homes. Would you
regard that as a progressive tax and would you regard as a regressive
tax a certain political party's commitment to put 7% on all new-home
build?
Professor Ekins: I think those
are two different issues. Council tax, as it stands, is slightly
regressive, in the sense that the council tax banding does not
reflect equal proportions of incomes, so that people in the lower
band of council taxes tend to pay a higher proportion of their
income in tax than people in the higher bands of council tax.
Therefore, if you have an across the board reduction in council
tax, and I think we were advocating something like a one off reduction
of £100 for someone who took up a package of energy efficiency
measures, that in itself would be progressive because, in the
case of a low income person who took it up, £100 pounds means
more to them, relatively speaking, than a high income person.
That was one of the reasons why we felt able to advocate that,
because we were committed not to make regressive recommendations.
I think VAT on new-build is a very interesting and difficult issue.
The issue that we were particularly concerned about in the report
is that, of course, refurbishment has a 17.5% VAT rate on it.
With another hat on, I sit on the Royal Commission on Environmental
Pollution and we are doing a study into the urban environment
at the moment, and several of the developers have submitted evidence
to us to the effect that that 17.5% difference means that, even
when refurbishment is cheaper but is not 17.5% cheaper, they knock
down perfectly good buildings in order to build sometimes inferior
buildings in structural terms purely because of the fiscal system.
That does not seem to us to make a great deal of sense. If one
was to achieve a rebalancing between VAT such that new homes did
carry something like 8% and then if you built to the new sustainable
code for buildings higher standards, perhaps that could go down
to the minimum of 5%, and you reduced to 8% significant refurbishment,
VAT again falling to 5% if it was refurbished to the new sustainable
code, that seemed to us, when we were writing this report—the
Royal Commission is still considering what conclusions it wants
to come to on this—to be a more sensible VAT structure for
buildings. In so far as probably first-time buyers are more likely
to buy refurbished than new homes, it might be better if those
were at the cheaper end of the market.
Q149 Mr Stuart: I think we are all aware
that environmental taxes are now at their lowest levels since
at least 1990—around 8.3%—largely because of the failure
to raise fuel duties since the year 2000. I know this is an issue
that this Committee has covered with you before, but the ONS also
published figures for public sector expenditure on environmental
protection, and I was surprised to see that so little, in relative
terms, was being spent on what is classed as "ambient air
and climate". Do you think that the level of government expenditure
in such areas is a valid measure of its commitment to environmental
tax and spending strategy?
Professor Ekins: I do not really,
because, especially in the climate area, many of the policy instruments
have been very carefully designed so that they do not represent
public expenditure. Whether we are talking about the renewables
obligation or the energy efficiency commitment, these are obligations,
as I know you know, put on energy suppliers and any costs that
may accrue go directly to energy consumers without going through
public expenditure at all, and yet it is conceivable that these
policy measures may represent very significant expenditures and
commitments to climate policy. Another obvious one is the fulfilment
of the Waste Water Directive. We have private water companies.
It is largely private water companies who do make the investments
for waste water, so when I look at the waste water management
figure, which also is relatively low, I know that the very large
investments that the private water companies have made are not
in there. What I think is remarkable is the very large proportion
in those figures of waste management expenditures, which shows
the extent to which we still have not yet managed to connect the
public expenditures on waste collection to the people who are
actually producing the waste. Another of the recommendations that
we made in our report today was that local councils should be
allowed to institute variable waste charging. Not a new proposition,
this was proposed by the Strategy Unit back in 2002, and I am
extremely surprised that the Government has not yet moved on it
because, had it done so back in 2002, we would have some valuable
experience from probably only a few councils. No-one imagines
that councils are going to stampede into this field, because it
is potentially politically quite difficult, like lots of these
areas, but a few would have experimented with it, given the kind
of incentives that there are in this field, and we would have
some experience as to how this could best be organised without
encouraging fly-tipping, et cetera, all the other kinds of issues
around waste management. I feel we still have quite a long way
to go in many of these measures.
