LOW CARBON SOCIETY

Written by Professor Andrew Sentance, Warwick Business School

Many businesses are beginning to accept that 'there is no alternative' to a future low carbon society. According to the UK Committee on Climate Change's recommendations, the UK will have to achieve an 80 percent reduction in carbon emissions by 2050. Prof Andrew Sentance from Warwick Business School predicts that the biggest challenge will be managing the transition effectively.

The concept of a ‘Low Carbon Society’ reflects the growing scientific consensus that significant reductions in carbon dioxide and other greenhouse gas emissions will be needed to stabilise the future global climate. At the global level, the UK Committee on Climate Change has recommended halting the growth of emissions within the next decade and achieving a reduction of around 50 percent by 2050. For the UK, with a higher starting level of emissions, an even bigger cut – around 80 percent – is likely to be needed.

Achieving these substantial emissions cuts, even over several decades, is a formidable undertaking. Throughout our industrial history, economic growth has been associated with rising energy use, largely from fossil fuels which generate carbon emissions. Absolute cuts in emissions have previously only been seen in wars, recessions and at other times of economic trauma, such as the collapse of the former Soviet Union.

Absolute cuts in emissions have previously only been seen in wars, recessions and at other times of economic trauma...

So how will we manage the transition? There are specific challenges for the energy and transport sectors. A radical decarbonisation of power generation will be required, so that electricity becomes a source of energy supply which can be produced with very low carbon emissions. Traditional renewables (wind, solar, wave and tide) can help, but will not be sufficient on their own. Other sources of decarbonised energy need to be developed and exploited – including bio-fuels, nuclear and carbon capture and storage.

A more plentiful supply of low carbon electricity can also support the reduction in transport emissions, through the introduction of electric cars and other road vehicles. Bio-fuels may also have an important role to play in reducing road vehicle emissions and in aviation. Across all forms of transport – in the air and on the ground – there needs to be a concerted drive to raise fuel efficiency. That will rely heavily on applying new technologies to vehicles and aircraft, as well as more efficient transport systems and infrastructure and possibly changes in travel patterns too.

A step change in energy efficiency will also be needed elsewhere in the economy. This can partly be achieved by better insulation and heat conservation in buildings, alongside more energy efficient appliances. New technology has a key role here as well – helping to exploit local sources of renewable energy (eg solar panels and domestic heat pumps) as well as 'smart meters’ to monitor and manage energy use.

But none of this will happen without the right incentives. Adam Smith observed that ‘it was not because of the benevolence of the butcher, the brewer, or the baker, that we expect our dinner but from their regard to their own interest.’ Three major levers will need to be deployed so that individuals and firms see their own interest in making the transition to a Low Carbon Society.

Putting a price on carbon emissions through taxation or emissions trading will help send the right signals.

The first is price. Putting a price on carbon emissions through taxation or emissions trading will help send the right signals. But it is also likely that a Low Carbon Society will also need to be a higher energy price world in general – creating the necessary incentives for energy efficiency and financial rewards for investment in low carbon energy sources.

The second lever is support for technology. A wide array of low carbon technologies will need to be developed and deployed and stronger financial incentives will be needed, for example through the tax system and R&D support.

A third key lever is regulation. Higher standards are now being set for the energy efficiency of buildings, appliances and vehicles. But a wider range of regulatory initiatives may be needed, given the scale of the challenge. The various forms of regulation applied to the energy and transport sectors of the economy have a vital role to play, given the importance of these activities to meeting the low carbon challenge.

Many businesses are already recognising that ‘there is no alternative’ to a future Low Carbon Society, and are developing strategies, technologies and investments so that they can compete in this future world. Through our research and teaching programmes at Warwick Business School and across the University, we can help business and policy-makers as they seek to manage this transition.

Andrew Sentance is Professor of Sustainable Business at WBS and a member of the Bank of England's Monetary Policy Committee. His previous roles include Director of Economic Affairs at the CBI, Director of the Centre for Economic Forecasting at London Business School and Chief Economist and Head of Environmental Affairs at British Airways. Throughout his career in business and academia, he has been an active contributor to the public policy debate on economic, energy and environmental issues.