We now also have a better feel for the economics of the scheme or, more correctly, for both of the two main options for blocking the Severn. The bigger scheme blocks the estuary between Cardiff and Weston-super-Mare. It will cost about £15bn and deliver just under 5% of the UK’s electricity. The smaller – just downstream of the Severn bridges – will cost a tenth as much, or £1.5bn, but will provide a sixth as much power as the bigger project.

£15bn to build a barrage that decarbonises less than 5% of the UK’s electricity supply is a high price to pay. Scaled up to the whole of the electricity business, this is about 20% of one year’s GNP to replace coal and gas power stations. Even over twenty years, this cost is similar to Stern’s estimate of the cost of reducing the UK’s emissions for the economy as a whole. The smaller barrier delivers much less electricity, but at a capital cost per kWh of little more than half its larger cousin.

The Sustainable Development Commission acknowledges that private financiers are unlikely to put up the cash for the bigger scheme. The report doesn’t really discuss the viability of the smaller barrage but it is much more financially attractive. In terms of total capital cost and expected yearly output, the upstream barrage is very similar to the huge wind farm development called the London Array. The Array will be constructed with private capital. I believe that if the current renewable electricity support scheme remains in place a barrage across the upper Severn can be built with risk capital.

The Sustainable Development Commission thinks that the bigger scheme should be built with public funds. I am not convinced by this. The offshore wind resources around the UK are orders of magnitude greater than the useful energy of Severn tides. If the larger Severn barrage has construction costs of nearly twice the typical figures for offshore wind, wouldn’t it be better simply to speed up the licensing of wind farms?

***

The schemes
The Sustainable Development Commission (SDC) looked at tidal energy around the UK. It assessed whether tidal energy could fill a substantial fraction of UK energy need. The report shows that the Severn contains a very large fraction of all ‘tidal range’ energy, and the Pentland Firth between north-east Scotland and the Orkneys had much of the usable ‘tidal stream’ power

How does a tidal range power plant work? A barrage that generates electricity from the tidal range will let the rising tide in without impediment. As the tide turns, the barrage will start to trap water. As the tide drops outside the barrage, and as the river water is held behind the barrage, a gradient develops. Some time after the tide has turned, the water is allowed to flow through turbines in the barrage. A tidal range barrage is essentially a hydro-electric power station working for about half the day.

Tidal energy is reliable. The output from a tidal barrage can be predicted with high accuracy for decades ahead. Nevertheless, tidal energy is intermittent. Before and just after a high tide the barrage will generate no electricity. It cannot completely replace a coal or gas power station for ‘baseload’ electricity.

Tides vary in size very substantially during the monthly lunar cycle. The monthly highest tides (‘spring’ or ‘flood’ tides) in the Severn have a range several times greater than the smallest ‘neap’ tides. The electricity that can be generated is a function of the range of the tide and so varies considerably from week to week as well as during the course of each tide. In addition, all tides are highest at around the spring and autumn equinoxes.

I didn’t know this before I read the SDC report, but spring tides occur at the same time of day at any given location. So we know that the larger barrage will always produce the most electricity at between 1 and 3 in the afternoon and 1 and 3 at night. The smaller barrage will peak an hour or so later. UK electricity use is at its highest in the early evening at around 6.30pm, meaning that a lower Severn barrage is only moderately useful as a source of replacement power. The upper Severn is substantially better.

The environmental issues

1. Intertidal land: the huge tidal range of the Severn, which is as large as anywhere in the world outside Newfoundland, means that substantial areas of land are under water part of the time and exposed at others. These ‘intertidal’ areas are not particularly productive in terms of biological diversity but support a range of important bird species.

Any tidal barrage will reduce the range of the daily tides. A large fraction of the land that is currently intertidal will either always be under water, or always dry. The ecology will therefore change. The SDC report talks of replacing some of the lost intertidal land with new land outside the barrage. The costings for this are incomplete and the likelihood of success is unknown. The intertidal range has substantial international protection but the Commission seems to believe that ways could be found to accommodate concerns.

Much of the intertidal land is behind both barrages. The smaller scheme does not really avoid any of the environmental problems associated with the loss of tidal range.

