Straws in the wind: The Lib Dems’ climate change paper

Both the Conservative and Lib Dem parties have produced position papers on climate change in the last few weeks. The Conservative document is over 500 pages long but contains very few specific proposals. To be harsh, it is little more than a prolonged agonising over whether the climate change problem can be addressed using conventional free-market mechanisms. The Lib Dem paper is a tenth of the length but does contain the outlines of a coherent set of policies.

This article analyses the Lib Dem proposals. It shows that the Lib Dems are prepared to use the price mechanism to choke off increasing demand for aviation. The party also contemplates extending the Emissions Trading Scheme beyond the 50% of the economy currently covered. On the other hand, it makes completely clear that it has no intention of raising the prices of energy and fuels to domestic consumers.

Although the party presents itself as the only UK political institution ready to grasp the need for an economy-wide carbon price that will bring down emissions by 30% in 2020, the detailed proposals are far less radical. In the material that follows, I try to tabulate the Lib Dem ideas, focusing on whether they use price, regulatory fiat or pious hope as the proposed means of emissions reductions. As in the Conservative paper, estimates of the costs and benefits of their policies are almost completely absent from the Lib Dem paper. It is a shocking commentary on British politics that no major party is prepared to quantify exactly how it proposes to shift taxes towards polluting activities and away from other sources.

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Aviation

Price mechanism Regulatory or quantity limit Exhortation, pious hope, warm words
Full inclusion in ETS, including pollutants other than CO2 No ‘major’ expansion of runways The usual stuff about ‘high-speed rail’
Fuel tax    
VAT on European flights    
Also air passenger duty of £10    


The Lib Dems’ green credentials are at their clearest with aviation. The party seems to think it can get away with proposing serious restrictions on air travel. The party’s environment spokesman, Chris Huhne, used to talk of allowing the aviation industry to grow at about 2.5% a year, but this figure has been dropped. The language in the policy paper is now much tougher.

The paper makes no acknowledgement of the severe legal difficulties in getting taxation applied to international air travel. The UK is hemmed in by hundreds of multilateral treaties that explicitly disallow taxation of cross-border air travel. VAT on national flights is easier and seems now to be the policy of all parties.

The Lib Dems also offer a quantitative constraint. At some points in the document they say their policy is ‘no’ expansion of runways. At others, it is ‘no major’ expansion. But they do seem to be completely committed to blocking new runways at the London airports.

Plans for high-speed rail links are given the conventional praise. There is no detail or explanation.

Cars

Price mechanism Regulatory or quantity limit Exhortation, pious hope, warm words
Widening the range of Vehicle Excise Duties (VED) depending on CO2 emissions of cars Support for increase in mimimum biofuels content of motor fuels Better public transport
Fuel tax escalator Proposals for very severe limits on new car emissions ‘Zero emissions’ cars by mid-century


The banded VED is a potentially useful policy instrument in that it penalises cars pro-rata to their emissions. So far, it does not appear to have much effect on purchase decisions, but the evidence from other countries is that relatively small increases at the top end may now reduce demand for big-engined cars.

The Lib Dems support increasing petrol prices using a tax escalator tied to GNP growth. No doubt aware of the political sensitivity of the issue, they allow an escape, saying that the duty would not be increased at times of ‘spikes in the oil price’.

The party wants to increase the biofuels obligation on petrol and diesel suppliers. (This proposal faced some opposition at the party conference.) Biofuels are a disaster in the making and we can expect the Lib Dems’ enthusiasm to wane quietly over the next few years. In their case, it is particularly incompatible with their emphasis on using wood and other biomass for power generation. The world cannot feed an extra 3bn with its existing agricultural land if large acreages are handed for biofuels and for growing willow for power stations.

The party looks for impressively strict limits on new car emissions. The EU’s wounding battle with German car makers is forgotten as they advocate average fuel economy of less than 100g of CO2 per kilometre, or less than a Prius today. Their target is perfectly possible, but only with a rapid move to electric cars, lighter vehicles and smaller engines.

Importantly, there are very few words devoted to getting people to drive less. The Lib Dems like technology, not behavioural change.

Home heating

Price mechanism Regulatory or quantity limit Exhortation, pious hope, warm words
  New homes to meet the best European Passiv Haus style standards within a fewyears A raft of measures to improve the insulation standards of existing houses
  Curious proposal to force electricity and gas retailers to sell less eachyear  


Home heating emissions are usually underestimated as a factor in the UK carbon footprint. The average house emits about 3 tonnes of CO2 a year from central heating boilers. (The Lib Dems actually exaggerate the figure, saying that heating is 90% of all domestic emissions; the figure is really about two thirds.)

Insulation standards that are lamentably poor by north European standards are partly responsible for the high fuel bills of the less well-off. The quickest and most efficient way of improving insulation on existing houses would be to double the price of domestic gas. This would produce the surge in do it yourself home insulation that the Lib Dems are looking for. But it would exacerbate the dire problem of fuel poverty in large sections of the community and cause deterioration in winter health, particularly among the elderly. (The UK has higher differences between winter and summer mortality than in much colder countries in Scandinavia.)

So the Lib Dems promise far more emphasis on cheap home insulation programmes rather than using a price signal. The language is not persuasive. For the majority of people in the community, gas bills are simply not high enough to make it worthwhile redoing the loft insulation to modern standards, blasting fluff into cavity walls, or even taking simple measures such as removing the letter flap in the front door. The Lib Dems use warm words but a truly radical programme would be one in which better insulation standards were forced on householders.

