And this is indeed the best three-quarters of a book I have read on climate change (or more precisely, what we need to do to having anything like a good chance of avoiding cataclysmic climate change, something like dangerous climate change now already pretty much unavoidable). Berners-Lee and Clark themselves avoid getting bogged down in unnecessary detail and cut through to the core of the issues. Every time I thought they’d missed a key point, they themselves made it, usually very well, a paragraph or two later. I can’t think of any other publication which lays put the issues so clearly and succinctly. I’d certainly recommend buying it for this part of the book alone.

As the authors themselves say, the book has two key messages. The first is that if we are to avoid catastrophic climate change, we can’t burn even half of the fossil fuels we know are in the ground. The tortuous link between modelled chances of avoiding certain levels of warming, concentrations of GHGs in the atmosphere and carbon budgets is very nicely and clearly followed back to data on fossil fuel reserves with some great graphics. The basic take-away fact is that to have even a 50:50 chance of avoiding 2°C warming we can burn no more than just over half of remaining proven reserves of fossil fuels, or a tiny proportion of estimated probable reserves. That is less than we have used since 1850, and of course the world economy is a lot bigger now than it was then.

The underlying problem, then, is that we can’t tackle climate change on anything like a safe basis by waiting until we run out of fossil fuels and then doing something afterwards. We have to leave a lot of them in the ground. The big challenge here is that fossil fuels are still pretty cheap to extract. As Berners-Lee and Clark point out, while the average price of oil, gas and coal can go quite high, the marginal cost of extraction in low-cost countries remains very low, and it is beating this marginal cost that matters for any alternative low-carbon energy source.

This relates to the second central message of the book – that a lot of things we think are helping (or will help) to reduce emissions do not actually work at the system-wide level. This includes energy efficiency (because of the rebound effect), intermediate fuels like gas (because they make higher-carbon coal cheaper elsewhere), or even low- or zero-carbon energy like renewables or nuclear (until they reach really low cost able to compete with the marginal cost of production of fossil fuels). They are very clear that they are not against these things, but argue that they will only be effective if they are combined with the one thing that will make burning all the fossil fuel we have unattractive – i.e. pricing carbon across all countries so that it becomes prohibitively expensive.

So, if carbon pricing (either through tax or through emissions trading schemes) is the policy answer to the burning question, why has it been so difficult to get agreement to this at the global level? Berner-Lee and Clark answer this in four parts. First, the interests of fossil fuel companies. They include not only the West’s oil and gas giants, but also the state-owned companies of OPEC and others countries, and make the link between fossil fuel ownership and obstruction in the UNFCCC process. Second, the fact that pricing carbon and developing alternatives will have a cost and may slow economic growth. While they acknowledge the critical literature on growth, they reach the (sensible in my view) conclusion that jettisoning economic growth as an objective remains a major political barrier. Third are the myriad psychological factors that make us reluctant to face up to the reality of climate change and take action, despite the fact that, as Berners-Lee and Cark note, a majority of people believe in the man-made climate change and do express concern over it. Fourth are the familiar problems of collective action and burden-sharing in international negotiations.

The fact that this is such a clear and compelling laying out of the nature of the problem makes the last quarter of the book, on what to do about it, so disappointing. There are a number of largely uncontroversial and pretty conventional policy recommendations, but what seems to me to be the weakest part is the account of how Berners-Lee and Clark expect the political change needed for the policies to come about. They rightly describe climate change as the biggest and most intractable environmental problem we face, one on which politicians are “terrified” of taking action because of short-term backlash, and of which psychologists have said that “you almost couldn’t design a problem that is a worse fit for our psychology”. Faced with this unprecedented historical challenge, their response is a sort of Woodstock-style “if we think really hard, maybe we can stop the rain” call for everyone to “wake up”, for climate campaigners to make their messages more direct, with the facts heard “loud and clear”, for “protests, petitions and consumer boycotts” of fossil fuel companies, and overcoming that old chestnut, a simple “lack of leadership”.

