We pay for Indian CO2 cuts
One of the less visible consequences of Government policy on climate change is that it would lead to a massive transfer of wealth from the developed world to the developing world.
I was nudged in this direction during a chat with the Environment Secretary, David Miliband - and he made the point explicitly in an article he recently wrote for the international edition of Newsweek.
The transfer results from the mechanism laid down in the draft Climate Change Bill for achieving a 60 per cent reduction in carbon dioxide emissions by 2050.
It allows the purchase from abroad of “carbon credits” to hit the five-yearly targets for CO2 cuts along the way. What this means is that if the UK invests in projects in China, or India or Africa - for example - which would reduce their emissions, than those reductions in CO2 can be counted in an assessment of whether the UK has met its targets.
As an example, if carbon sequestration became a viable technology, then a British power generator could capture and bury the CO2 produced by a Chinese coal-fired plant and then count that CO2 against is own CO2 “budget” for carbon cuts.
There are issues about auditing whether CO2 is actually being reduced all those thousands of miles away. But the logic of allowing these credits is impeccable: CO2 is fungible; if you believe in climate change, then CO2 is harming all of us, whether it’s spewed in China or here.
In practice, it creates a massive incentive for gas-spewing UK businesses to invest in the developing world, and therefore achieve their individual budgets for carbon cuts by importing reductions.
How much capital could flow to the developing world in this way? Miliband cites United Nations research, that if all industrialised countries took on emissions-reduction commitments of 60 to 80 per cent, and if they purchased half of their reductions in the developing world in the way I’ve described, then the financial flows would be $100bn per annum (assuming a carbon price of at least $10 per ton – which may be massively too low).
The UK would contribute perhaps $5bn a year of this capital transfer, based on its share of developed countries’ emissions.
To be clear, these numbers are a bit flaky. But they contain an important truth - that the flows from developed world to developing world would be huge.
However, this would not be dead money, handed over with no prospect of any financial return. If UK businesses were for example financing low-carbon power generation in China, those businesses would expect a share of the profits and dividends generated by the power generation.
We’re talking about compelled philanthropy that would in fact yield future financial gains, quite apart from its impact on the environment.
That said, it is redistribution on a grand scale and there will be costs for British businesses and for you and me - since those businesses are likely to pass the expense of reducing carbon on to consumers.
So don’t be fooled into thinking that Tory proposals to tax aviation to reduce their emissions is for example somehow worse for you than Government plans to set targets for airlines’ emissions and to include them in the European Emissions Trading Scheme (which has generated a price for carbon credits by allowing European gas-spewers to buy and sell the right to produce carbon). Both approaches would push up the cost of flying - which is presumably what matters to you.
But both main parties can perhaps be accused of not being quite explicit enough in explaining the impact of the Climate Change Bill. There’s the increased price we’ll pay to heat our homes, drive our cars and so on. And there will be a torrent of cash flowing from the wealthier economies to the poorer (but faster growing) ones.