By David Milliken
LONDON (Reuters) – Britain and other rich nations should consider a carbon tax as the most efficient way to reduce greenhouse gas emissions, Bank of England policymaker Catherine Mann said on Monday.
Mann, an external member of the BoE’s Monetary Policy Committee, did not address the short-term outlook for the economy in her essay for Britain’s Resolution Foundation think tank, part of a series looking at long-run challenges to growth.
Instead, Mann focused on whether policies introduced during the COVID-19 pandemic and last year’s surge in energy prices were likely to hamper or boost Britain’s weak long-run growth.
“Fossil-fuel prices need to rise from their 2010s average to address climate change,” Mann said.
“As wholesale energy prices level off, now is the time to put in place a longer-term strategy for both greater use of market mechanisms and revenue redistribution,” she added.
Britain’s government has spent almost 40 billion pounds ($50 billion) on subsidies to households and businesses since Russia invaded Ukraine in February 2022, though most assistance is due to end next month as energy prices have fallen.
Mann said carbon taxes and emission trading schemes gave clear incentives for people and businesses to reduce their emissions as well as raising revenue, and complemented potentially costly government spending on green technology.
Britain’s opposition Labour Party said on Friday that due to higher interest rates it would phase in more slowly its plans to spend 28 billion pounds a year on green investment, if it wins a national election that is widely expected next year.
The Bank of England has raised rates 12 times since December 2021, increasing its benchmark interest rate to 4.5% from 0.1%, and financial markets expect rates to hit 5.5% by November.
Mann has been a keen supporter of interest rate rises to tackle inflation which peaked at 11.1% last year.
Britain’s growth prospects would also benefit from cheaper childcare and more business spending on staff training, which had not recovered from the 2008 financial crisis, she added.
($1 = 0.7948 pounds)
(Reporting by David Milliken, editing by Andy Bruce)