The main thrust of the message here seems to be that lately environmentalists have avoided spelling out the awfulness of climate change and tried to weave positive but more instrumentalist framings around policies instead, and that this is a mistake. Berners- Lee and Clark argue that “reality needs facing head on – and anyhow the truth may be more interesting and inspiring than the watered down version.” In this, they seem to agree with the Common Cause-type approach, that sustainability will require a deep sea-change in values and beliefs rather than mere acquiescence with policies.

The problem with all this is that it simply doesn’t fit with their rather good analysis in the book up to that point. As they note, GHGs are invisible and odourless, climate change is an abstract concept and its worst effects will be felt a long time from now, while we tend to be pretty short-termist in our outlook, and we tend to have optimism bias. This doesn’t mean that we don’t believe in or are worried about climate change – as they point out, the evidence is that most of us do, and are – but it does mean that it is not a highly salient issue for most people, while the short-term costs and hit on growth that ending fossil fuel dependency would involve are much more on peoples’ radar.

In this kind of situation, why would a louder and more confrontational stating of what we know about climate change make a difference? There are two possibilities. One is that it is lack of information that is the problem. This is not totally compelling, since that information is out there, reported, albeit patchily, in the media and in books like Mark Lynas’s Six Degrees. In addition, Berners-Lee and Clark’s own analysis implies that the problem is less lack of information and more a reluctance to engage with that information (or simply a lack of interest).

A second possibility is that a louder and clearer message will actually change people’s willingness to engage with the information that is already out there. In other words, would more vigorous action, especially by climate campaigners, get climate change higher up the list of political priorities again? Again, it is not at all clear why this should be the case. The analysis and evidence in the book suggests that people’s political priorities tend to be driven by clear and present dangers or opportunities, and despite events like Hurricane Sandy, the salience of climate change remains too low to force big changes. It is unlikely that a large enough majority of people will respond to warnings from climate campaigners that things are going to be really bad a few decades down the line by stopping worrying about recession and falling living standards and starting to worry more about climate change.

In fact, Berners-Lee and Clark seem to be giving mixed messages about the strategy of sending a “loud and clear” message. On the one hand they are bemoaning the act that we are sleepwalking into disaster. On the other hand they wax lyrical about Bill McKibben’s recent strong piece in Rolling Stone and how this is awakening a generation of college students to climate change and 350.org.  Suddenly what seemed impossible is happening before our eyes! But in reality Bill Mckibben has been sending out these messages for years, as has Jim Hansen (and Al Gore, and George Monbiot, and Kevin Anderson), but if they were effective in getting wider change, this book need not have been written.

In earlier chapters the book actually transcends the usual environmentalist account of politics as almost exclusively about corporate interests, and acknowledges the degree to which mass public opinion and psychology is a problem. But it doesn’t seem to follow through when it comes to what to do next. In particular, there isn’t really a strategy for widening and building the coalition for mitigation policies. This absence is not just at the level of national politics, but also in relation to a global deal. The chapter on burden sharing and a global deal doesn’t engage with the two central issues – incentives for participation and enforcement mechanisms. Both of these are likely to involve trade measures, but discussion of these is absent. [UPDATE - it's been drawn to my attention that there is a discussion of trade measures in Chapter 15 that I have to admit that I missed - many apologies to Berners-Lee and Clark for that. However, it remains that case that the two issues mentioned above are so central to the dynamics of the global process that no deal worth its salt can be made unless they are addressed - something that is not really engaged with in the book].

The Burning Question remains a great book, but it’s a real shame that the strength of environmental and economic analysis isn’t matched by stronger political analysis and a strategy that follows on from it. This book will, I think, provoke some debate within the environmentalist movement about how people talk about climate change to their constituencies and the public, which is not a bad thing. But will it succeed, as its authors obviously hope it might, in waking up that public? The danger is that it is only those who are already awake and listening who will hear.

This post originally appeared on the IGov blog at the University of Exeter

The idea that the best way to provide energy is simply to avoid unnecessary use in the first place has been around for some time. Back in 1989, Amory Lovins coined the term “negawatts” (energy saved by cutting out waste) to emphasise the contrast with megawatts of power or heat that needs to be generated if that waste is not eradicated.

