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Bill Gates Sets Example for Other Business Leaders on Carbon Pricing

26/08/2015 23:04 BST | Updated 26/08/2016 10:59 BST

Bill Gates, the billionaire founder of Microsoft who is using his personal wealth to tackle poverty and disease in developing countries, has highlighted the importance of climate change policies, including strong carbon pricing.

In a new post on his blog, Mr Gates outlines the steps that he would like governments to take to tackle climate change, including the creation of incentives for innovation, the development of markets to help achieve zero carbon emissions, and the fair treatment of poor countries.

Mr Gates makes a powerful argument, given extra force by the fact that he has also recently announced he will invest US$1 billion of his own money in clean energy technology over the next five years.

He gave an interview to the Financial Times to explain his reasons for increasing the size of his investment, telling the newspaper that he wanted to "bend the curve" in the fight against climate change.

Mr Gates also called for governments to focus more money on supporting basic research rather than subsidising the deployment of current technologies.

Although there was no doubting the sincerity and magnitude of Mr Gates's commitment to clean energy, I expressed concern that he had not highlighted the need for a strong carbon price.

My worries arose from previous examples of Mr Gates championing some of the flawed ideas of Dr Bjorn Lomborg.

For instance, in a post on his blog last year, Mr Gates highlighted two videos featuring Dr Lomborg, who has a PhD in political science rather than economics.

Dr Lomborg has frequently downplayed the risks of climate change and wrongly argued that they can be managed simply by pumping more money into research on green energy, funded by a very small carbon tax, in the hope that clean technologies will eventually become cheaper than fossil fuels.

But he significantly under-estimates the potential impacts of climate change, and apparently does not understand that several different policies, including strong carbon prices, are required to correct the multiple market failures that hold back low-carbon technologies.

Fortunately, Mr Gates demonstrates in his new blog post that he does not agree with Dr Lomborg's poor analysis.

After urging governments to spend more on research and development and to increase incentives for private sector investment, Mr Gates writes that "another important step will be to ensure that the energy market accurately reflects the full impact of emitting carbon".

He adds:

Today the market is not factoring in what economists call the negative externalities--the health costs, environmental damage, and so on. If the market takes these into account, renewable energy will be more competitive with fossil fuels, which will attract more innovators to the field. Many countries and states are experimenting with different ways to price carbon. Whatever approach we take, it should create incentives to develop new energy solutions while also giving energy companies enough certainty to plan and execute the transition to zero-carbon sources.

Mr Gates's support for carbon prices that properly reflect the costs of climate change is very important, and I hope it will inspire other business leaders to speak out.

In June, six major oil companies wrote an open letter to governments and to the United Nations indicating that they can take faster climate action if governments provide even stronger carbon pricing and eventually link it all up into a global system that puts a proper price on the environmental and economic costs of greenhouse gas emissions.

A recent report published by the International Monetary Fund concluded that the failure of the prices of oil, coal and gas to reflect the costs of climate change, local air pollution and other problems, means that fossil fuels will receive effective subsidies of more than US$5 trillion worldwide this year.

Earlier this month, Professor Lord Stern of Brentford told The Guardian that the G20 nations should accelerate their efforts to implement the commitment to phase out fossil fuel subsidies, and to recognise the full extent of the financial support that is currently being provided.

Further analysis published by the International Monetary Fund indicated that the UK is expected to spend about £26 billion on subsidies for oil, coal and gas in 2015.

However, many within the fossil fuel industry continue to deny the scale of the financial support that it receives from governments.

Last week, after the announcement of the closure of the coal-fired power station at Longannet, Phil Garner, director-general of the Confederation of UK Coal Producers, told the Financial Times:

Coal generation is still the cheapest form of energy. Renewable sources get incentives. Fossil fuels get punitive measures.

Mr Garner failed to acknowledge the £18 billion in subsidies that coal is due to receive in the UK this year.

Bob Ward is policy and communications director at the Grantham Research Institute on Climate Change and the Environment and ESRC Centre for Climate Change Economics and Policy at London School of Economics and Political Science.