Q150 Mr Stuart: Are you saying that you
think the £250 million, or whatever it is, on protection
of ambient air and climate, is adequate because there is spending
elsewhere but that we are not seeing in these figures or not?
Professor Ekins: I am quite certain
that our climate change programme is not currently adequate either
to meet the Government's own targets for 2010 or what we need
to do in order to stabilise climate. Whether it is most sensible
to address that through more public expenditure or whether one
would be better to design other instruments, such as price incentives,
for example—if you put up the price of something you may
even gain revenue from doing that while achieving a reduction
in carbon emissions—I think is highly doubtful, and I therefore
would not focus on public expenditure figures as a definitive
signal of Government commitment.
Q151 Mr Stuart: More broadly, do you
think best use is being made of the ONS's environmental accounts?
Professor Ekins: No, I do not.
I was extremely pleased when those environmental accounts were
developed. I thought that was an enormous advance in terms of
allowing government to have a much broader and more realistic
view of what economic activity was all about. To be fair, I think
there are only just ticking over at the moment. They are not terribly
well resourced and they are not terribly well used. I think they
could be far more used to inform target setting, to inform benchmarking
of various environmental performance measures across sectors,
to identify priority sectors and priority actions where particular
hotspots of pollution were occurring and, again, something that
this Committee has returned to in the past, to generally move
towards an attribution of importance to the concept of resource
productivity, broadly a measure of how much wealth are we generating
from the resource base that we are using, that is comparable to
the attention that is given to labour productivity by economists
and the Treasury and other arms of government? In my view, when
we seriously adopt a desire to do that we will find that the environmental
accounts are much more useful than we have currently managed to
make them. We will have to develop the environmental accounts
in various ways to be able to come up with the kind of sophisticated
measures that we will then want, but I think there is an enormous
amount of potential development in that direction that could be
achieved.
Q152 Mr Stuart: Could you explain a little
more about how you think they could be developed?
Professor Ekins: It is to do really
with getting greater clarity about the movements of energy and
material through the industrial sectors and attaching to those
movements of energy and material the environmental impacts that
they cause. We do that a bit for some things, but we have no idea,
for example, which are the sectors, in quantitative terms, that
most pollute water courses. We have a vague idea, obviously, that
agriculture has quite a lot of diffuse pollution, but the water
pollution accounts are extremely ill-developed and they could
be much better developed. We are quite good at air pollution,
but I think there can be greater geographic break down of that
as well as by the industrial sector, and, as we know, air pollution
is still a problem in some parts of the country, in some parts
of the country it is getting worse, and so we need to be aware
of where that is coming from and how that can most easily be abated.
I think there are a number of areas. If I were to focus on this
for a week or so, I would be able to come up with a much more
convincing list, but one only tends to focus on things that you
feel have a realistic chance of being implemented. Unfortunately,
that does not seem to be high on the ONS's agenda at the moment.
Q153 Chairman: Coming on to the Stern
Review, what do you hope might be achieved by this?
Professor Ekins: I am quite certain
that they will not discover anything new, because there is an
enormous literature out there, there are very large numbers of
scientists, and I very much hope they would not want to second-guess
the Inter-governmental Panel on Climate Change or any of those
sorts of things. Whether it achieves anything useful from my point
of view depends on the strength with which it identifies the problem
(and I think the paper they have recently put on their website
is a fairly good start in that respect), the urgency with which
they recommend a solution and then, obviously, the detail of the
recommendations which they make as to how these solutions can
be pursued. The devil is almost certainly going to be in that
detail. We know that it is not easy to reduce carbon emissions.
The Climate Change Programme Review, when it comes out, is certain
to make that fact apparent. The fact that it is taking so long
for it to come out illustrates the difficulty of getting departmental
agreement across the kinds of measures that are likely to be necessary.