With the current Energy Bill potentially providing the biggest chance in a decade for rethinking institutions and markets, the negawatts idea has had a revival in the form of proposals for an (electrical) energy efficiency feed-in tariff or an energy saving FiT (ESFIT), whereby householders and businesses would be paid for avoiding the use of energy through energy efficiency measures, better energy management and so on.

We have recently seen briefings from Green Alliance and the UK Energy Research Council arguing that ESFITs are a promising way of transforming energy efficiency and saving in the UK. At the beginning of this month the Association for the Conservation of Energy wrote to DECC’s Ed Davey calling for the inclusion of an ESFIT in the Energy Bill. All of this follows favourable academic analysis from the likes of Oxford University’s Nick Eyre.

The case for an ESFIT seems quite strong: existing policy will not be enough to capture the technical potential; low-carbon supply (e.g. renewables and probably nuclear) will be getting support in the form of a feed-in-tariff, so a level playing field demands equal treatment for energy saving; and Perhaps most attractively, an ESFIT approach, unlike current policy, would not be restricted to the large energy supply companies and would allow multiple actors to enter the market.

However, the devil is often in the detail of policy, and what are to my mind two of the most important aspects of an ESFIT only become apparent in the small print.

The key issue is that, at least for electricity, the policy has to work for the domestic or household sector. According to a study by McKinsey for DECC, around two thirds of the total potential technically available savings in electricity use against business-as-usual to 2030 are in the domestic sector. Realising all these savings would halve household demand for electricity as against BAU. Yet so far, energy services contracts, and experiments with measures like the ESFIT – so-called “standard offer programmes” in the USA – have largely been in the industrial and commercial sectors. Achieving energy efficiency gains is bound to be harder when savings are spread across so many more customers, with each household saving far less than a large company could.

So, can an ESFIT succeed in the domestic sector, where so many other measures have fallen short of expectations? There is one reason for thinking that it might, and one that it might not. The first point is to do with how payment might be made. For homes, any ESFIT would probably have to be linked not to actual savings (hard to measure and attribute in millions of households), but rather to “deemed” savings, i.e. a certain fixed amount for a certain measure, such as switching from a D-rated fridge to an AAA-rated one. This is the approach that has been used in past schemes, like the CERT. If a fixed FIT is being offered for such measures, there is then no reason why it might not be offered as an up-front sum, equivalent to the discounted revenue stream over a certain number of years. This is crucial, since, as Nick Eyre points out, people tend to discount the future very heavily, and one of the most important barriers to investing in energy efficiency measures is capital costs.

In this case (which in my view should probably be the default case), the ESFIT would actually be a capital grant, or in ordinary language, a money-off deal. Indeed, I think that one potential trap with the ESFIT is that it will end up sounding and looking a lot more complicated than it needs to be (the Green Deal has gone this way). Basically this should be about money off when you trade in new-for-old. The effectiveness of such an approach in speeding up the turnover of appliances can be seen in the runaway success of DECC’s brief 2010 “cash for clunkers” scrappage scheme for boilers. We need that on a massive scale.

Which brings us to the second point, which is who pays and how. Nick Eyre also points out that an ESFIT is likely to cost a lot more than current schemes. If it is paid for out of energy bills, that cost will especially fall on those who do not benefit from the ESFIT, which is likely to include those hard to reach, including the elderly and disabled, and in any event is likely to be politically contentious. For Eyre, “the solution lies in finding routes to capitalise these benefits, for example in distribution company rate bases”. Another alternative approach, which I have argued for elsewhere, would be to use long-term public borrowing for what is essentially investment in a long-term public good.

Overall, then, an ESFIT looks like a good idea. Whether it will really work in an energy market otherwise designed to sell rather than save energy remains to be seen. In the meantime, let’s not forget good old-fashioned regulation. Building regulations have been effective in upgrading boilers when they are replaced. Around a third of McKinsey’s projected electrical energy savings will come from the replacement of incandescent lighting by CfLs (that figure may be more now with the development of even more efficient LED downlighters), which is already well on the way due to EU regulation driving a voluntary agreement with retailers. Regulation of the privately rented sector should see improvements in energy performance of the worst properties. Sometimes a little bit of stick along with the carrots is just what’s needed to keep things moving.

