During the recession industrial production fell and households took fewer holidays. Carbon emissions fell and our progress towards the carbon reduction targets looked good. Now it appears that the recovery is reversing the trend and carbon emissions are rising.
In a week where 100 idiot Conservative backbenchers called for the cutting of subsidies for renewable energy it is important to remember why these industries need help.
Carbon emissions are a market failure. The market does not price emissions as there is no charge for putting them into the atmosphere and so firms don't consider the cost of those emissions. The result is that more carbon is dumped in the atmosphere than is optimal.
There is a way to stop this. We tax firms on their carbon emissions or issue tradeable permits. This isn't always popular and does not do enough in a highly inelastic market to reduce demand. So directly subsidising renewable energy, which cannot compete on price with coal, oil or gas will allow low carbon energy production.
It is a case of attacking the problem from two directions. Another way, as an article linked to the one below points out, is to insulate homes properly. A staggering 10 million homes have no or inadequate loft insulation and almost as many don't have cavity wall insulation. Subsidising insulation (and it is already) can shift the demand for energy to the left and will help in a third way.
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