Forging a cheaper green policy

The debate over climate change is one of the most polarised in UK politics, between those advocating doing everything possible (no matter what the cost) and those who refuse to think about doing anything at all. If, like us, you take the view that the science tells us there are major risks from climate change – albeit with uncertainty around how bad, when and where the risks might bear out – but that costs matter, you are likely to find yourself simultaneously denounced by both sides as a ‘denialist’ and a ‘warmist’.

Our new report, Greener, Cheaper explores how we can cut the costs of cutting carbon. We assume that there is limited public willingness for spending on climate change, and that if government continues to spend lots of money on marginal carbon savings, that support will not last. We focus on cost-effectiveness, since the cheaper we can cut carbon, the more we can cut without damaging the economy or losing public approval for action.

We recommend abolishing or reforming policies that offer the poorest value for money. The best example of this is feed-in tariffs for micro-renewables. While we have no problem with micro-renewables themselves – they are potentially useful in remote rural and island communities, or in developing countries, for example - we see no reason for the taxpayer to subsidise their deployment in general.

The micro-renewables subsidy which came into force this April is terrible value for money – it costs £460 for every tonne saved, compared to around £12-15 under the EUETS, and around £130 for the Renewables Obligation. The alarming thing is that the previous government’s own analysis told them that this policy was terrible value for money, and that they carried straight on with it regardless:

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“carbon abatement under FITs is significantly more expensive than carbon abatement under the EU emissions trading scheme. ... However, other objectives of the policy including community engagement are also important”(DECC (2010) Impact Assessment of Feed-in Tariffs for Small-Scale, Low Carbon, Electricity Generation, p27)

At the other end of the spectrum, we have recommended simplifying the Carbon Reduction Commitment, a policy which is a good idea executed badly. This is a requirement on large but non-energy intensive companies and public sector bodies to monitor and report their energy use, and it has already caused some to make energy efficiencies and save money. The problem lies in the government’s decision to include a mini cap-and-trade scheme within this policy, which transforms it from a manageable, one-off task which will probably end up as a saving into a bureaucratic maze where the hassle does not justify the outcome.

Changing the approach doesn’t mean doing nothing – it just means making sure policies are proportionate, well-designed and as simple as possible. It also means we should focus on those technologies and policies able to deliver the most for the climate. As the title suggests, this report argues that we can make progress on the environment – Greener – at less cost – Cheaper.

Robert McIlveen is a Research Fellow at Policy Exchange's Environment and Energy Unit.