YouGov has recently come out with the 2013 round of its tracker poll with repeat questions on climate change. In 2008, only 7 percent of respondents said that they thought the world is NOT becoming warmer.  By 2010 this had risen to 18%, dipped to 15% in 2012 but 2013 surged to 28%.

Back in 2008, pollsters weren’t reporting support for UKIP in national polls, lumping them in with “Others”m vbecause levels of support were so low. In the 2005 general election UKIP got 2.3% of the vote. By the 2010 general election that was up to 3.1% By June 2012, when the climate polling was done, pollsters had started singling UKIP out, and the average of polls on Anthony Wells UK Polling Report site was 7.5%. By March 2013, they were up to 12%. Their showing in by-elections at Eastleigh and yesterday in South Shields was even stronger, at 28% and 24% of the vote respectively.

It seems that for quite a large number of the UK public, their views on climate change are still not fixed. UKIP as a party is strongly sceptical on climate, and the decision by individuals to switch political allegiances may also either make them change their minds or be more willing to state their views in surveys.

Of course, correlation is not causation, and what this data really points to is the need for a more thorough assessment of any potential link, and what it implies for strategies by those who are concerned about the impact of all this on policy. What a shame, then, as I’ve noted before, that no-one in the environmentalist movement, seems particularly interested. I wonder if it will be too late by the time they change their minds?

To be sustainable, a major law like the CCA has to create its own political positive feedback, and reduce opposition against it through its own effects. The classic example in the UK is the creation of the National Health Service after the Second World War. This reform created huge new constituencies, not only working class patients who had previously been unable to afford proper treatment, but also a new group of NHS workers, who now had a direct interest in its continuation (not to mention a pharmaceutical industry that would grow hugely with a new state funded client). Opposition from consultants was overcome by a compromise on private practice.

Patashnik argues that durable reforms need to transform institutions, create new interest groups (and destroy old ones) and generate investment in the new regime. ultimately, like the NHS, a successful reform involves changing perceptions, making it literally unthinkable that the reform would be reversed.

Has the CCA done this? The short answer is – not yet. The Act created new institutions, notably in the Climate Change Committee, but this is relatively weak. Perhaps more important was the creation of DECC around the same time, but even DECC does not displace the power of the Treasury, which continues to be able to place limits on policy.

Perhaps most importantly, the Act has not yet created large new interest groups. In some regions, new green industries like offshore wind are becoming politically important, but this is not yet enough to overcome the Achille’s heel of climate policy - the perception of high cost. What matters here is not actual costs, but perceptions. Climate policy still remains vulnerable to arguments about energy costs simply because the latter is more salient for the mass of the population. Most people do actually like renewable energy and disagree with the obsession of the Tory right, but they just don’t care enough about it to give the CCA a secure underpinning. This is only likely to get worse when the effects of cuts to local government services starts to feed through next month and political energy and concern will be tied up elsewhere

Finally, on vested interests, the Act was helping to drive through more investment by the Big Six energy companies in low-carbon assets, especially off shore wind, but that has now been derailed by the uncertainty over the EMR, and by wider political uncertainties created by Osborne over the fourth budget.

Overall, then. the CCA is not creating enough of its own political feedback effect to secure its own future.  I actually still think it very unlikely that the CCA will be repealed. But as Patashnik argues, there are many ways that a piece of legislation can effectively die without being repealed. Just look at the way that the Act has already been weakened by hanging a review over the fourth budget. However, it is still a sign of the vulnerability of the Act that a national newspaper has openly called for repeal. Up until now, only a few marginal crackpots (along with the more influential but niche ConservativeHome website) have had this position.