One hopes that, by coming from Treasury, it will be perceived
as an authoritative document that perhaps the potential next Prime
Minister is prepared to act on, and if it says things sufficiently
strongly, sufficiently cogently and makes recommendations that
the Chancellor, in particular, is prepared to buy into, then I
think it could deliver a significant impetus to this whole debate.
Q154 Chairman: Are there any downsides?
Is there a danger it might not be helpful?
Professor Ekins: I imagine that
if you asked Sir Nicholas as to whether he knew what he was going
to say at the end when he is less than 20% of the way through,
he would say, "No", and, therefore, obviously it is
possible that it will do the reverse of all those things, it will
come up with a weaker statement of the case, and, worst of all,
in my view, it may come up with the kind of statement that says,
"This is a big international problem. The UK is a relatively
small international player. Therefore, we cannot do much until
everyone does something", which, of course, will be complete
death and termination to a climate change programme generally.
I think that is a significant danger, and I very much hope that
the team is guarding against it because no doubt there will be
some siren voices which are putting that point of view to them.
Q155 Dr Turner: Stern has not only been
asked to examine the long-term economic impacts, which is challenging
enough, but also to draw implications to the timescales for action
and the choice of policies of institutions. What do you make of
that? What practical impacts do you think the review is going
to have on policies and institutions?
Professor Ekins: In terms of the
tenor of my own evidence to the Stern Review, and I did submit
evidence, I hope that one of the things it investigates very thoroughly
is the cost of mitigation. It is my view that the cost of mitigation
of carbon emissions, certainly up to the 30-50% level, need not
be great. This was, indeed, the conclusion of the Government's
own modelling that led to the Energy White Paper, and the reason
for that lies in the fundamental fact of innovation, the development
of new technology and the ability of the economy to adjust and
adapt over long periods to price signals and other kinds of regulation
in such a way that costs are reduced, which does not mean, of
course, that no-one will feel any different. Obviously certain
kinds of behaviours will become very expensive and people who
enjoy those behaviours will find that the world has changed for
the worse around them, but the costs could be relatively low in
terms of macro economic impact, in terms of the ability of the
country to generate viable activities that have a market in the
international market place and therefore we could have a high
standard of living. This seems to me to be a very important message
which all the literature that I trust seems to be giving in terms
of the economic models and all that kind of stuff, which is where
I spend a fair bit of my academic time. I very much hope that
the Stern Review will look into that literature in great detail.
It and will obviously form its own view about that, because, clearly,
whether or not countries do commit to a programme of serious mitigation
will depend, to some extent, on what they think it is going to
cost them, and, in my view, that is not an enormous cost, provided
it is intelligently pursued. I think there is plenty of evidence
for that, and that is the evidence I was particularly keen to
draw to their attention.
Q156 Dr Turner: Do you think the Government
has invested too much in the climate change levy and renewables
obligation to have the flexibility to change its fiscal policy
in order to give some fundamental changes to energy policy?
Professor Ekins: I think it is
extremely important that we have some stability in energy policy.
I think this especially applies to the renewables obligation,
which depends for its effect on private investment. There has
been some private investment in renewables. There is the potential
for an enormous amount more private investment, especially in
such technologies as off-shore wind, and, if that private investment
were to come forward and the policy were then to change so that
it was substantially less profitable than it was thought it was
going to be, then the whole basis under which our new energy markets
are supposed to work and are supposed to bring forward investment
would be undermined. I think those who have launched the new Energy
Review, of course, have been at some pains to stress that it will
deliver stability in the policy instruments that have been agreed,
and I very much hope that that is the case. Obviously, if it is
to do something new, then it will have to identify interventions
to address those areas which it feels were not well covered by
the Energy White Paper, and obviously one is looking forward to
seeing what those might be.
Q157 Dr Turner: Stern may very well conclude
that climate change will have a very adverse effect on economic
growth but that there will be a cost to addressing that change.
Therefore this may make governments nervous about acting on that.
What do you think? Do you think politicians will have the courage
to act on such conclusions?
