A world in which carbon taxes are a given…

I was invited to speak at a conference last week at the London School of Economics Energy Society. It’s always great to be among smart people who have the time to think, and, inspired by academia, I found myself perorating about how the work we do at OpenOil is in perfect accord with the actual roots of classical liberal economics, as articulated by Ricardo and Smith, because of the aspect of rent that dominates the extractive industries, as opposed to the vulgarised version peddled by large private interests today (“What’s good for General Motors”). And nobody left! That I noticed, anyway…

Fascinating to be exposed to thought leaders in and around energy sector governance and policy in the UK. We spend so much of our time noodling about Mozambique or Peru or Myanmar that it was a real eye opener. We were sitting in the heart of London… planes flitting past the window literally every minute on their beelines to or from Heathrow, the steady hum of non-stop traffic at Holborn through the double glazing of a posh hotel conference room, and about a mile away to the east, in the City, Matrix-like caverns of server racks and miles of computer cables driving one of the world’s leading financial centres. Energy as the invisible force driving this incredible machine, and here were the people who were predicting its future.

Even more fascinating: from both the public and the private sector there seemed to be an assumption that carbon taxes are coming. When not if.

First up was David Kennedy from the Committee on Climate Change, an independent body which has enough credibility to have ministerial access (though Kennedy himself was blocked by David Cameron from the top job at the UK’s energy ministry, apparently because the committee’s advice on government policy doesn’t involve enough gas fracking for George Osborne’s liking).

The committee has set itself a very simple task: to advise on practical ways to get the UK to actually carry through its pledge to cut carbon emissions by 90% from 1990 levels by 2050. Kennedy himself, formerly at the World Bank, projects as scientific and pragmatic. His arguments are business arguments. Given the commitment to cut emissions, the project plan needs to start now… even substantial investments in renewables and energy efficiency measures are only enough to present a series of options for the further mass scaling that will need to happen in about 2020. They represent “options” (he used the word several times) in a business sense, sensible investments to deal with the known unknown of which technologies will really come through in scale in time.

Because the carbon tax is coming, one way or another, is the sub-text. Viewed from a distance, and comparing with the world as it is now, this certitude seems optimistic to say the least. Carbon prices under the EC’s voluntary trading scheme have just fallen to their lowest price in years, by Kennedy’s own description there’s a drill-baby-drill faction at the highest level of the UK government, before we get to 20 years of failure at the global level to manage the system complexity and diffuse moral hazard of the climate change problem and get proper carbon caps in place. China, India, energy security in the States etc etc. A lot seems to militate against.

And yet to hear it so well studied and articulated – the Committee has published four Carbon Budgets and is busy with all kinds of other ways of making adaptation an unremarkable fact of life – it was a compelling point of view. Maybe that’s what you do when you know something has to happen… just act as though it’s a certainty, if you can’t exactly create facts on the ground you can at least conjure the most complete possible vision of the low carbon future, engage as many influential constituencies in as many ways as possible… until the actual transition to implementation seems straightforward.

Then researchers from the Grantham Institute presented findings on how the private sector is dealing with the possibility of climate change legislation, such as a carbon tax. It was the same story. Their data pulled together submissions from 582 companies showing great attention and expense being dedicated to this issue. Funnily enough the largest emitters seemed to do the most reporting and thinking about it, energy and heavy industry companies, though as researcher David Grover pointed out, this could be because they had most to lose from a carbon tax – and therefore it was a bigger business issue.

All of which gave rise to two thoughts. The first is the mismatch between the timescales of democratic politics and the business and investment cycle. Kind of good news I guess. It’s 2013 and the fact is despite pretty much 20 years of talking about it, and ten of setting policy goals, there doesnt appear to be any meaningful carbon-limiting legislation within sight. And yet viewed through the lense of investing in a generation-long industrial project, or planning a country’s future energy infrastructure, it seems likely that Europe at least will have some kind of carbon tax by 2020, to work on reducing emissions by mid-century. We can’t see it now because it’s beyond the horizon of news coverage and party policy platforms. But it’s working its way so thoroughly into long-term planning of all kinds it seems inevitable it will happen. It’s just a question of when.

The second thought is on the asymmetry of information about all this. If leading policy planners and executives in Europe are working on this, what’s the view in Caracas, or Tripoli, or Lagos? How does their economic planning factor a carbon tax which would be bound to change the demand equilibrium, at least in OECD markets. I don’t know, but it seems pretty likely that precisely nobody anywhere near the levers of power is thinking about that.

Is that anything we can do anything about?

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