What is to be done? There is a big contrast here with Germany, where feed-in tariffs brought literally millions of people into low-carbon generation, giving them a material stake in the future policy regime. Centrally important to this, from early on, was the involvement of conservative farming communities who provide a counterweight within the CDU to those opposing the expansion of renewables. While there are political debates in Germany about the speed of expansion of renewable energy, the overall direction is now clear. The Energiewende will not be reversed. In my view, the answer is not about adopting a new set of targets (although I’m not opposed to a 2030 electricity decarbonisation target). rather, we need to start thinking more carefully about the political effects of policies, and how they can build constituencies for a low-carbon future.

It’s widely expected that the electricity sector will lead the transition to a low carbon economy in the UK. Producing about 40% of our carbon emissions, electricity generation plays a central role in determining our overall emissions performance. That is why the Committee on Climate Change (CCC) said in 2011 that they thought it should be emitting around 50 grams of CO₂ for every kWh of power produced by 2030, compared with over 440gCO₂/kWh in 2011. Not decarbonising electricity a lot early on means we’d be seriously off track for reaching the 2050 target of total emissions reduction by 80% from 1990 levels, and abatement from other sectors would be much more expensive and difficult.

The 2030 milestone became the focus for debate during last year’s tussles over the role of gas in the power sector. In the face of uncertainty about exactly what DECC and Treasury were saying about the future role of gas, calls for a 2030 decarbonisation target for the sector came from, amongst others, the Chair of the CCC, seven of the big power engineering firms, and a range of other businesses and environmental groups. Despite not making it into the draft Energy Bill in September, the target has refused to go away and may be about to rise again in a Parliamentary rebellion by dissident Lib Dem and even Tory MPs. Rumours are circulating that ex-ministers Chris Huhne and Charles Hendry will support a 2030 target, and that while not a done deal, the revolt “has legs”.

The issue of whether we need a sector-specific target for electricity, and why, opens up some important questions about the politics of climate policy in the UK, and in particular the role of and future of the Climate Change Act.

In principle, we shouldn’t really need a 2030 target for electricity. The fourth carbon budget mandated by the Act, covering 2023-2027, should provide the strategic direction that will give certainty to investors. It’s hard to see how one could meet the fourth budget without making serious progress towards 50gCO₂/kWh. However, the reality is that the fourth budget was only agreed after a major political battle in 2011, and the Chancellor insisted on a review in 2014, which has of course created the perception of considerable political risk amongst potential investors in low-carbon electricity generation. That is why many, including Rob Gross of Imperial College, Will Straw of the Institute of Public Policy Research and Baroness Bryony Worthington (one of the original architects of the Climate Change Act) argue that you do need a sector specific target to create certainty for investors, especially for firms in the supply chain making decisions about whether to locate factories in the UK, for example to produce turbines for off-shore wind. A target would also help remove the confusion and uncertainty about the role of gas in electricity generation.

My view is that a 2030 target in the Energy Bill may be useful, but would make two important qualifications. One is that while targets can be helpful to reduce political risk, actual investments in specific projects need greater policy detail, like, for example, what will the strike price be for biomass or off-shore wind on the contract-for -difference? In this sense, getting the electricity market reform process finished in as sensible a way as possible might be more useful for unblocking the current investment freeze than a medium term target.

But the second query in my mind is why a 2030 target for electricity in an Energy Act should create any greater political certainty than a carbon budget mandated under the Climate Change Act. My argument here is based on a new working paper available on the IGov website. The underlying problem is not a lack of targets, but rather that our existing targets have not yet created a self-reinforcing political dynamic. Successful policy changes create new constituencies, new vested interests and rewrite what is and is not politically acceptable. Think of the creation of the NHS in the 1940s, which immediately benefitted huge numbers of people previously excluded from health insurance and a large new constituency of health workers with an interest in maintaining the system. Its establishment very quickly became irreversible, and for the post-war period it has been politically unimaginable to dismantle the NHS.

In the case of building a low-carbon economy, sustainable policy change is likely to come through the creation of new vested interests with low carbon investments in energy and transport, through the creation of jobs visibly connected with the low carbon economy, and a sea change in the perception of what an acceptable way of generating and using energy is. There is a boot-straps quality to this kind of change; it is characterised by increasing returns to political change – hard to get going initially, but developing its own momentum and eventually reaching a point of no return.