Professor Ekins: I think that
this is an area where political consensus is absolutely critical,
because I think this whole area has been dogged for much too long
by a few people pointing to the half dozen climate scientists
around the world who are still sceptics and saying, therefore,
there is no evidence to move. The importance of a review like
Stern may be to restate what is the overwhelming scientific consensus
about the seriousness of climate change. If we were able to get
political consensus round that, then I think politicians have
the very difficult task of selling to the country short-term measures
which, even if they are not macro economic costs, will be experienced
as unwelcome changes of behaviour. After all, that is what most
constituents are worried about, unwelcome changes of behaviour—that
they cannot run around in their cars as much they might like to,
that cheap flights might become less available than they currently
are, all the very difficult political issues to do with carbon
emissions which one is very aware of—and it will be very
easy to duck those because it will be perceived that these climate
impacts are well in the future and when they come it is going
to be extremely difficult to say that this definitively was a
result of anthropogenic climate change as opposed to being some
freak storm somewhere. We saw all those arguments wheeled out
with Katrina, and it was absolutely a case in point, scientists
saying, "We can tell you categorically that hurricanes like
that are more likely in the future, but there is no knowing whether
Katrina would have happened if the carbon emissions concentration
in the atmosphere had been at pre-industrial levels or not."
Those sorts of things will demand a different kind of politics
that manages to persuade people that these changes in behaviour—and
I would rather express it in those terms rather than costs because,
indeed, there may not be costs at all—using less energy
may save people money. We know there are lots of measures that
will save people money, but they do require changes in behaviour,
like inviting insulation contractors into your home when the last
people you want to invite into your home are insulation contractors.
One knows that these things can be difficult politically and in
behaviour terms, even if they do not cost you money overall, and
I think the politics of persuading people to go along with that
is not going to be easy.
Q158 Dr Turner: We have got three different
policy reviews going on which really all affect the same ground—the
Climate Change Policy Review, the Energy Review and the Stern
Review. Are you worried about possible contradictions between
the outcomes of these reviews?
Professor Ekins: I hope there
is sufficient joined-up government to ensure that we are not going
to get contradictions. I think there would be many big own goals
if there were perceived to be contradictions. One knows that the
officials on these particular reviews are communicating closely
with each other. The way I hope it is going to work is that the
Climate Change Programme Review will have this view on 2010 and
the more difficult measures that will be required to move towards
the Government's target for 2010 in terms of domestic emissions,
and I think it will focus to a very large extent, or will cover
to a large extent the kind of demand side issues of transport
and household energy efficiency. We have had the Energy Efficiency
Innovation Review, which was covering a lot of that. That is obviously
going to feed into the Climate Change Programme Review. I think
the key issue for the Energy Review is how are we going to ensure
that we get sufficient investment in new generation capacity round
about 2015 onwards, and what should that generation capacity be
in order to be low carbon and high security? That seems to me
to be the hole in the Energy White Paper. Obviously you cannot
answer that question until you have come to a view on what the
demand side issues are going to be, which is why these two reviews
have to be tied in. We cannot be taking decisions about generation
capacity in 2015 if we have not got a view of what the demand
for energy is likely to be and how that is going to develop. What
we hope is that energy efficiency measures will be sufficiently
effective for the demand to start falling, which will obviously
then mean that you need far fewer power stations, or whatever
it is you are talking about, than otherwise. The Stern Review,
I hope—it will put all this into an international context
obviously—will reinforce the urgency of it, will bind the
Chancellor into a climate change agenda, which I think is very
important. We know the current Prime Minister has bought into
a climate change agenda. I think it would be important for the
present Chancellor to be bound into that. My optimistic scenario
is that these three will all reinforce each other and will manage
to build a commitment in the country at large about the importance
of taking an integrated, holistic joined-up approach to what is
a pretty tough political problem.
