Who pays for BECCS and DACCS in the UK: designing equitable climate policy

Abstract

The UK government’s net-zero commitment assumes the use of bio-energy with carbon capture and storage (BECCS) and direct air carbon capture and storage (DACCS). Quantifying where the costs of funding these technologies fall–and their magnitude–provides greater insight into potential fairness of future government policies. Using a microsimulation model, this study is the first to evaluate the potential distributional impacts. We consider the distributional incidence and magnitude on household income deciles if the costs for deploying and operating BECCS and DACCS are placed on different sectors of the economy via a range of viable policy funding options. Using existing and novel policy funding options, we demonstrate that levying the costs entirely on the household energy bill is the most regressive of the options considered. We find aviation to be an important point of intervention from a distributional perspective. Higher-income households have larger aviation carbon footprints than lower-income households, meaning passing costs onto households via aviation alone could help fund BECCS and DACCS while having minimal impacts on social welfare. Funding BECCS and DACCS via income tax emerged as the only progressive way of apportioning costs across income deciles. As the benefits of carbon removal accrue to society as a whole, there is further argument that the costs should be shared across society in the fairest way possible. However, such an approach has the potential to blunt the price signal that polluters face. In reality, some pass-through cost may be desirable to adhere to equity principles under a polluter pays principle and to create an incentive for polluters to switch to cleaner inputs and adopt low-carbon technologies. Key policy insights: This study is the first to evaluate distributional incidence and magnitude of costs to households, if costs for deploying and operating BECCS and DACCS are placed on different sectors of the economy. Recovering policy costs via income tax provides a progressive option to fund BECCS and DACCS. All modelled alternative funding options result in regressive outcomes where low-income households pay disproportionately more towards the costs of BECCS and DACCS. Funding BECCS and DACCS through levies on household energy bills further entrenches inequality; spend on electricity as a share of income is disproportionately high for low-income households.