Germany, whose Energiewende was conceived of from the beginning as a political project, seems to have reached this point, partly through investment in small scale wind and solar power by millions of individuals and farmers rather than big utilities, and partly by the deliberate fostering of jobs and industry in the supply chain. These outcomes were less the result of long term targets, and more the outcome of policies that made investment in specific technologies risk-free for investors of any size. It is interesting that the response to the nuclear crisis following Fukushima from many Länder, including some governed by the conservative CDU ones, is now to want to deepen and accelerate the growth of renewables.

By contrast, in the UK, decarbonisation is politically speaking, an unfinished revolution still at risk. The Climate Change Act was an attempt to lock the UK in to a low carbon future by legal means, but it has so far not produced enough of a political momentum to ensure that it will become irreversible. While a 2030 target might well help, ultimately we need policies that are not only right in terms of the environment and economics, but also make political sense. It is far from clear that we have learned this lesson yet.

As I’ve argued elsewhere, flooded homeowners don’t constitute a coherent interest group able to press for transformative policy. There are lots of reasons, but one is that they are thousands of scattered individuals, and in the jargon of economics, they find it hard to solve their collective action problem – i.e. getting together and demanding action from government. The insurance industry is a different story – it consists of relatively few very large companies (10 companies have 50% of the market), already organised in groups like the ABI. The industry also takes climate science very seriously, and will have a very clear-eyed view both on likely impacts in the next few years and on the need for mitigation if there is to be a future for insurance. And they are now pressing their case with government, as today’s spat reminds us. The “statement of principles” that at least allows at risk householders to buy insurance, if at a premium, runs out next summer, and if a deal can’t be struck, the resulting crisis will make climate change a much more tangible issue for the wider public. The irony of ironies is that the industry is trying to negotiate with DEFRA, whose newly appointed Secretary of State is climate sceptic Owen Paterson. I suspect that this issue may lead him to change his mind over the next year, exposed to the arguments of an industry led not by ideology but by sheer financial interest.

This week DECC officials managed to deliver, at least in part, on David Cameron’s surprise announcement in the commons that the government would legislate to force energy companies to put consumers onto their lowest tariff. As ever, the devil will be in the detail, but on the face of it, reducing the complexity in energy tariffs is a good thing. However, there has a been a mixed response from industry and consumer groups to the announcement and for good reason, as this sort of on the hoof policy making both fails to deal with the underlying drivers of rising prices and is likely to have a range of unintended consequences.

One likely impact of the policy will be a levelling out between the most competitive tariffs and the most expensive. This will be good news for those non-switching consumers who should be relatively better off, whilst the engaged and active switchers are likely to be worse off; not everyone will be a winner. There is a concern that the lack of competition that the policy creates could see the overall level of energy prices rising.

A key issue for me is around engagement and the role of people within the energy system. Currently people are passively characterised, viewed as being unaware, unengaged and distanced from the production, distribution and use of energy. Arguably, even in terms of price, given that many people still do not actively switch, this view carries some weight. Changing the level of engagement is far from easy, but could bring a wide range of benefits, such as encouraging the uptake and/or acceptability of low carbon technologies, helping to reduce demand and supporting behaviour change – such steps would reduce the cost and increase the speed of a low carbon transition. Some have suggested that by simplifying tariffs consumers will become more engaged as it will be easier to compare what different suppliers are offering. I think this could easily go the other way, as people have also been given a signal that they will automatically get the best deal from their supplier. So why engage when the work has been done for you?

Another key concern is around the potential for tariff simplification to reduce the incentive to innovate. More clarity is needed, but it seems that just at time when new approaches will be needed to support the development of a low carbon energy system, like smart grid pilots, and opening up opportunities for demand-side response (including things like time of use tariffs, or new tariffs for electric vehicles) options could be considerably limited by reducing the number of tariffs suppliers can offer. Innovation is central to moving towards a low carbon economy, not just for existing and new technologies, but the wider political, social, and economic landscape in which they sit. Clearly a smarter system will also need smarter users, so this comes full circle back to the need for better consumer engagement.