Q159 David Howarth: Can I take you to
the specific issue of the social cost of carbon, which presumably
the Stern Review is going to take up and overtake the various
other bits of work that are being carried out at the moment. Perhaps
you could tell us about that, if your ear is closer to the ground
on that particular issue, but can I ask you two questions. What
is your position on the theoretical debate about whether there
is any point in having an idea of the social cost of carbon on
the grounds that it is incompatible with the environmental limits,
and that what we should be doing is starting with environmental
outcomes that we want to achieve and then look at the most cost-effective
way of doing it, so that the whole of the conventional cost benefit
analysis is simply inappropriate. What is your view on that? If
your view is that there is a point to having an idea of the social
cost of carbon, where do you think the debate has got? What appears
to be going on is that the estimates seem to be diverging. The
Stockholm Report said that the lower limit is £35 a ton,
the upper limits is either a thousand or infinity. Is that another
problem with the whole idea that it does not seem to be a very
stable market. It seems to be spinning out of control?
Professor Ekins: Yes, I must declare
something of an interest in that I have been peer reviewer for
both the social cost of carbon papers that are part of the Defra/Treasury
discussion, and so I know them quite well. The Stockholm paper,
as you say, identifies that the social cost of carbon has a range
of at least three orders of magnitude (ie between one and a thousand),
but it is also characterised by the fact that even the thousand
is not an upper limit, and, as you said, there is no upper limit
when you are talking about the kinds of catastrophes that scientists
are increasingly thinking are not likely by any means, or even
probable, but have a non negligible probability, so it does not
have an upper limit and it does not have a best estimate. The
Stockholm Environment Institute was not able to say, "It
is somewhere between one and a thousand, but, if we choose 250,
we are sort of all right." In my mind, a number with those
characteristics is not of a great deal of use in policy terms.
The problem with the second report is that it is trying to identify
a policy use for a number with those characteristics, which is
why it has been very delayed. It has indulged in intellectual
contortions of an extraordinary agility and, I have to say, not
particular validity, in my view, and I think they will find it
very difficult to publish a credible second report, which shows
you what you do with a number with those characteristics. I think
it relates to the environmental limits issue, because environmental
limits is about saying that there are environmental impacts that
are simply unacceptable and they are impacts that we do not want
to put money numbers on particularly because they are very unpleasant,
they do involve significant loss of life, loss of culture, loss
of livelihood, impacts that are not traded in markets and many
people think that even talking about them in market terms is both
unethical and indefensible, and so you generate a lot of heat
by trying to express them in those terms. The environmental limit
is there for saying, "With that class of impacts, or potential
impacts"—and clearly it is also a concept that has
been invented to address uncertainties—"we just do
not want to go there. We would much rather have a policy position
that says we are not going to exceed those particular limits",
and we are doing this the whole time with, for example, drinking
water standards. We know quite well what drinking water quality
ought to be in order not to have an unacceptable impact on human
health, and we simply say, "Do it", and the Drinking
Water Inspectorate and the water companies do it. We do not do
cost-benefit analysis the whole time and value the lives lost
and working hours lost and so on from that. That is a decision
taken on the basis of environmental limits. I think political
discourse does that, and I think the 60% carbon reduction target
that was the Royal Commission's recommendation in 2000 that the
Government endorsed in the White Paper is very much that kind
of approach. We do not want dangerous anthropogenic interference
in the climate system. We are not quite sure what it would mean,
but we think it might mean a very large sea level rise, it might
mean very large storms arising, it might mean very big droughts
in parts of the world where large numbers of people live and are
already on the food margin, and we just do not want to go there.
That seems to me to be a very robust base for policy. Whether
60% is the right number or, as some people have said, it needs
to be much closer to 80%, and I think when the Royal Commission
recommended it 60% seemed a kind of middle estimate. The climate
science has become rather more alarming over the last couple of
years, and I think 60% is now right at the bottom of a credible
claim that you will not get dangerous interference with the climate,
but that seems to me to be a much more robust way of addressing
public policy on that issue.
|
