How best to reduce greenhouse gas emissions

The issue of how to reduce greenhouse gas emissions from air travel and other forms of transport vexes many governments and other interested parties.

In the FT, academic Richard Tol, argues that the European Union’s proposals still offer large subsidies for the airlines in the guise of climate policy, while the British government change from air passenger duty to flight duty also fails to reduce emissions.

So how should the proposed emissions permits be distributed? Dr Tol believes an auction is the best option. He concludes that European climate policy continues down a path that is ineffective yet expensive.

Is reducing emissions from road transport cheaper and easier than from air transport? Can additional runways actually reduce emissions by cutting waiting times for planes to land? And are other areas, such as electricity generation, better places to reduce carbon dioxide emissions in the near term?

Put your questions on the reduction of greenhouse gas emissions to Dr Tol, who is at the Economic and Social Research Institute in Dublin, Ireland, and the Vrije Universiteit in Amsterdam, the Netherlands. He is answering them live online now.

Do you agree that the priority has to be making the power sector carbon-free, as we have the technology, but that the essential task in transport is to constrain growth by making sure we price emissions properly? Would you support aviation fuel being taxed on same basis as road diesel, for example?
John Rhys

Richard Tol: Emissions are reduced at the lowest possible cost if all emissions are priced the same, whether they come from power generation, surface transport, or aviation. All experts and all models agree that if we would have a uniform carbon tax, or a carbon dioxide emission permit market with universal coverage, then the power sector would decarbonise much faster than the transport sector. The reason is that alternative sources of electricity are relatively mature and not overly expensive. Alternative automotive fuels are less mature and more expensive. Aviation will be the last sector to go carbon-free, as there are no functioning prototypes, let alone near-commercial alternatives to kerosene.

A carbon tax on transport would accelerate the development of alternative technologies rather than constrain growth. The demand for transport is too strong, and no electorate would accept a very high carbon tax.

I would impose a uniform carbon tax on all sources of emissions and let the market decide whether the predictions of the experts are correct. The alternative is to let politicians do the prioritisation of emission reduction. Politicians do not have sufficient knowledge to get that right, and they may not have the right motives.

What is your reaction to the emissions reduction plan announced recently by the European Union? To some eyes, it seems overly generous to heavy industries and too lax on the green credentials of biofuels.

Richard Tol: There are many things wrong with the latest EU plans.

The overall target, 20% by 2020, is based on alliteration rather than sound science. The ”impact assessment” of the European Commission has not been reviewed by independent peers, but the few details that emerged suggest that the Commission understated the costs of emission reduction and overstated the benefits.

There are some improvements in the European Trading System (ETS) for carbon dioxide emission permits. Particularly, the National Allocation Plans have been abandoned. These are the main reason for overallocation of permits. Another improvement is the increasing reliance on auctioned permits, rather than grandparented permits.

Unfortunately, the European Commission did not tackle the issue of enforcement. The ETS has seller liability. That is, if a British company buys a permit from an Italian company, and that permit turns about to be a fraud, then the British company is not liable. It only has to report the incident to the UK authorities, who will notify the Italian authorities, who will then persecute the Italian company that issued the fraudulent permit. Or so the theory goes.

The targets for emissions outside the ETS were pulled from thin air. They are likely to be subject to intense lobbying, so that the final plan will be even stranger.

Tinbergen, the first Nobel Laureate in Economics, showed that the number of instruments should be the same as the number of targets and problems. The European Union ignored this. The problem is climate change. Greenhouse gas emission reduction should be the target. In addition, we have targets for energy efficiency, renewable energy, biofuels in transport, and biofuels in home heating. These supplementary targets are either obsolete (and the cost of monitoring, reporting and enforcement a complete waste of money) or they unnecessarily increase the cost of emission reduction.

The European Union will probably miss its Kyoto targets for 2012. It is now shifting the attention to even more ambitious plans for 2020. The same happened with the targets for 1998, 2000, and 2005. In the EU, climate policy seems to be no more than the announcement of a grandiose plan. And if the plan is not working, an even more grandiose plan is announced. The response of industry is lobbying and cynicism, rather than much-needed R&D. Recent advancements in carbon-reducing technology are from Japan (hybrid cars) and from the much-maligned USA (solar power, fuel cells, bioenergy).

Given that congestion is perhaps the main cause of pollution and CO2 would it not be reasonable to build more roads, to stop traffic jams. The argument that this merely encourages more cars on the road is mainly defunct as in many cases there is no other practical option, especially for families.
Robert Moore, Putney, UK

Richard Tol: In the short to medium term, reducing congestion would reduce emissions. This is true for road transport as well as for aviation. A third runway for Heathrow would drastically cut the waiting times for planes to land. The reason is as you say: there is no alternative, and as long as there is no alternative, we should focus on efficiency, that is, getting the maximum distance out of a litre of petrol or kerosene. Traffic jams are a waste of time and carbon.

However, in the medium to long term, new transport infrastructure would create new demand for transport. Therefore, there should also be a policy to reduce transport emissions by other means, such as telecommuting, public transport, and carbon-free fuels.