This is really a policy about billing, rather than price, and it will be some time before we know the outcome of this policy scramble on either. It seems to do little to address the underlying issues and opportunities for reducing prices, such as sorting out the retail market, enabling new entrants, improving the efficiency of peoples’ homes and their energy use behaviour, or supporting innovation, etc. It also does little to address the long standing and growing concerns from investors around the need for policy certainty and the impact that this has on the cost of the energy system. Depressingly, Cameron’s intervention may have also actually cost consumers more by delaying the whole process, as he pre-empted what Ofgem could have done anyway without the need for new legislation.

It is not at all clear that the new round of global climate negotiations coming out of COP 17 in Durban will yield an agreement by 2015. However, away from the UN process itself, thinking has turned increasingly towards a different approach – that of achieving action on reducing emissions through trade policies. Two recent proposals are interesting, both based on the idea of using trade restrictions in a strategic way.

One comes from Scott Barrett, who has previously produced the definitive analysis of multilateral environmental agreements and why a climate change treaty is so hard to reach. His proposal is to build on the trade restrictions built into the Montreal Protocol (MP). The MP bans imports of goods containing ozone-destroying chemicals (i.e. CFCs, HCFCs) into countries that signed up to the agreement, Since these countries included large markets including the USA and the EU, this created an incentive even for countries that didn’t sign up to stop producing fridges etc with CFCs in, since they would not be able to sell them in the key markets. In fact, this mechanism was so effective that such bans have never actually been enforced. Thus what makes it strategic is the threat, not the implementation. The Montreal Protocol has been very successful, and as the gases it covers are also greenhouse gases, it has ironically reduced greenhouse gas emissions far more than the Kyoto Protocol.

Barrett proposes taking a similar approach to carbon emissions, through a series of agreements on minimum emissions or technology standards in particular sectors, including aviation, iron and steel production, and cars. This approach might not be economically optimal, but Barrett argues that it would have a better chance than a Kyoto-type agreement of actually working because it would create incentives for participation. Standards need to be realistically achievable, and can be tightened over time, which is exactly what has happened with the MP. In addition, and crucially for equity, this approach can allows for differential treatment of developing countries (which have a longer term frame for compliance under the MP) and side payments to help upgrade technology.

To make Barrett’s proposals work in the real world, they would have to be squared with World Trade Organisation agreements, presumably through new international agreements such as the MP, and they would require an initial group of countries with a sufficiently large aggregate market for the goods or services in question to produce a large enough incentive for other countries to participate.

A second approach has been floated by Dieter Helm, Cameron Hepburn and Giovanni Ruta. Their proposal is based on the use of border carbon adjustments (BCAs). BCAs have been proposed as a way of stopping “carbon leakage”. For example, since steel makers in the EU have to pay a carbon price because they are included in the EU emissions trading scheme, their steel is made relatively less competitive than steel made by Asian competitors who don’t face a carbon price. There is a danger that steel making may be relocated to Asia as a result and produced less efficiently, with the perverse outcome that carbon emissions end up higher, not lower. A way to prevent this is to put a tax (i.e. BCA) on steel imports from Asia that reflect the carbon intensity of their production, and thus level the playing field once more.

The argument of Helm and colleagues is that, as long as BCAs are WTO-compliant, their imposition can be expected to have a strategic effect. For example, if the EU were to slap a BCA on say, steel imported from China made inefficiently and with a higher embedded carbon content than EU made steel, China couldn’t then take the EU to a WTO dispute panel. It might consider starting a trade war by imposing trade restrictions on European imports into China, or subsidising its own steel exports. But incentives under the WTO are purposely designed so that countries will not really want to start trade wars, which is why they are relatively rare and temporary. If China does nothing, its steel industry will lose valuable market share in the EU. So the best option for China, on Helm et al’s argument, will be to seek to reduce the carbon intensity of its own steel exports. Thus somewhat analogously to Barrett’s bans, BCAs are strategic here because it is expected that other countries’ industries will end up not actually paying them because they will prefer to reduce their emissions instead.

