What we should do

Posted by William M. Connolley on January 6, 2009
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Since I seem to be stating my position perhaps its time to clarify my position on CO2 taxes. I hear Obama is waiting to hear what I have to say on this burning issue :-)

When I said that heavy, extremely painful carbon taxes weren’t going to happen, some people seem to have misinterpreted it to mean that I thought CO2 taxes were a bad idea. Far from it. But I also don’t think that we should be aiming at any particular number just yet (yes I agree we would need large cuts to stabalise CO2 levels in the atmosphere, but they just aren’t going to happen in the near (next decade or so) future, so for practical purposes we might just as well stop talking about them).

What we should do is…oh, hold on. By “we” I mean any given country. Could be the entire Cold West, could be the UK, could be the US. It doesn’t matter, which is good, because there is no need for that oh-so-difficult multi-national co-operation.

We should have a carbon tax (I don’t believe NN), and we should offset this against income taxes, and it should start at a fairly low and innocuous level and it should slowly ramp up. There should be no exceptions for heavily polluting industries. Having it start low and slowly ramp up gives everyone time to prepare, gives the government time to work out the offsetting-against-income-tax stuff, and should hopefully gain the trust of the citizenry who will see that the overall tax take doesn’t go up, and their income taxes go down. This is important, because at the moment no-one will trust the goverment not to just trouser the dosh. I think we should probably throw away the entire cap-and-trade stuff; but if we (the UK, obviously not the US) have to live with it because of EU rules then I suppose we can have that too: its hardly onerous. When it became high enough we could fold the fuel taxes into it.

That was easy, no?

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Comments

  1. #1 MattK
    2009/01/06

    This is what we tried to do in Canada (minus the ramp up which sounds like a good idea). The party advocating for this at the federal level (one of our traditional two major parties) got slammed on it in our recent elections and had almost their worst result in history. One of our provinces (British Columbia) is doing it but there is a pretty severe backlash against it.

    [Perhaps they tried to start at too high a level. I think that you can do it so the tax-take is largely neutral, but people (and your political opponents, naturally) will say that you're just hiking taxes (in this sense NN is entirely right to say that the silly EU system has as its sole virtue the appearence of not being a tax. Actually the EU system has another "virtue": an army of people had every expectation of making lots of money out of it, and you can bet they lobbied hard for just that reason). You have to get it going, and actually to cut taxes proportionally, for anyone to believe you -W]

  2. #2 Nicolas Nierenberg
    2009/01/06

    Thanks for reading my post! What part didn’t you believe? To the extent that a country wants to promote change from fossil fuels taxes are a good policy mechanism. But they are quite limited in what they can accomplish.

    [I think you failed to justify your statement as to their limits. If this is something you're prepared to investigate in more detail, its something I'd be prepared to read in more detail -W]

    I also wanted to make the point that they will tend to drive energy intensive industry out of a country imposing such a tax. This does not produce a global reduction in CO2 output, and there is no easy solution to that problem.

    [This tends to be part of the standard argument for exemptions for heavy industry. It inevitably leads to complications and confusion and inefficiency, so it has to be ignored. We're not going to move our power stations anyway. If other people want to make steel for us, I suppose we should be grateful -W]

  3. #3 P. Lewis
    2009/01/06

    Isn’t this what was tried, on a smaller scale perhaps, with the fuel escalator (year-on-year above-inflation fuel tax) under the Tories and then Labour? That ended in the fuel tax protests and the effective, if not actual (can’t recall), removal of the escalator.

    [Yes, it did. There are several answers to that: the fuel duty was seen as a pure tax-raising measure, at a time when Labour was getting into trouble for indirect taxation. Furthermore, though it was nominally to discourage driving (I think; I'm not sure they ever really articulated what it was *for*) it was being raised at a time when fuel prices were raising strongly due to all price rises. My scheme avoids these problems -W]

    Even the last two or three normal fuel duty rises haven’t worked their way through because of high oil prices at the wrong time and the furore it would likely have caused if they’d been introduced (though I fully expect the last one postponed until at least March this year might make it to the pumps).

  4. #4 Gordon S
    2009/01/06

    MattK, I think it’s a bit simplistic to mention the Green Shift the Liberals proposed and nothing else that went wrong with their campaign.

