Climate change & global poverty


As you are standing as a parliamentary candidate in the present election campaign, I would appreciate hearing what your views are on the following two issues - neither of which is receiving much attention in the present campaigning, yet they have been of concern to constituents here and across the UK:

Firstly, progressing the issue of climate change. This did not achieve a fair, unambiguous and binding deal at last December's Copenhagen climate talks, yet it is already killing 300,000 people a year in poor countries. To combat this, an international, legally-binding deal to ensure that carbon emissions peak by 2015, to keep global temperature rises below 2 degrees Centigrade, and a commitment from rich countries to help poor countries adapt to the changing climate. What urgent and meaningful action will your party, if elected, take to tackle this global crisis?

Secondly, attention to tax dodging by some unscrupulous multinational companies, which denies poor countries more money than they receive in aid - money that could be used to provide universal primary education, better infrastructure, and better healthcare to lift their citizens out of poverty. Lack of transparency in the global financial system denies these people the taxes due to them. This could be alleviated by an international standard that requires countries to report a breakdown of economic activity on a country-by-country basis, including profits made and taxes paid in every jurisdiction where a company operates, and by ending the secret practices of tax havens. The UK is best placed to take a leading role in this, given the importance of the City of London to international finance. If elected, what will your party do to end tax secrecy internationally and ensure developing countries can collect the taxes due to them?

Answer (on behalf of Peter Prior):

You question what action we would take on the environment. I would like first to emphasise that Peter has already taken more effective action probably than any other candidate standing in any constituency in this election. Peter first began investing his company's money in renewable energy in the early 1980s – one of the first people in the country to do so, before there was any government interest or support, and indeed before the electricity industry was privatized and access for private investors allowed. Renewables are now the largest part of the activities of his business, Summerleaze (though you might not know it from the reporting in the press). To date, Summerleaze has generated over 2 TWh (that is 2,000,000,000 kWh or units) of renewable electricity. Using the government's figure of 0.43 tonnes of CO2 emitted on average from our conventional generation fleet per MWh of electricity, Summerleaze's renewable output equates to a saving of 860,000 tonnes of CO2.

Having brought the first generation of renewables to maturity and competitiveness over the preceding two decades, Summerleaze has for the past six years been taking the lead on the next generation of renewable technologies, such as anaerobic digestion (AD), wood pellets for green heat, and production of renewable hydrogen. Andigestion Ltd, Summerleaze's AD subsidiary, produces half of all the power from non-sewage AD in the country. Forever Fuels Ltd, Summerleaze's wood-pellet subsidiary, supplies a large proportion of the retail market for wood pellets (from sustainable forestry only) in the UK and is investing to establish regional infrastructure to ensure that renewable heating fuels can be delivered to all parts of the UK as efficiently as possible. As with the earlier investment in the first generation (landfill gas), Summerleaze is taking a significant risk to invest in infrastructure that it believes is needed and will one day be viable, long before politicians wake up to the future. Peter could bring that sort of forward thinking to Westminster.

Many politicians talk a good game, but talk and promises are easy. What matters is action, and Peter has already delivered in spades.

Global climate-change agreement

With regard to Copenhagen, Kyoto II, and international agreement, I am afraid that Copenhagen was always doomed to failure, and any attempt to revive it will produce no more than an ineffective fudge. It relies on 200 turkeys each volunteering themselves for the Christmas table, and trusting that the other 199 will do likewise.

In any case, the concept is based on bad economics. An effective approach would pursue two parallel strands:

  1. Tear up the Kyoto/cap-and-trade model and look for international agreement on a different approach that more closely reflects reality and the interests of the various participating nations. I attach a paper that suggests such an alternative approach (600kB Acrobat file). It is a couple of years old, but most of its analysis is supported by recent experience.
  2. Don't wait for international agreement, but unilaterally introduce more effective and proportionate incentives in the UK (designed to marry with (1) if agreement can be reached, but not dependent on it), because diversification away from fossil-fuel dependence is in the UK's interest regardless of whether it is as part of a broader agreement.

With regard to (2), we propose that we should replace our morass of expensive and ineffective interventions in the energy market with:

  1. a carbon levy of £30/tCO2 applied at point of import or production of fossil fuels, to internalize the social cost of the risk of anthropogenic global warming from emissions of greenhouse gases (were [1] above ever to be agreed internationally, the price of the carbon levy would be varied to match the price of carbon established in the market); and
  2. a fossil-fuel levy of £30/MWh also applied at point of import or production of fossil fuels, to encourage diversification away from fossil fuels, regardless of the state of science and public opinion on climate change, as diversification is strongly in our interests for economic and security reasons.

The use of taxation rather than cap-and-trade or targeted subsidies to encourage the reduction of fossil-fuel consumption is the approach favoured by the majority of economists, from across the spectrum of economic schools. It is also the approach adopted by the Scandinavian nations, who have been the most successful European nations (along with Austria and Latvia) at reducing the share of fossil fuels in their economy, although one might not know it from the attention lavished in the UK on places like Germany and Spain, whose "targeted" systems are being exposed increasingly at home as perverse, ineffective and unaffordable, even as our main political parties seek to copy them.