If BCAs are WTO compliant, then unlike sectoral agreements, they could proceed without any equity considerations, such as side payments, although in practice it is likely that developed countries might want to help low and even l0wer middle income countries achieve lower emissions in particular industries in order to avoid paying BCAs.

A key test of this approach is the inclusion of aviation in the EU ETS, which is equivalent to a BCA. Helm and colleagues argue that this has so far survived legal challenge, and that in April last year China was considering imposing a passenger tax and using the revenues to lower emissions in its airline industry. However in June last year China also said that it was considering a trade war and the US Congress is still developing legislation to counter the EU move. This week, the EU has frozen action on flights in and out of the EU until next year to try reach an agreement. If BCAs turn out not to be WTO compliant (and it seems there is no simple answer to this question), then a lot of the force of the Helm et al argument is lost, at least unless a way can be found of changing WTO law.

Personally I tend to lean towards the Barrett approach, since it builds on an existing successful mechanism which can easily incorporate equity considerations. The Helm et al approach is untested and won’t work if it is not WTO compliant and just leads to trade wars. It also has the challenge of setting the level of the BCA correctly, which has high information costs, whereas Barrett’s approach can just have a ban or arbitrarily high tariffs.

But both approaches make the same basic point that, sooner or later, the search for effective international action on climate will have to integrate with the strategic use of trade policy. The alternative to a strategically designed integration between climate and trade policy is a messy car crash, as the aviation example shows. As Barrett concludes, “Ironically, to protect the trade system, trade restrictions need to be incorporated in future climate agreements”.

As in other areas, including banking and railways, markets in energy are not working well. The two basic Hayekian functions of open markets are supposed to be providing information signals about costs across the economy, and about spurring innovation. Energy markets in the UK currently do neither.

Retail energy pricing is so obtuse and un-comparable that people can’t tell whether the company they are with is charging over the odds or not. I recently considered switching, and had to run various  scenarios on a spreadsheet in order to work out whether it would be worth it.

At the same time, energy companies remain resolutely un-innovative, and compare remarkably unfavourably with the telecommunications industry. They have offered energy efficiency measures only because they are obliged to do so by government, and have totally failed to open up an energy services market or any kind of demand response offerings. However, this is not entirely their fault, in that the liberalised energy market doesn’t really provide them with any incentiove other than to keep on selling energy; the more the better from their point of view. In many ways, despite privatisation, energy is still run how it was in the 1950s.

How could we do this better? One option would be to take the bold step of re-regulating the domestic retail market. One interesting model, from California, would de-couple company revenue from sales, guaranteeing a certain return per customer, and with prices set by the regulator which rise with use (instead of falling, as in the UK). This removes the disincentive for companies to help people save energy and at the same time creates an incentive for householders to use less. Companies can still compete for market share, but on the basis of service rather than price. To create a positive incentive to save energy and grow an energy services market, California also introduced an incentive scheme (not an obligation) whereby savings from measures installed by the energy company are shared between the company and the household.

Regulating in this way, and fixing prices, would of course be controversial, but it has some real advantages. It gives responsibility for cross-subsidy between better off and poorer pre-payment customers to the government (which is where it belongs) rather than to companies. It would make the relationship between the retail price and the wholesale porice a lot more transparent, and open to public debate. It would make it possible to have a smooth increase in energy prices to help drive energy saving, rather than sharp price spikes that simply hurt the least well off.

A final issue is how to create more demand for energy services amongst a reluctant public. It is widely accepted (probably even within DECC) that the Green Deal is not going to be taken up on a wide scale. Again, the US experience is that the market for green finance for home retrofits has only taken off in places like Berkeley, where regulation known as RECO (Residential Energy Conservation Ordinance) requires the energy upgrading of properties when they are sold. Ultimately, given all the transactions costs and the problem that energy efficiency is a credence good, only regulation is likely to be effective in driving major consumer change, and government will have to face this issue sooner or later.

All of this is, of course, unlikely to happen under this government, or possibly the next, but until it or somethig like it does, we are likely to see plenty more winters of discontent about energy prices, and plenty more hot air from policy makers in response.