The Lib Dems also propose the most extraordinary idea. They suggest that they would oblige energy retailers to reduce the amount of electricity and gas that they sold every year. This is a half-thought-through wheeze that will be quietly dropped.

Food

Price mechanism Regulatory or quantity limit Exhortation, pious hope, warm words
    More R+D on diets that stop cows belching methane
    Defra to provide advice on GHG reduction on farms
    Support for anaerobic digesters for farm slurries


It is impressive to see the attention paid to agriculture. The greenhouse gases from the food supply chain may be over 15% of the UK total. Politicians and policy makers have usually ignored this source of emissions. But although the policy document devotes several pages to agriculture, it does not come up with specific and credible programmes.

Business and commerce

Price mechanism Regulatory or quantity limit Exhortation, pious hope, warm words
Widen the scope of the ETS to include more organisations   Decentralised space heating to be encouraged
Increase the reach of the new energy reduction commitment on smaller organisations   More ‘smart metering’
Make all the allowances under the energy reduction commitment subject to auction   Lots of support for improving heat generation, but few specific proposals


The principal proposals for reducing energy demand in business are designed to put a high and stable carbon price on business activities. Detail is sketchy, perhaps because companies might otherwise publicly attack the proposals. But business should be in doubt that the Lib Dems want to see much higher energy costs in business. Energy efficiency will be fostered by putting almost all the business sector inside the cap and trade scheme. They also strongly support auctioning rather than the unforgivable present policy of donating permits to existing polluters.

Electricity generation

Price mechanism Regulatory or quantity limit Exhortation, pious hope, warm words
‘Feed-in’ tariffs for micro generators National Grid will be obliged to fire up low-carbon generators first (!) Swing to ‘decentralised generation’
  No nukes Sponsor a carbon capture and storage project
    Examine the way the planning process works
    Target of 30% renewables by 2020
    More emphasis on using biomass for generating electricity


Like the Conservatives, the Lib Dems think that high ‘feed-in’ tariffs for microgeneration are a good idea. (A ‘feed-in’ tariff is a special payment to small generators for the miniscule amounts of energy that they produce.) The Conservatives pick 45p per kilowatt hour, the Lib Dems appear to favour 40p.) Feed-in tariffs are a popular idea. Pundits speak glowingly of the influence of high tariffs on the growth of solar roofs in Germany and elsewhere. Nobody mentions the cost. Paying a householder 45p per kilowatt hour implies an electricity price of over ten times the current wholesale value of electricity. It seems a good idea, but would inevitably raise the price of electricity. Per tonne of carbon saved, high feed-in tariffs are absurdly expensive. The romanticisation of microgeneration should stop. There are good arguments for sustained support but a 40-45p tariff will provide the householder with a real post-tax return of almost 10% in the sunniest parts of the country. Feed-in tariffs at this level are a waste of money.

The Lib Dems start another strange hare running. The paper advances the idea that the National Grid should put power stations into service in the order of their carbon intensity. When demand is low, the Grid will call upon the lowest carbon generators. As demand rises, the climate criminals will be gradually turned on until the worst coal generators are at full steam. A quick study of the operation of the UK electricity market should have shown the Lib Dems that this proposal would involve tearing up the entire market apparatus of the purchase and sale of power in the UK. It seems to be news to the Lib Dems that we have a free market in electricity generation. Power users contract with power producers. The role of the National Grid is not to determine which power station is operating, but to balance the system so that exactly enough power is being generated to meet the minute-to-minute changes in demand.

The Conservatives equivocate over nuclear power but look as they will eventually support Labour plans to allow it; the Lib Dems are against. (This proposal was argued over at the party conference, but the policy was carried.)

Both the Tories and the Lib Dems argue in favour of sponsoring a carbon capture project at a power station. They both then support non-intervention, expecting that a full carbon price will make it economic for power generators to install capture equipment. This is largely the same policy as that of the current government.

The paper is silent on the unavoidable conflict between the need to centralise the planning approval process and the Lib Dem policy of generally encouraging more local control. If the UK is to use its super-abundant resources of wind and tidal energy, planning decisions need to be taken out of local hands. Quite understandably, the Lib Dem paper makes no mention of this, nor of the importance of building the high voltage transmission line from Scotland that is vital to increasing the number of wind farms in the windy north.

Other measures

Price mechanism Regulatory or quantity limit Exhortation, pious hope, warm words
‘Carbon tax’ Widening the scope of the ETS to cover all fuels in the economy  


The proposal for a ‘carbon tax’ in addition to the quantity limits imposed by the ETS is a striking, but very unclear, part of the proposals. There are no figures and very few details. It almost seems as though the idea was inserted in the document at the last minute, perhaps because of the widening view among academic economists that it is better to tax than cap.

There are also references to widening the scope of the ETS to include motor fuels at their point of production. In effect this brings the whole of the transport sector within the Emissions Trading Scheme. As in so many other areas, details are sparse and confused.

What is not here:

  • No measures to decrease home electricity consumption. Very little on proposals to use labelling to improve efficiency.
  • No support for local or community-based initiatives to curb energy use.
  • Nothing significant on slowing travel growth. Very little on reducing private travel in favour of the use of public transport.
  • As with the Conservatives, warm words for ‘Personal Carbon Allowances’ but no substantial support.

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