The economic cost of a 42 per cent reduction in carbon dioxide emissions by 2020

The recent TaxPayers’ Alliance report Ending the Green Rip-Off: Reforming climate change policy to reduce the burden on families showed that existing climate change policy is imposing an excessive and inefficient burden on families and businesses.  The report cited Citigroup analysis which suggests climate change policy is already heading for an “affordability crisis”. 

Prime Minister Gordon Brown has now offered, at the climate change conference in Copenhagen, a cut of 42 per cent in Britain’s carbon dioxide emissions by 2020.  That would be a massive increase from the current 20 per cent target.  This research note shows that meeting such a target could mean massive cuts in Britain’s national income.

For details of the calculations, download the research note here (PDF).

Key findings

    • If Britain continues a strong performance relative to other advanced economies in cutting emissions intensity, the number of tonnes of carbon dioxide produced per million pounds of GDP, we can expect emissions intensity to fall by nearly 30 per cent by 2020.
    • With economic growth in line with Treasury expectations, that will mean that carbon dioxide emissions can be expected to fall to around 489 Mt by 2020.  That means the cut from 1990 emissions levels will be nearly 18 per cent (the current target requires a 34 per cent cut in British emissions).
    • To meet a 42 per cent target at the present rate of improvements in emissions intensity, the size of the economy in 2020 would need to be cut by 30 per cent from expected levels, or nearly £507 billion (2005 prices).  That would leave GDP lower than it was in 2004.
    • The rate of carbon intensity improvement would need to nearly double to meet a 42 per cent target without compromising national income.  That is highly unlikely given that even existing technologies such as nuclear and tidal power, or carbon capture and storage, are unlikely to be able to make a major contribution by 2020.

For details of the calculations, download the research note here (PDF).

Matthew Sinclair, Research Director at the TaxPayers’ Alliance, said:

“It is absolutely incredible that Gordon Brown is still pledging ever more extreme and expensive emissions cuts on Britain’s behalf.  The Government are relying on rapid economic growth to help restore the public finances to health, but meeting such an ambitious target for emissions cuts could require a recession of unprecedented ferocity.  Governments shouldn’t sign up to international targets unless they have a serious plan to meet them, and they definitely shouldn’t sign a death warrant for the British economy.”

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