So last week BEIS published updated carbon costing figures rather ruthlessly while I was on holiday. For some Friday fun I thought I'd give you a brief overview of what this means in non-carbon-geekspeak, as it will impact key Government decisions. /1
gov.uk/government/pub…
Firstly, an explanation. If you want to decide between two different policy options, you need a way of evaluating which one gives the most benefit. This analysis is traditionally undertaken using the Treasury’s Green Book rules. /2
These include guidance on how to account for the carbon emissions produced as a consequence of the policy you’re considering. This is done by assigning a financial value to each tonne of carbon. /3
If Policy 1 produces 10 tonnes of emissions and Policy 2 abates 5 tonnes of emissions, and your carbon value is £10/tonne, then the cost of Policy 1 is £100 and the benefit of Policy 2 is £50. So you’ll pick Policy 2, all else being equal. /4
A wind farm might cost £10 per tonne of carbon it abates, or a heat pump might cost £20/tonne. To get your overall carbon price, you add up all the measures you need to get to Net Zero in the cheapest way possible, and the most expensive of these sets your carbon price. /5
BEIS hadn’t updated carbon valuation to take account of Net Zero. Carbon prices in the traded sector used for policy evaluation were at their highest £37/tonne for emissions projected for this year. The Net Zero update has boosted this to £240/tonne. /6
This is because it’s considerably harder to get to Net Zero than it was to get to the previous target, and we have considerably less time left to achieve it. /7
There’s two sets of decisions where it will be most important: major policy decisions, and planning battles. For policies that can lead to an increase in emissions, like a programme of road construction, many marginal cases for action will be wiped out. /8
For planning battles over developments like new fossil-fired power stations, this will significantly hamper the economic case for delivery and result in more applications being advised against by planning officers. /9
Conversely, this is an enormous fillip to those pressuring Government to act faster on climate change, as it greatly boosts the case for doing so – most importantly, perhaps, to Treasury, who will now evaluate policy options using these figures. /10
However, those using them to call for a holistic carbon tax should be wary: a tax of £240/tonne applied to domestic gas heating would more than double its cost, plunging large portions of the country into fuel poverty. Suddenly, heat pumps and/or hydrogen don’t look so bad… /fin