2. Fish: both barrages block rivers that contain large numbers of fish. Most fish going through a turbine at the barrage would be filleted. The SDC says that mortality will be extremely high, possibly resulting in a complete loss of certain species. (Friends of the Earth is more optimistic, seeing a 6% death rate.) The bigger barrage blocks the Usk and the Wye, the smaller just the Wye. The smaller barrage is likely to be less destructive than the bigger, but both are bad. The Severn is the principal source of the sea bass stocks of the Irish Sea and other species such as eels need the mixture of salt and fresh water for their breeding cycles.
3. The river will be less muddy: sediment will be deposited rather than being stirred up by the fierce tides. By increasing the amount of light in the water, the growth of plant and plankton will be encouraged. This may or not be a good thing, but the decreased turbidity of the water will represent a major change.
4. Wave energy will be decreased: there is little commentary of the effect of this in the SDC report.

Environmental organisations have reacted with horror to the SDC’s work. The Friends of the Earth criticised the SDC for its support for the larger barrage despite its environmental effects, particularly on birdlife. The vital Slimbridge bird reserve would be behind both the bigger and smaller barrages. FoE also notes the extremely high cost of the main barrage in terms of capital expenditure per unit of electricity delivered.

The alternative plan: lagoons
Environmentalists pushed the SDC to give more support to the idea of tidal lagoons. These lagoons would be roughly circular in shape, just off the coast. They would trap water in the incoming tide and gradually let it out through turbines. Lagoons would not change the tidal range of the river and they could be constructed to avoid damaging most of the most sensitive intertidal areas. They would also leave the flow of the river largely untouched, cause fewer fish deaths and maintain wave heights. They would also probably leave the magnificent Severn tidal Bore largely unaffected.

Friends of the Earth argues that lagoons would create their electricity more cheaply than the larger barrage.

The SDC report is straightforwardly unimpressed by the arguments proposed in favour of lagoons. It points to the lack of detailed cost estimates and says that while barrage technology is well understood, lagoons are an almost completely new idea. The Commission is rather impatient in dismissing the claims of lagoon fans by pointing to the lack of any evidence that they can be built cost-effectively.

Like the Severn barrage, outline schemes for lagoons have been floating around for decades. A developer, Tidal Electric Ltd, is offering a plan to put a lagoon in Swansea Bay, westward from the proposed Severn barrages. The lowish cost estimates make the project seem interesting but I could find no external data to support the company’s optimism.

One possible option for going forward would be to combine the smaller upstream barrage with one or more lagoons to the seaward side. Friends of the Earth thinks that this idea is well worth investigating further.

The barrage options: a brief financial appraisal
The only weak point in the impressively thorough SDC report is the quality of its financial appraisal. Its preferred tool for evaluation and comparison is a slightly cumbersome one: the cost per kWh at various discount rates. As far as I can tell, this is the way the calculation is done.

• The project has a capital cost, spread over about 6 years (or slightly less in the case of the smaller barrage).
• It will produce an estimated quantity of electricity per year for over 100 years.
• The amount of electricity generated in each year is discounted by a discount rate, much as in conventional financial analysis except that we are using kWh as the currency. With a discount rate, electricity made in year 10 is discounted slightly more than the electricity from year 9.
• The total discounted total of kWh is divided into the capital cost, creating a cost per kWh.
• I presume that yearly operating costs would then be added to provide an estimate of the cost of each kWh.

Pence per kWh of expected output

This is not a proper financial analysis. All these numbers enable us to do is compare the cost of generating electricity in Severn barrages with other technologies. Most alternatives will be in the 3 to 4p range. The current wholesale price of electricity is about 4.5p.

At first sight these numbers suggest that a Severn barrage, even the smaller one, would only be able to compete with existing technologies if it were able to raise money at 3.5% or below. Currently, of course, this would be impossible. Rather abruptly, the SDC therefore concludes that the barrage should be financed by public, not private money.

I think the argument is somewhat different. The economics of the small barrier are very similar to a large offshore wind farm, such as the London Array, a scheme for several hundred turbines off the north Kent coast. This proposal now has planning permission and appears to be fully financed. In my view, the smaller Severn barrage could attract financing on similar commercial terms. The financing of the barrage would require confidence that the payments under the Renewable Obligation would continue, but this is as much a risk for the London Array as it is for the upper Severn barrage.

