A strong carbon price is "essential" but can’t facilitate decarbonisation alone, the Committee on Climate Change (CCC) has said.
In a letter written in response to a request from the government, the CCC stressed that carbon pricing will not, in isolation, "provide sufficient decarbonisation".
The letter says strong and rising carbon prices are required in order to incentivise genuine emission cuts, creating changes in short-term behaviour and long-term investment decisions.
According to the CCC, carbon prices could for instance be important for coal rollback efforts. Once the fossil fuel has been phased out, pricing measures can play a continued role by driving efficient dispatch and use of lower carbon fuels, for instance ensuring that lower carbon capture and storage plants dispatch before unabated gas plants.
“The desired outcome of any system should be to incentivise genuine reductions in emissions, without leading to carbon leakage,” the missive adds.
However, the letter notes, there will also be a need for supplementary policies, able to address price-unrelated barriers and preferences as well myopia and price uncertainty. A “whole suite” of policy infrastructure will be required beyond pricing measures, the document adds.
On their own, carbon prices are “unlikely to be an effective mechanism in bringing forward low-carbon innovation in multiple sectors”, the CCC said, pointing at examples including carbon capture and storage and low-carbon heat.
Recommendations for the event of the UK leaving the EU were also included, with the CCC supporting the government’s preference for a linked UK-EU Emissions Trading System (ETS).
This would maintain the UK’s access to a wider market and address competitiveness issues within a level playing field across the UK, the CCC said.
The cap of such an ETS should be set based on the cost-effective path to net zero, a trajectory that the CCC will provide in its advice on the sixth carbon budget due in 2020.
It warned there is a risk in the 2020s of other EU countries buying UK allowances to continue polluting due to the UK’s emissions being lower than its share of the EU ETS cap.
A lower cap in the 2020s would prevent this and be more in line with emissions expectations for the fourth and fifth carbon budgets.
In the long term, an expansion of carbon pricing to be a larger part of, or all of, the economy and a possible emissions cap could be desirable, the CCC said.
The CCC’s recommendations echo similar calls for a strong carbon price and UK-EU ETS made by SSE in the wake of Boris Johnson’s appointment as Prime Minister.