I attach a series of charts and tables drawn from EU data (300kB Acrobat file), which I put together for a series of Conservative-party workshops on biomass energy that Summerleaze sponsored last year. The charts on the penultimate page demonstrate the pre-eminence of the Scandinavians in displacing fossil fuels in their economy. The charts on the previous page illustrate the importance of high energy prices in achieving that result (or, in our case, of low energy prices in failing to make much progress). The table at the back shows how much more effective the Scandinavian approach has been at encouraging not only renewables but also energy-efficiency.

The Swedes, in particular, deserve more recognition as the leading European nation (perhaps along with the Latvians) in this regard. They have reached over 40% renewable energy (not just electricity) in their energy mix since the period illustrated in the charts. They have comfortably the lowest level of household energy consumption per capita per degree-day (the best measure of energy-efficiency) of any developed nation. They have achieved this performance through the double-taxation (carbon tax and fossil-fuel tax) approach that we propose. They have not had to wait for international agreement to do so. Nor have they harmed their industry (they have a stronger industrial base than we do). And despite the high prices (in fact, because of them), the concept of fuel poverty is unknown to them.

Fuel poverty is the product not of high energy prices but of low domestic energy-efficiency – poor insulation and inefficient boilers. High domestic energy prices in Sweden provide the economic basis for investing in efficient technologies and high-quality construction, which are not viable in the UK. Nevertheless, there is no doubt that, thanks to the disastrous management of our economy by the Labour government, many people would struggle with higher energy prices. We propose to use a proportion of the revenue from these taxes (and the savings from abolishing the existing, inefficient interventions) to provide cover within our proposed Basic Income for an average household's increased energy costs due to these taxes. We estimate that these taxes may increase energy costs by around £1,000 per average household. We set the proposed level of the Basic Income £500 higher than would have been necessary to provide equivalent support to existing benefits, and did the same for the proposed single-person supplement to the Basic Income, so that all households would be able to afford the increased cost. This support would also provide the means by which people could pay for efficiency improvements (via financing), and the higher prices would provide the incentive to do so.

We must be careful not to reduce our industrial competitiveness through these higher energy prices, killing jobs and offshoring (rather than displacing) carbon. So we have proposed to use another part of the revenue from these taxes to reduce other business costs (e.g. taxes on employment, and business rates for energy-intensive industries) to compensate for the increased energy costs, to encourage a high-employment, high-efficiency industrial sector.

Multinationals and global poverty

Your question on multinational companies and poor countries seems to me to break into two parts:

  1. How we should handle big companies with market power, and
  2. How we can best help to reduce poverty in poor countries.

With regard to (1), we propose that there should be much stronger competition rules. Where governments have created barriers to entry and privileged positions for incumbents in a market (as has too often been the case under recent, corporatist governments), we need to remove those barriers and privileges. And where those barriers and privileges have created one or a handful of dominant Vertically-Integrated Large Enterprises in the sector, whose size and vertical-integration now gives them significant market power regardless of the state-sponsored privileges, as in the banks and the energy companies, they should be "dis-integrated" (i.e. broken up into their smaller constituent parts), to re-generate competition in the sector.

Unfortunately, we have to be realistic and recognise both that the scope of a British government to prevent abuses by multinationals outside British borders is limited, and that the most common abuse is not so much the avoidance of tax, as the routing of funds (whether from businesses or, more often, from public-sector and charitable aid) into the bank accounts of the unscrupulous elites of poorer countries. With regard to the second part of your question (how to reduce poverty), the starting point must therefore be to try to minimize the funnelling of money into government coffers in poor countries.

The African economist Dambisa Moyo has set out brilliantly the harm that is done by our conventional approach to the elimination of poverty in poorer countries. Professor Paul Collier's analysis also condemns the conventional approach to foreign aid, and emphasises the importance of reducing corruption in improving the lot of the Bottom Billion poorest inhabitants of the planet. Besides often funding corruption, our aid or commercial involvement in poor countries very often undermines the local markets and small traders from which increased prosperity would develop. We therefore take the view that, with the exception of emergency aid, we can best help these poor countries by opening our markets to them and not distorting their markets by sending them our subsidised produce, rather than by giving money to their governments. Not for nothing is foreign aid often described as a tax on poor people in rich countries to fund the lifestyles of rich people in poor countries.

We should remove import tariffs and subsidies for export and production. This would encourage undeveloped countries to develop their economies by developing firstly their internal markets without the unfair competition of subsidised Western products, and secondly external markets uninhibited by protectionist measures. Development through trade, not aid (combined with the creation of a more stable institutional framework for investment and entrepreneurial activity in the countries in question) has had a far greater impact on poverty levels in developing nations such as the BRIC countries than was previously achieved by decades of foreign aid.