The huge Severn barrage should be looked at differently. It only makes sense to build this structure if we are short of any other projects that could provide large amounts of renewable energy. The UK is not. We have offshore wind resources of at least 50 times the tidal energy present in the Severn. (Since the tidal power of the Severn is several times the level in any other estuary, this conclusion would not be changed if we included all the available tidal range power.)

In sum, therefore, there is no reason to support the large Severn barrage. It is an expensive distraction from the task of getting offshore wind farms all around the coast of the UK. The power of the lower Severn brings us very little we cannot get much more cheaply from the upper Severn and the grossly under-used power of offshore wind.

Lomborg believes climate change is happening, and that mankind’s activities are responsible. But he tells that we shouldn’t do much about global warming because the costs are very high and the benefits are limited and far-off. Like most books written by partisans in this impassioned debate, much of what he says can be questioned.

Nevertheless, this is an extremely valuable polemic: it stresses repeatedly that taking action to stop climate change may have very high short-term costs. If by clumsy attempts to hold down emissions we stunt the prospects for global economic growth, we may do more harm to the world’s poor than would be inflicted by climate change. It needs to be said time and time again that disease and malnutrition are killing far more people today than climate change. We are making progress diminishing the impact of these scourges. Despite what you sometimes read in the newspapers, world food supply and life expectancy are improving. Panic-stricken action on climate change must not be allowed to halt this progress. We need a rational assessment of whether it is best to spend money on slowing climate change or to whether we would achieve better effects from focusing resources elsewhere.

Bjørn Lomborg is an able debater with a passionate interest in his subject. But he overstates his case, focuses on only parts of the issue and avoids any discussion of a possible future acceleration of global warming. Even with these weaknesses Cool It needs to be part of the continuing debate on how to respond to the climate threat without crippling the poorest economies of the world.

***

To an economist, the climate change issue can be reduced to a single question. Do the benefits of grappling with global warming exceed the likely costs? Cutting emissions growth may be expensive and if the benefits are small and a long way off, it simply may not be worth doing much about climate change. The global economy is growing rapidly and large numbers of people are being propelled out of deep poverty every year. The strains of this growth are showing in many ways – water shortages, desertification, deforestation, overuse of agricultural land, and climate change – but, nevertheless, a smaller percentage of the world’s population goes to bed hungry than at any time in recorded history.

We face extremely serious ecological problems but careless action to protect the planet risks causing huge harm to the world’s poor. It is an uncomfortable question for greens to answer, but why should the impoverished of today bear the price of halting global warming when the next generation will be much wealthier, and far better able to manage the effects of climate change?

The Lomborg argument
Lomborg’s logic is as follows:

• The cost of greenhouse gas pollution is very low.
• Controlling emissions growth so that it is substantially below the level that would otherwise occur is extremely expensive.
• If we spend money in order to temper emissions growth, then we cannot spend it on other worthwhile things, such as public health programmes in the third world. Also, if Kyoto-style agreements reduce the rate of world GNP growth, then we will be slowing the climb out of poverty.

The cost of pollution is low
Lomborg says that the cost of CO2 emissions is very low and gives a figure of $2 a tonne. Put another way, every tonne of global warming gases emitted to the atmosphere causes about $2 of damage. His figure suggests that the world’s total 2007 emissions have a cost of about $65bn. Very approximately, this is about 0.1% of global income. For the UK, its 600m tonnes or so of greenhouse gas pollutants have what economists call ‘external’ costs of about £10 per head, or even less than 0.1% of GNP.

But as a comparison, the cost of Katrina was almost certainly well above $150bn. So if Lomborg’s figure is right, the total damage caused by greenhouse gases around the world is less than one very severe extra hurricane every two and a half years. Or look at it in the UK context: the July 2007 floods cost perhaps £2bn, or over three times the 2007 damage figure for the UK’s CO2 output according to Lomborg’s formula. Many will find the figure of $2 per tonne deeply implausible.

Lomborg hasn’t arrived at this figure in a very scientific way. He asked a climate economist for his best guess, and based his entire book on this one figure. (Readers of the book will find this episode described on page 36 of the UK edition.) Many estimates are much higher. William Nordhaus of Yale, who has claimed to be the best respected economist working on the issue, suggests in a recent paper that the right tax to impose in 2007 on carbon emissions is about four times as much, rising sharply to about $55 per tonne of CO2 at the end of the century.

