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FOR IMMEDIATE RELEASE
Research Note 53
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”.1
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.
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.
1 Citigroup Global Markets ‘Pan European Utilities’, 22 October 2009
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.”
To discuss the research and arrange broadcast
interviews, please contact:
Matthew Sinclair
Research Director, TaxPayers' Alliance
matthew.sinclair@taxpayersalliance.com
07771 990 174
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Sources and Methodology
Emissions of carbon dioxide can be understood as the product of GDP and carbon intensity
(the amount of CO2 produced per unit of GDP). The following equation is, therefore, a
simple way of understanding the challenge of cutting emissions:
CO2 emissions = GDP x Carbon Intensity
If we want to bring down CO2 emissions by 80 per cent by 2050 then either GDP or
carbon intensity will need to fall. Clearly, the preferred option is to reduce carbon
intensity. Emissions data2 and official economic data3 from 1989 to 2007 show that, on
average, Britain has cut emissions intensity by 2.72 per cent a year.
Table 1: Carbon intensity growth estimates, 1990-2007
Year GDP, £ million
(2005 prices)
Growth Emissions, t CO2 Emissions
intensity, t
CO2/£m
Emissions
intensity
growth
1989 856,345 - 580,800,000 678.23 -
1990 863,019 0.78% 592,900,000 687.01 1.29%
1991 851,002 -1.39% 600,200,000 705.29 2.66%
1992 852,250 0.15% 583,000,000 684.07 -3.01%
1993 871,188 2.22% 568,000,000 651.98 -4.69%
1994 908,477 4.28% 561,900,000 618.51 -5.13%
1995 936,207 3.05% 553,100,000 590.79 -4.48%
1996 963,220 2.89% 575,300,000 597.27 1.10%
1997 995,077 3.31% 551,600,000 554.33 -7.19%
1998 1,030,967 3.61% 553,600,000 536.97 -3.13%
1999 1,066,768 3.47% 543,000,000 509.01 -5.21%
2000 1,108,538 3.92% 551,100,000 497.14 -2.33%
2001 1,135,823 2.46% 562,500,000 495.24 -0.38%
2002 1,159,641 2.10% 544,900,000 469.89 -5.12%
2003 1,192,206 2.81% 556,200,000 466.53 -0.71%
2004 1,227,387 2.95% 555,900,000 452.91 -2.92%
2005 1,254,058 2.17% 553,200,000 441.13 -2.60%
2006 1,289,833 2.85% 551,100,000 427.26 -3.14%
2007 1,322,842 2.56% 542,600,000 410.18 -4.00%
Average -2.72%
2 DECC, Estimated emissions by source, fuel type and end user; national communication categories, 1990-2007; total
greenhouse gases, carbon dioxide, methane and nitrous oxide, Table 5b
3 Office for National Statistics, ABMI: Gross Domestic Product: chained volume measures: Seasonally adjusted
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It is possible to assess the sacrifice in GDP that will be needed to meet a 42 per cent by
2020 emissions target, at the current rate of emissions intensity reduction, by combining
that figure with the growth assumptions in the Pre-Budget report and assuming that
growth continues at 2.5 per cent a year from 2015 when the Treasury’s projections end.
Table 2: Emissions projections under current policy and economic projections
Year GDP, £ million (2005
prices)
Growth Emissions,
t CO2
Emissions intensity,
t CO2/£m
2008 1,330,118 0.55% 530,731,707 399.01
2009 1,266,937 -4.75% 491,759,986 388.15
2010 1,282,774 1.25% 484,352,325 377.58
2011 1,327,671 3.50% 487,657,500 367.30
2012 1,374,139 3.50% 490,985,229 357.30
2013 1,422,234 3.50% 494,335,666 347.58
2014 1,472,012 3.50% 497,708,967 338.11
2015 1,508,813 2.50% 496,263,689 328.91
2016 1,546,533 2.50% 494,822,609 319.96
2017 1,585,196 2.50% 493,385,713 311.25
2018 1,624,826 2.50% 491,952,990 302.77
2019 1,665,447 2.50% 490,524,427 294.53
2020 1,707,083 2.50% 489,100,012 286.51
That implies that emissions would be 82 per cent of 1990 levels under expected levels of
national income and emissions intensity. In order to cut emissions to the level required by
the 1990 target – 344 Mt C02 – there would need to be a 30 per cent cut in the expected
2020 GDP. That is around £507 billion and would leave GDP at just over £1.2 trillion or
less than it was in 2004 (all in 2005 prices).
The only way such a fall in income could be avoided would be if emission intensity growth
rose very substantially. It would need to almost double to avoid any fall from expected
levels of GDP. It is highly unlikely that is possible for a number of reasons:
Britain’s performance in cutting emissions intensity has been relatively good thanks to
changes like a switch to greater gas generation, the ‘dash for gas’. Opportunities like
that are limited and increasingly mean sacrificing energy security.
The short amount of time to the 2020 target rules out many existing means of cutting
emissions. Dieter Helm, Professor of Energy Policy at the University of Oxford,
argues:4
“There is not much room for nuclear before 2020, or for CCS. Tidal power is
not likely to make a significant contribution until post-2020, and the target
4 Helm, D. ‘EU climate-change policy – a critique’, Smith School Working Paper Series, October 2009
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itself provides no incentive towards the sorts of R&D required. For transport,
the focus is on biofuels, since hydrogen and electric based cars are unlikely
to be significant pre-2020 technologies.”
It is implausible that new technological developments will significantly reduce the cost
of cutting emissions by 2020. Even if they emerge very soon that does not leave
enough time for the necessary development, testing and installation.
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