The art of taxing carbon without taxing carbon

Before I talk about how the coalition have screwed up, I’ll talk about how the energy industry seems to be moving in the right direction. Despite there being limited progress in pricing carbon or achieving a low carbon economy. People in the energy industry seem to be acting as though there has been. I put this down to expectations.

The more and more closely with people in the energy sector, the more and more I begin to see expectations determining people’s behaviour. Every UK energy company has a smart metering team (that is mandated by law), but they are also dedicated to working out how to get people to use less energy (which isn’t).

Likewise, BP has invested in renewable energy research (although of course it hasn’t abandoned its profitable fossil fuel business). Other energy companies have made a move to low carbon generation and to reducing their customers’ energy consumption. The language executives use has even shifted. Find a speech from an energy company exec that doesn’t mention reducing emissions, you might be surprised how hard it is.

These actions won’t show up in policy discussions because the policies haven’t been implemented yet. So pessimism is to be expected. But when you look at what people are moving towards, it begins to look as though the expectations of more expensive carbon and cheaper renewables is affecting people’s behaviour. In an industry with such a long planning horizon I suppose this is to be expected, but I was surprised.

I suppose this is another of my hobby horses. Economics isn’t about choice. It is about expectations and contracts. Expecting higher prices, even if today’s prices are low, will impact your decisions. I think we can see some of this in the energy sector. I don’t want to be Panglossian, we are still probably screwed by climate change, but probably less screwed than people assume.

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