CUED Publications database

The carbon price: a toothless tool for material efficiency?

Skelton, ACH and Allwood, JM (2017) The carbon price: a toothless tool for material efficiency? Philosophical Transactions of the Royal Society A: Mathematical, Physical and Engineering Sciences, 375.

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This article explores whether a carbon price will effectively encourage the more efficient use of greenhouse gas intensive materials such as steel. The article identifies a range of distortions that arise when some of the restrictive assumptions of neoclassical economics are relaxed. Distortions occur due to the sequential nature of decision-making along supply chains, due to imperfect competition and due to government intervention to reduce the risk of carbon leakage. If upstream sectors do not pass on carbon costs, downstream sectors do not have the opportunity to react. Of the distortions identified, compensation mechanisms that reduce the risk of carbon leakage are likely to act as the greatest hinderance to appropriate incentives for the more efficient use of steel in the UK: as things currently stand, unless upstream companies are encouraged to make windfall profits, incentives downstream are weakened. The article concludes by exploring policy options to address the distortions identified, including efforts to reinstate the carbon price downstream and efforts to remove other distortive taxes.

Item Type: Article
Uncontrolled Keywords: material efficiency cost pass-through steel
Divisions: Div D > Structures
Depositing User: Cron Job
Date Deposited: 17 Jul 2017 19:26
Last Modified: 13 Apr 2021 08:50
DOI: 10.1098/rsta.2016.0374