By the way, Nordhaus is not saying that $8 is the amount of damage that a tonne of CO2 causes; this number would be much bigger. Being an economist, he stresses that taxing the full cost of pollution would reduce the value of economic activity more than the benefit in reduced climate change. Nordhaus’s ‘optimal tax’ still sees huge damage from climate change. It’s just that it isn’t worth trying to stop it. Nordhaus’s work doesn’t hit the headlines, but it is considerably more rigorous than Lomborg’s writing.

Much of Lomborg’s new book is given over to showing that the $2 figure is reasonable. He examines the following topics in detail:

• a) Heat-related deaths
• b) Hurricanes
• c) Tornadoes
• d) The Gulf Stream
• e) Sea-level rise and glacial melt
• f) Malaria
• g) Agricultural productivity

• a) Heat-related deaths: Lomborg’s main thesis is that human beings are physiologically adaptable to higher temperatures. His evidence is largely derived from various European studies that show that in northern lands, higher than expected levels of mortality are associated with relatively low peaks in summer temperatures. In hot countries, ‘excess mortality’ only begins to rise at much higher temperatures. In northern Finland, for example, the death rate starts to rise when temperatures exceed a daily average of 15 degrees Celsius, compared to over 24 degrees in Athens. From this he concludes that we will not be killed by higher temperatures, we will get used to them.

This is probably correct in high latitudes. But Lomborg makes little attempt to assess the position in countries with higher existing temperatures, such as those in most of Africa and some parts of Asia. He also stresses that many heat-related deaths can be avoided by good air-conditioning. This may seem a somewhat tactless line of argument to the 25% of the world’s population without access to electricity.

Lomborg does not weigh in the scales the impact of human comfort or the particularly severe impact of increased temperatures on those obliged to work outdoors.

His conclusions are far too strong. Nevertheless we should all bear in mind that deaths in higher latitudes from winter cold are currently far greater than those from excess heat in summer. Climate change is cutting deaths in Scotland at the moment, not increasing them, and this will be true for several decades yet. As with many things, there is a considerable germ of truth in Lomborg’s polemic.

• b) Hurricanes: Lomborg seeks to show that hurricanes aren’t getting any more severe. He says that we take more notice of them because their economic effect is greater than in the past, but that once we adjust for the lower value of the stock of buildings in the first part of the last century, two hurricanes caused more damage than Katrina – Galveston in 1900 and Miami in 1926.

This is one of these many occasions when Lomborg destroys the strength of his comment by careless use of sources. He compares some carefully estimated costs of the Galveston and Miami storms with a guess made about Katrina in its immediate aftermath. More recent figures for the cost of Katrina are far higher. The Katrina-related expenditures of the Federal Budget alone are greater than Lomborg’s entire estimate. And when I checked his reference for the cost of the Miami 1926 hurricane, I found he had mistranscribed the figure. His number is substantially higher than is actually contained in the source he used.

More importantly, Lomborg does not properly address the real question, which is whether the warming of the Gulf of Mexico seas is likely to produce increases in the frequency or severity of hurricanes. He has simply gone for the easiest analysis – the economic damage to the US. He makes no substantial reference to the far more severe impact of hurricanes on poorer states around the rim of the Gulf. And when he does, he simply says that if these countries were richer they would be able to afford better protection. He doesn’t choose to discuss the fact that single hurricanes can delay development in a poor country by decades. The impact of Hurricane Mitch on Honduras in 1998 is a good example. The country has not yet fully recovered and if hurricane intensity is increasing, this will probably outweigh all progress in development. This is one of the reasons why aid agencies are increasingly passionate about climate change, suggesting it is already overwhelming the benign forces of economic growth, better food availability and improving health.