Given that, despite notable improvements in insulation levels and fuel efficiency in the areas of buildings and transport respectively, developed world energy conservation and efficiency efforts to date appear to have had little if any net effect on CO2 emissions, what do you consider to be the implications of the Khazzoom-Brookes postulate for the relative merits of public investment programmes in energy conservation and efficiency programmes versus the wholesale decarbonising of energy production and supply?
Steve Slator, Huddersfield, UK

Richard Tol: The Khazzoom-Brookes postulate holds that an increase in energy efficiency leads to a decrease in the real price of energy, and thus to an increase in energy use. There is a substantial empirical literature on this. Typically, studies find that 20-30% of the initial gains are lost to this rebound effect. There are a few reported cases in which energy use actually increased, but these are exceptional cases.

The Khazzoom-Brookes postulate does not at all explain the observed trends. There have been substantial gains in energy efficiency in buildings and transport, but demand has grown much faster. Larger homes, smaller families, and higher ambient temperatures have outdone improved insulation. This does not mean than insulation is a bad idea. Energy use would have been higher still without insulation. In transport, efficiency gains in engines have been used to build heavier and more powerful cars. An SUV with a 1970s engine would be a true gas-guzzler.

I agree fully, however, that the solution to the climate problem lies in offering the same (or a better) level of energy and transport services but then without the carbon dioxide emissions. That is, alternative fuels are the answer, rather than reductions in demand.

With a cap-and-trade system under consideration here in the US, I am concerned. Most of our carbon comes from coal-fired power plants. The utilities’ purchase of carbon permits will surely be passed on to consumers. With the poor typically living in the least well-maintained and, therefore, least energy efficient housing, we seem to be in a situation rife with unintended consequences. How do we avoid inequities, without taxing middle income families to pay for the utilities the poor may no longer be able to reasonably afford?
Lee Allgood, Georgia, US

Richard Tol: This a fair concern. Poorer households spend a higher share of their income on energy than richer households do. Any increase in the price of energy, be it through cap-and-trade or mandatory renewable targets, will hit the poor hardest. However, if emission permits are auctioned to the highest bidder (rather than given away for free to industry, as is currently the case in Europe), then the government gains a large revenue. That revenue should be used to compensate the poorest households. I am no expert on taxes and income distribution in the USA, but I guess a negative income tax, a reduction in VAT, or support for health care and schooling would particularly benefit the most vulnerable households.

Britain has some of the longest journey-to-work times and distances of any EU state. Few people enjoy their commute to work. Can Britain’s planners somehow reduce the need to travel by siting houses nearer to jobs, or jobs nearer to houses? Are there good examples of this anywhere?
Ian Slater, Stafford

Richard Tol: Some countries are better at this than others, but few places are very good at this. Integrated regional planning is key. One cannot and would not want to force people to live close to work or school, but one can make sure that new residential or industrial developments are well connected by road and public transport, through standards or preferential treatment. There are building standards for houses, and there should be appropriate standards for housing developments too.

Do you think that the reduction of the greenhouse gas emissions will come from the implementation of technical innovations or as a result of enforcement of new restrictive international policies or laws globally?
Viktor O. Ledenyov, Ukraine

Richard Tol: International law is weak. It cannot force countries to reduce greenhouse gas emissions against their will. The Kyoto Protocol is failing for this reason, and so will the Bali Roadmap. Because industry is internationally mobile, some form of international assurance is needed in climate policy. If the price of carbon is much higher in Canada than in the USA, energy-intensive industry will just move south of the border. Canada therefore needs to know what the USA is up to, before it decides its climate policy. That is not the same as a legally binding treaty between the two countries.

These things only matter between close trading partners. Canada and the USA should talk, but there is no need to engage Ghana in their conversation -- let alone all other members of the United Nations.

Countries such as Brazil, China, and India have other priorities than climate change. Moral pressure will not work, and international agreements are toothless. However, each of these countries would happily accept any alternative technology that would reduce their dependency on expensive, imported fossil fuel - provided that the alternative is better. Technological progress is the key to reducing emissions in these countries.

We are a 19 truck road transport operator and we have decided to convert over time all our trucks to run on Irish grown and produced rape seed oil (Pure Plant Oil). We did this to reduce our carbon footprint and believe we are doing so, but what is your opinion on such biofuels?
Jerry Kiersey, Dublin, Ireland

Richard Tol: The current generation of biofuels does not help to reduce greenhouse gas emissions. Although the carbon dioxide balance of rapeseed oil is positive (that is, total CO2 emissions are lower), this changes when you consider the emissions of other greenhouse gases (particularly, nitrous oxide emissions from agricultural soils).

Biofuels grown in temperate climates emit as much or more greenhouse gases as fossil fuels. The same is true for palm oil (which stimulates deforestation) and perhaps sugarcane-based ethanol. It is better to wait for the next generation of biofuels, based on cellulosic conversion of woody biomass. It will take another ten years for this technology to mature.

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