    The Green Shift certainly did get slammed hard by the Conservatives through a bunch of disinfo, lying and NIMBYism, but the Liberals also ran a pretty bad campaign, and Dion, for all his obvious intelligence, wasn’t charismatic in English, and disliked intensely by separatists in Quebec.

    I think most Canadians would be for the Green Shift if it were actually explained to them, but when you have no mainstream media sources even attempting to treat the issue honestly, what do you expect?

  5. #5 Adam
    2009/01/07

    “I hear Obama is waiting to hear what I have to say on this burning issue :-)”

    Well you’re the one with the blog. ;)

    “Actually the EU system has another “virtue”: an army of people had every expectation of making lots of money out of it, and you can bet they lobbied hard for just that reason).”

    To be honest, I doubt they needed to lobby that hard. The whole point of the EU is for people (EU based businesses) to make money.

  6. #6 Ian
    2009/01/07

    Only a recent reader, so I may have missed wider discussion on this – but why (specifically) a Carbon tax ?

    From fly-by reading, other greenhouse gases seem to get pretty frequent mentions and having a Carbon tax places the focus on one issue, rather than anything wider.

    [CO2 is the main GHG, and its the one whose production is hardest to get rid of -W]

    Probably a small irrelevant example in this context, but un the UK papers and magazines delight in giving away CDs and DVDs. All of these that come through my door go to landfill. So, some limited (non-recyclable) resources have been wasted. Yet the companies concerned could happily carbon offset, or pay a carbon tax without addressing that issue.

  7. #7 Nicolas Nierenberg
    2009/01/07

    WC, I am mostly looking for guidance here to help make my points clearer.

    As to the limits, I guess I have an inherent feeling about levels of taxation that are even possible. Would a closer examination of the British Columbia example help make my point? The tax level is fairly small, starting at about two cents per litre of gasoline, and going to seven cents per litre by 2012. Even at that it is already a serious political issue.

    Worse yet the BC tax doesn’t cover electricity. I am sure that the reason for this is that this one that would affect industry the most. While much of BC’s electricity comes from hydroelectric, an increasing amount is imported, and of course making other energy sources more expensive will cause a shift to more of this imported electricity.

    Even if it were applied to electricity current studies indicate that $30 per ton, which is the 2011 figure, would only cause a 10% reduction in electricity use. I believe that gasoline use is even less elastic from recent experience, but I haven’t found the reference for that yet.

    WC, you may not care about making steel in your country. And steel is not a major industry in either the US or Britain and more. But manufacturing is still very significant in the developed countries in terms of employment. Farming is also both politically and economically significant. I don’t think that the general public would be so sanguine about losing all those jobs.

  8. #8 Tim Worstall
    2009/01/07

    Your plan is roughly what William Nordhaus recommends. The important point is about it ramping up. Because of technological change and the capital stock. We’ve got an awful lot of things out there, that cost us a huge amount of money to build. We really don’t want to throw them all away and start again. However, if we can (credibly!) insist that over time emissions are going to get much more expensive then we’ll get people, as these things that we already have wear out, need renovating, get demolished and replaced, putting up new things that reduce emissions. We could take the example of power stations for example. Do we really want to throw away all the ones we have? Or rather make sure that those built in hte future emit less?

    Or housing. Do we want to go around an re-engineer all houses right now to low emission standards? Or use the usual 20-40 year cycle of renovations and do the job more slowly….and a great deal more cheaply?

    Other such examples abound. I’ve forgotten Nordhaus’ actual numbers but it starts pretty low, around $5 or $10 a tonne, but it rises to something like $240 decades out.

    One reason such isn’t all that credible is the fuel duty escalator. If you take the Stern numbers then fuel duty should have risen about 12 p since 1992 to cover carbon emissions. It’s actually risen by 24/25 p or so.

    [Was the fuel duty escalator ever intended to be a green tax? It may have been retro-fitted as such -W]

  9. #9 David B. Benson
    2009/01/07

    I want an ‘excess carbon dioxide removal fee’.

    Rather similar to the fee to tip at the landfill.

  10. #10 Eli Rabett
    2009/01/08

    FWIW, I think one has to start at a high enough level that at least some non-carbon energy sources are competitive with the lowest cost fossil fuel. FWIW also I think that gasoline and diesel should be taxes at HIGHER levels (say Euro & Japan) to drive fleet mileage up.

    [FTLIW, I disagree with this. Its more important to start small, bu with a foreseeable, smooth and certain increase. Your idea is effectively an articifial price level -W]