• c) Tornadoes: Lomborg says that US tornadoes are not increasing in severity or frequency. He may well be right, though 2007 has seen the first category 5 tornado for several years. The strange thing is that few climate scientists ever expected tornadoes to increase in intensity in the US. They are associated with thunderstorms and if the central US is getting drier, which is a probable feature of global warming, we can expect fewer of them. It may be more important that Canada saw its first ever category 5 tornado this year, not inconsistent with climate scientists noting the general northern drift of typical weather events in the North American continent.
• d) The Gulf Stream: we sometimes see frightening stories that suggest a complete shutting down of the Gulf Stream. Lomborg correctly points out that few scientists think that this is likely, even if Greenland melts entirely. But in attacking the news media for only running frightening stories on this issue, and not carrying the more moderate views of most scientists, he ignores the importance of even a marginally slowing Gulf Stream on reducing the amount of heat transported out of the southern Atlantic and Gulf of Mexico. The Gulf Stream carries huge volumes of energy out of the hurricane generating zone and across to temperate northern Europe. It is at least worth discussing whether Lomborg’s confidence in his hurricane predictions would be as great if the great ocean conveyor belt slowed.
• e) Sea-level rise: here Lomborg is at his most controversial. He focuses on just one IPCC number for the mean expected rise in sea level this century. All his analysis uses this figure. He ignores the fact that the IPCC states that this number does not fully include the impact of faster than expected glacial melt. The IPCC knows that the faster ice loss is happening; it just cannot yet be confident about its speed. So it omits any figure at all. Lomborg does not mention this.

He goes on to show that rather than cut emissions the world may well benefit from paying low-lying states to improve their flood protection. To do this, he has conveniently invented a new world order and an institution with the authority to invest in Bangladesh flood protection. In a world that cannot even agree on sharing the Kyoto burden, this seems a piece of sunny optimism and little more.

• f) Malaria: some scientists say that malarial range will increase as a result of climate change. Lomborg says that we simply need to invest in prevention because it will be more productive. Of course he is right. Malaria is largely preventable. He has a sharp point: malaria nets or careful use of DDT would do far more good for the tropical poor than a hundred Kyotos. But he is wrong to focus so much on malaria. Increasing temperatures may well cause a substantial rise in a large number of tropical diseases, and these will affect both rich and poor. Malaria is totemic: a spread into Europe would seem like a flow of the disorder of Africa into the calm of prosperous democracies. This is why the rich countries are frightened and Lomborg is correct to point this out. However, it is not the only insect-borne disease and we can reasonably expect climate change to bring other dreadful tropical illnesses into the temperate zone. This is not mentioned.
• g) Agricultural productivity. In northern Europe, greater fertilisation from increased CO2 and from higher temperatures will generally increase agricultural productivity for some decades (though a Scottish agromonist I spoke to last week disputed my simplistic conclusion). But elsewhere in the world the pattern is different. Lomborg compiles evidence to show that food production will only be marginally impacted for some years to come. This is a complex subject and there is substantial support for the view that the current growth in food production will not be much affected by climate change. But this broadly optimisitic view is difficult to reconcile with the current declines in cereal production because of drought in countries such as Australia. Once again, this is ignored, perhaps in the interests of simplifying the story.

In all of these discussions, Lomborg allows very little doubt about the conclusion he reaches. He has complete faith that the temperature increase this century is going to be no more than 2.4 degrees. He assumes that the scientists he approves of are correct in their optimism. He has almost unquestioning faith that the climate system is fully understood by climatologists – a claim that none of them would make in a hundred years.

As I said above, he has looked at seven impacts from global warming in detail. On several, he makes some very good points about unwarranted hysteria. On others he is much less persuasive, omitting most science or not properly dealing with the full issue.

What has he missed out? He doesn’t cover the following issues in any substantive way:

• a) Changing world weather patterns: nowhere does Lomborg look at the cost of drought, flood and heatwaves outside the richest parts of the world. Where is the analysis of desert growth? On this topic he should have read and extensively quoted Mark Lynas’s book Six Degrees, published six months before his own. Lynas looks, for example, at the impact of small changes in temperature and precipitation on parts of the US Great Plains, showing how vulnerable they are to desertification. Lomborg couldn’t be expected to include this fact, but 2007 is almost certainly the worst year in modern history for weather-related disasters around the world, of which the terrible West African floods are the most ignored example. Lomborg’s work is far too biased towards discussing the relatively benign impact of climate change on northern Europe.
• b) Forest die-back: compared even to Lomborg’s complacency on the melting of Greenland’s glaciers, his treatment of the Amazon is surprising. The rainforest isn’t even mentioned. But if there is one thing we know for certain, a drier, hotter Amazon basin is potentially catastrophic for the globe. If the Amazon turns into savannah, as is perfectly possible, we will see changed air circulation patterns across large parts of the world. If temperatures do rise 2 degrees above 20th-century levels, we should be deeply worried that this will happen.
• c) Methane: as with the Amazon, the word methane is not mentioned in the book’s index and I do not believe it actually occurs in the text. Any 228-page general discussion of global warming that does not mention methane eruptions from tundra and deep oceans is simply not covering the topic properly. Like Amazon rainforest death, methane eruptions could change the climate significantly within a matter of years. (Methane is a far worse greenhouse gas than CO2.) It has to be seen as a risk but Lomborg doe not include any analysis of the possible catastrophe arising from increased methane emissions from land and sea.
• d) Biodiversity: nowhere is it mentioned that climate change is going to cause a rapid mass extinction. Some people don’t care. Others mind enormously. Lomborg should have recognised that species loss is a side effect of global warming, though not one conventionally captured by the calculations of economists.

In summary, Lomborg’s figure of $2 per tonne of CO2 seems frighteningly low. By focusing on the smaller direct impacts on the rich worlds of Europe and North America, he has made climate change seem a managerial problem that the world can easily deal with. Very few people share his optimism. A book that doesn’t even consider the possibility of runaway climate change should not attract as much attention as Lomborg’s text.

The costs of cutting emissions
Lomborg says that complying with Kyoto has huge costs and will only cut emissions by a few percent. Importantly, he repeatedly shows that Kyoto will simply delay warming by a few months or years. Kyoto, with all its inefficiencies and inequities, is an easy target, but the political world saw it as a first step towards long-term restraint on emissions. Lomborg portrays it as an expensive and half-baked final step in emissions control.

He has a point. World emissions growth is still rapid. Countries like the UK that preach climate virtue have not succeeded in stopping growth in emissions. If Kyoto was as costly as he says (about 10 times the damage caused by greenhouse gases) the treaty would look a very bad bargain.

When Lomborg was assessing the value of the damage caused by CO2, he went for a low figure that few agree with. It is the same with the countervailing cost of emissions control. He has taken some high numbers and has repeated them many times in his book. Mere repetition doesn’t make them any more persuasive. Nowhere does he suggest that one of the many strengths of modern capitalism is its phenomenal ability to adapt and change. Make carbon expensive and business will rapidly find ways of emitting less, and at less cost than we might first think. Environmental legislation in the past has almost always been far less costly than business has claimed.

In Lomborg’s view, people need to look at the respective costs and benefits of emissions control. When they do so, they will see that climate change is too expensive to stop. But, interestingly, Lomborg does not go on to say that we should simply ignore global warming even though this would be the logical corollary of his stance. No, he actually suggests that governments should engage in large amounts of public sector R+D to find lower carbon ways of keeping the economy going.

Somehow I get the impression that Bjørn Lomborg recognises that future climate change may be terrifying and uncontrollable. His book may suggest that we can ignore climate change, but some part of Lomborg’s mind sees the dangers from complacency.

***

An appendix on Lomborg’s research methods
Like most effective polemicists, Lomborg creates a simple argument that supports a point of view. Scientists writing about climate change tend to hedge their conclusions with caution. Indeed the IPCC ascribes probability levels to its main conclusions. Bjørn Lomborg scorns such tentativeness. He turns the IPCC’s most carefully written sentences into unambiguous certainties. He uses huge volumes of evidence, but much of it is sourced from a small number of scientists and economists. He does not choose to reflect the diversity and uncertainty of the views of experts.

This is understandable: Lomborg wants to communicate with a general audience intolerant of ambiguity. And most people writing on climate change are guilty of commenting only on sources that they broadly agree with.

