Introduction
Climate change effects resulting from green gas emissions have always been the heated topics of discussion for many countries across the world. To potentially tackle the problem of climate change, the UK government has become the first major economy to introduce the so called “Net-Zero 2050” target. This initiative means that the amount of greenhouse gas produced, and the amount removed from the atmosphere are balanced by 2050.
Major policies
One of the major policies that can be implemented to achieve this target is carbon pricing. This will encourage firms and consumers switch to low-carbon alternatives by introducing the “polluter pays” principle. Firms and agencies will be cost harshly when emitting considerable amount of greenhouse house gases to the atmosphere. This extra cost may lead to serious financial issues to firms and agencies, to avoid financial problems, they will actively seek for low-carbon choices, using renewable energy sources etc. There are many forms of carbon pricing, here we will talk about the three key levers.
The first is to introduce an emission trading system (ETS). This system will limit the total amount of greenhouse gases emitted by each firm or agency. One of the main advantages of this policy is that it is cost effective. There is no need for government to put extra spending in setting up this system or maintain this system for long term use. The only thing government needs to do is to introduce allowances and permits to put a cap on carbon emission. Firms and agencies who are facing a shortage of permits must either cut their emissions or purchase permits from other firms or agencies. This policy is an effective way for government to reduce emission in a short period of time and it allows firms and agencies to adjust their emission in a more flexible way. For example, firms can choose whether continue their emissions by purchasing permits or cut off emission based on their financial situation. However, this policy cannot directly intervene the price of carbon in the market, instead, the price will still fluctuate.
The second lever is targeted government funding. Government can introduce targeted funds and give financial help to companies and businesses and allow them to transit to green energy sources and to invest more on low-carbon technologies. These funds are mainly for green energy companies or startups who have already invested in environmentally friendly initiatives e.g. use renewable energy sources and other technologies to reduce carbon emission. These funds can also be used for advanced technologies such as carbon capture and low-carbon hydrogen productions. In June 2020, the UK government announced up to 100 million pounds of new research and development funding to support green technologies The government also said that the responses will be used as evidence to inform its future policy in the green sector. An alternative way is to introduce the funds to households to help them setting up green energy electricity systems, since these systems are generally expensive to set up. One example would be the new Urban Climate Action programme (UCAP) launched by the UK government in support of developing countries to help their transition to net-zero. This fund policy will not only encourage environmentally friendly investment by lowering the cost and risk to companies, but also reduce emissions. However, it is cost ineffective, and government need to carefully decide the amount of funding to allocate to firms. Sometimes government will prefer to locate funds to other sectors such as education and health. Moreover, the criteria for “environmentally friendly firms” remain vague, which may cause further problems.
The third lever is mitigating carbon leakage. Carbon leakage happens when companies moving their production from a country with stringent policies on greenhouse gases emissions, to a country that is more lenient, i.e. more carbon permits and allowances. To mitigate carbon leakage, government may introduce an extra carbon price to import goods. Companies who decide to switch their production to other countries may now face even more higher costs when importing their goods back to the UK. As a result, companies will stay in the UK and accept the stringent policies implemented by the UK to reduce their emission. This policy will not only help UK to reduce the emissions, but also help improve the global climate.
Another major policy for reaching the Net-Zero target is called carbon offset. This is applied to both companies and individual households. They could invest in environmental projects and introduce various emission reduction measures of offset their own carbon emissions. Environmental projects and emission reduction measures include land restoration, afforestation, and innovative technologies such as carbon capture and storage and bioenergy. There are mainly three types of offsets, avoided emission offset, emissions reduction offsets and Greenhouse gas removal offsets. The measures implemented will be differ among these three categories. Although offsetting is an effective way to protect the climate from different aspects, however, it cannot ensure that greenhouse gases will be reduced. For example, planting more trees will be beneficial to the climate, however, it can also act as a source of emission if the trees are burned later or die early and emit the carbon they captured during their lifetimes.
In my opinion, instead of introducing funds at the beginning, government should implement the emission trading system and setting a reasonable cap on emission. By monitoring the carbon emission after implementing the system, government can get a brief idea about the firms’ willingness to reduce emission and avoid unnecessary spending. Moreover, I would highly suggest government to conduct research about how many companies are producing their goods outside the country and why they choose to that before implementing any carbon price. This research will help to set the level of the carbon price.
Positive impacts of Net-Zero 2050 on the UK Economy
The positive impacts of Net -Zero 2050 can be highlighted through its three main stakeholders: government, corporations and consumers and households.
From UK government’s perspective, if the net zero target is reached means that it will cost less to solve greenhouse gases related problem, or even gain extra revenue from that. Before reaching net zero, there is an estimated 9-19 billion pounds economics cost from air pollution in the UK. With a cut of spending or a gained revenue, the UK government can switch their spending to other sectors such as the education system, agriculture etc. and to increase the social welfare, and eventually lead to an economic boom.
From UK corporations’ perspective, they will certainly be forced to put more emphasis on green technology investment. Such an increase in investment on green technologies will create competitive advantage to the firms since their long-term production will become cheaper (no need to purchase permits or pay carbon tax) compared with those who still use the traditional energy sources. This will also build up investors’ confidence as they always want to invest companies who have promising future performance. Furthermore, the switch of technology will create more employment. Jobs and trainings are needed for workers to get familiar with the new production technologies. Also, if the firms were experiencing extra cost on permits due to the EST system, they can now spend no more on them after reaching net zero target. They could choose to spend more on wages or investment.
From UK Consumers and households’ perspective, it is certainly beneficial to live in a net zero community. Tax breaks and incentives launched by the government for switching to green energy will cut their spending on household energy. Moreover, they will have a cheaper energy bill and may choose to spend more of their income on consumptions etc. to promote the economy
Negative impacts of Net-Zero 2050 on the UK economy
Net-zero 2050 can directly impact UK’s GDP. Committee on Climate Change (CCC) suggests that “reaching net zero emissions by 2050 could cost up to 1-2% of GDP per year”. The National Grid ESO has also suggested that a cost of 3 trillion will be needed to reach the net zero target.
One of the main problems faced by all three stakeholders is the high start-up costs for green energy system. Low-income household may face serious cost pressure. Corporations will face the same issue. Although the high start-up may not directly affect the government, there may need to be budget readjustments to encourage more household green energy investment. Switching to green energy and cut emissions are challenging tasks for companies and companies may also shrink their business size to complement the extra cost for switching.
There is still a long way for UK companies to achieve net zero target. Recent study by “Energy Monitor” suggests that only 29% of UK’s businesses have committed the net zero 2050 target. About half of the companies feeling overwhelmed by this target and have not yet developed reliable strategies for the net zero target.
Reference:
1. UK becomes first major economy to pass net zero emissions law
2. What is net zero?
3. What is carbon pricing?
4. How do emissions trading systems work?
5. What is Carbon Leakage?
6. Carbon Offset Guide
7. The biggest problem with carbon offsetting is that it doesn’t really work
8. Net Zero: Economy and Jobs
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