Today sees the third reading of the Climate Change Bill. With aviation and shipping included in some way and the target strengthened from 60% of 1990 levels to 80% the bill now constitutes a significantly harder legally binding pledge than it did before. I've written before about the nonsense of setting such a target when, over the Government's time in office, emissions have actually increased 1.6%. However, it is worth thinking about what a cut of that magnitude could mean in more detail, I've set out some of the details in a research note for the TPA which has been released today.
It is easier to understand what it will take to secure 80% cuts if you keep the following equation in mind:
Emissions = GDP x Emissions intensity
For obvious reasons, cutting emissions by reducing emissions intensity - getting more efficient rather than poorer - is the preferred option.
Unfortunately, that is easier said than done. We've had a series of measures designed to reduce emissions since Ken Clarke introduced the Fuel Duty escalator in order to "meet our Rio commitments". With green taxes on a series of the most important emitting activities already excessive, there is every incentive for people to use as little fossil fuel as possible. Despite that, there is little sign that we are likely to achieve efficiency gains on anything like the scale that would be necessary to meet an 80% below 1990 levels target without crippling economic sacrifice.
Between 1990 and 2005 we did better than the developing country average, largely thanks to the dash for gas. Emissions intensity has come down by around 2.57% each year, against 1.64% in the rest of the OECD. That isn't nearly enough and, based on the simple algebra above, that means we would need to cut GDP massively to meet the target.
If we continue on our current path of efficiency gains of 2.57% each year then we would need to sacrifice 78% of GDP in 2050 in order to meet the new target. If, and this seems quite likely, our performance reverts to the developed country norm as we have now realised the gains from the dash for gas then it will take a cut in 2050 GDP of 86% to meet the target.
That is a massive, unprecedented sacrifice that would probably be in vain. Even if we did want to take such lunatic steps other countries wouldn't follow suit. Other European nations are already signalling an unwillingness to imperil their fragile economies and resisting the EU's green targets (more details are in our research note). The biggest emitters aren't going to hurt their economies in the middle of an economic slump. It won't do anything for global emissions if we impose regulations and taxes on emitting industries in Britain just to see them move elsewhere.
In order to achieve the kind of cuts in emissions that this target requires without sacrificing GDP we would need a 5.8% cut in intensity each year. That might happen and we should do what we can to encourage the scientific advances that will make it more likely. However, it isn't sensible to set a legally binding pledge for something that isn't under political control and there is no policy lever for technological advance on that scale. Making a legally binding pledge that we are aware we might have to duck out of or committing ourselves to economic hara-kiri isn't a good idea.
Of course, the reality is that if meeting the target means a 70-90% cut in GDP then it will probably just be ignored. That doesn't mean the new target isn't important though, just by trying to meet it politicians will impose new regulations and taxes on British businesses and consumers. Beyond that, passing targets that are either unserious or insane doesn't reflect well on our politicians.