What is not forgivable is the laxity of Lomborg’s methods for assembling this book. He breaches the standard conventions of academic work. For example, I have noticed instances when he takes whole sentences and large parts of paragraphs from other people’s work and has pasted them into his text. (He provides a reference to an endnote, but hasn’t told us that he is directly quoting other people’s research.) According to Oxford University’s code on discipline, this is plagiarism and could be the subject of a disciplinary inquiry in an undergraduate essay. I have only checked a very small fraction of his references, but I have also seen two important instances of him adjusting a research finding to make it slightly more compatible with his own conclusions. Bjørn Lomborg doesn’t need to do this and it really weakens what is otherwise an extremely worthwhile but deeply mistaken book.

The APD proposal attracted most attention. The government intends to change the duty so that it is levied on aircraft movements and not on individual travellers. Commentators, and the two main opposition parties, have long suggested that this would be a sensible change. Carbon Commentary disagrees. The proposed revision cannot be implemented without infringing international treaties on the taxation of air travel. The chancellor’s proposed consultation will eventually conclude that APD should remain substantially as it is now.

In the article, we briefly analyse the effects of APD and also show that the duty imposes an effective tax on airlines that is greater than would be levied if air travel were fully included in the European Emissions Trading Scheme (ETS).

The BERR Carbon Capture and Storage (CCS) announcement was worryingly unspecific. It did not even bother to mention a figure for the value of the financial support. It also upset some major companies by only allowing entries for the competition from a limited range of technologies. The government is extremely vulnerable to the charge that it is back in the business of picking winners.

CCS is an extremely important part of any strategy for national reduction of emissions. The UK should be throwing far more money at research and development into the various forms of CCS. The simplest and quickest way to get innovation in CCS would be to include carbon storage as a technology that qualifies under the renewable obligation rules. We need to remove the difference between the financial treatment of renewable power generation and carbon capture. Both achieve the same outcome and both should have the same reward.

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Air Passenger Duty
APD raises about £2bn a year. The government announced that it wants this to rise by about £500m by 2010/11 after it has changed the tax to apply to flights not travellers. Since UK air traffic is rising by 4-5% a year, this means that the average burden per flight will rise by perhaps 10%, or less than £2, by 2010.

The airlines were quick to argue that at today’s rates they are already paying the full cost of their emissions. They didn’t provide figures but the table below gives some background to their assertion.

The table shows that at current ETS prices the UK aviation industry ‘pays’ for its pollution. The tax captures almost four times as much money as the industry would be charged if it had to buy permits for all its current emissions. Air travel emits pollutants other than CO2. Many commentators multiply the CO2 by a figure such as 2.7 or 3 to account for these other climate change implications. But even still the APD captures more cash than would be paid under the ETS. No wonder the airlines are lobbying to be included in this scheme.

The chancellor said that he would consult on how best to change the way APD is levied. At the moment it is added to the ticket price by the airlines. Many agree with Chancellor Darling that it would be better to charge per flight. Airlines with high seat occupancy would pay less per person so it would incentivise the operators to fill every seat.

Our view is that the government will not be able to adjust the basis of the tax. The reasoning is as follows:

• The tax must be fair and roughly tied to the emissions generated by each flight. So the government will have to set a tax figure for each journey. Heathrow to Rome will have a benchmark charge.
• Aircraft differ: a 120-seat plane will have different emissions to a 200-seat plane. So the Heathrow to Rome benchmark must have an adjustment factor to reflect this variation.
• Establishing the benchmark sounds simple. It is not. Eventually the calculation will have to be made using typical fuel consumption figures. So the Rome benchmark will be, say, twice the Paris figure largely based on the average fuel usage to each city.
• Calculating the adjustment to allow for the different sizes of aircraft flying a particular route will also be complex. A 120-seat aircraft may or may not have a fuel cost of about 60% of the 200-seat plane. Which of these two options forms the benchmark?
• Eventually, policy-makers will reach the conclusion that the only way to change the tax in a fair way is to base it on the fuel consumption of the airplane from Heathrow to Rome. Nobody can really argue about this. It is transparent and obviously measures the emissions generated on each flight.
• Our view is therefore that any reasonably fair ‘per flight’ tax must eventually be designed in a way that makes it indistinguishable from a per litre tax on kerosene fuel.
• Law-makers will then be reminded by the airline industry of the several hundred international treaties that prohibit the levying of a tax on fuel for international air travel. After a court tussle, the plans will be dropped, and we will revert to a per ticket levy.

