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Taxing dirty energy


Themes: Energy and environment

Dr Chris Hope says the government needs to make it of interest for people and businesses to go green by ensuring these sources of energy are the cheaper ones.

Incentivise clean energy production and impose a carbon tax are two suggestions in response to the government’s re-launching of a contest to make power stations green by developing carbon capture and storage. The winner will get £1 billion.

Dr Chris Hope, a former Westminster adviser on the economics of climate change, says the previous government used the same tactic to no avail. He suggests that incentivising the generation of electricity in a clean as opposed to a dirty way, is more realistic.

“The most important and easiest way of doing that is to make sure that any emissions of greenhouse gases, particularly carbon dioxide, are charged, either through a carbon dioxide tax, carbon tax or climate change tax, so that anybody who emits greenhouse gases has to pay this tax and anybody who generates electricity without emitting automatically gets an advantage. Anyone using carbon capture and storage on their power stations would then get a rebate on their tax.”

Dr Hope, Reader in Policy Modelling at Cambridge Judge Business School, says such a climate change tax would have a huge impact.

“Calculations we have done suggest that if you put the climate change tax at roughly where it should be, £60 for every ton of carbon dioxide, you would get an income of the order of £50 billion pounds a year. This is about a tenth of the total tax revenue that the UK government has and you’d be able to do wonderful things with it like reducing income tax to 16p rather than 20p, reduce VAT to 15 per cent rather than 20 per cent and still have some revenue left over.”

He adds that business is key to creating a green economy. Steps are required to ensure that businesses, looking for value-for-money in their energy supply and use, end up with a clean and green product.

“The way to do that is by making sure that anything that is dirty has a tax on it to recognise the pollution, the damage and impact caused by that dirty energy. If there is no tax or price on dirty energy and the pollution it causes, then there’s no incentive for businesses to go green.

“Only 10 to 15 per cent of the population is motivated strongly to go green if it’s not in their own economic best interests. We need to make it of interest for people to green by making sure that the green sources of energy are the cheaper ones.”

Dr Chris Hope was the specialist advisor to the House of Lords Select Committee on Economic Affairs Inquiry into aspects of the economics of climate change, and an advisor on the PAGE model to the Stern review on the Economics of Climate Change.