Is APD working? The government says it has a ‘valuable role’. The Pre-Budget review repeats earlier figures that suggest that policy-makers think that it will cut 2.75m tonnes from aviation’s emissions by 2010. This is about 6% of the likely CO2 output from air travel at this date, less than the extra emissions coming from likely air travel increases between now and the end of the decade. At current levels (£10 for a European flight), it is clearly doing very little to alter the price competitiveness of air travel. If the government were serious about reducing air emissions, it would double the tax again next year, rather than leaving it unchanged in this PBR.

Carbon Capture and Storage
There are many ways to stop the CO2 produced by the combustion of fossil fuels entering the atmosphere:

• The CO2 can be caught after it is produced and then either stored or used in another chemical or biological reaction (‘post-combustion’). The gas can be stored in underground reservoirs such as depleted oil fields.
• The fuel can be broken down before it is burnt. In the case of natural gas, which is mostly methane (CH4), it can be split into hydrogen and carbon monoxide by forcing a reaction with water in the absence of air. The hydrogen can then be burnt as fuel and the CO taken off and reacted with oxygen to make CO2. (These techniques are called ‘pre-combustion’.)

The government asserts that its analysis shows that it should only support ‘post-combustion’ techniques, combined with geologic storage and at a substantial power station. It has therefore declared that its long-promised ‘competition’ should only be open to these technologies. The form of the competition is unclear and the government only says it will ‘support’ one pilot commercial project over the next few years.

As we understand it, the entry conditions reduce the number of potential competitors to a small number of existing large coal-fired power stations, led by Scottish Power’s Longannet, which sits over a disused coal mine into which the CO2 can be pumped.

This was the wrong decision on a number of counts:

• We do not know which route is the cheapest way to capture the CO2 from a power plant. All the technologies are in infancy.
• If Longannet wins the competition, the money may be wasted. Scottish Power would possibly carry out the investment anyway. It certainly has already flagged its intention to use geologic storage for the CO2.
• Some possible post-combustion technologies need to be proven at a smaller scale first. American Electric Power, a big coal-fired generator in the US, is installing an Alstom scrubbing technology on part of one plant. It may be that the Alstom technology is also right for the UK, but no subsidy is offered.
• It is completely unclear that geologic storage is right or necessary. The most exciting carbon capture technologies in the world are using CO2 to make biomass. If the Carbon Commentary mailbox is any guide, the most promising technique is to use CO2 as a fertilizer for algae growth. The algae can then be squashed for their oil to make biodiesel fuel. Algae are far better at capturing CO2 than plants, and a surprisingly small area of land is needed to deal with all the emissions from a large power station.
• Using algae to swallow CO2 is still at a very early stage of development, though large amounts of US venture capital have already swung behind the technology. Perhaps readers will be surprised to know that using tomatoes to capture CO2 is more advanced. A series of huge glasshouses at Immingham on the north-east coast collects CO2 from a fertilizer plant and uses it to encourage tomato growth. Sainsbury’s buys the output twelve months of the year. In theory, the CO2 from a power station could be used in a similar way. But the terms of the competition disqualify such a technique.
• Most importantly, the competition doesn’t allow entries from pre-combustion methods of carbon capture. We shouldn’t be surprised. The proposed BP plant near Aberdeen, which would have split methane prior to burning and then disposed of the CO2 into an oil field was cancelled early in the summer of 2007 after the government refused to support it. Perhaps it was clear to BP six months ago that civil servants had already made up their mind against any technology that split the CO2 before burning. If there was economic logic behind this decision, we need to be told.

BP itself has said that pre-combustion CCS imposes a relatively small cost penalty on the generation of electricity. When we say ‘relatively small’ in this context, we mean that it approximately doubles the cost of electricity. This may seem an outrageous increment to pay. But the Renewables Obligation is currently subsidizing electricity generation technologies, such as the burning of energy crops, by approximately twice the amount of the BP CCS cost penalty.

This is irrational: if BP can capture the carbon from burning gas at a cost of £40 per MWh, its plant is at least as worthy of subsidy as E.ON’s energy crop power stations. To state the obvious: the UK isn’t supporting renewable generation because it is inherently better but because it reduces CO2 emissions. If a CCS power plant does the same thing, we should support it to the same level. Government policy must treat CCS as equivalent to renewables.