Wednesday, June 04, 2008

Green taxes' place in the big picture of climate change

I hope you've all read Charlotte Gore's avalanche of posts against green taxes. I have defended the idea a little in the comments section, finally reaching the point that green taxes need to be seen as an effective part of a bigger picture of how we combat climate change. So here goes.

The insignificance of the individual

Does it matter what I do, whether I drive or fly or explore outer space? Does it matter what or when this or that minister or MEP drives or flies? Honestly? No, not really. My carbon emissions are a drop in the ocean. If everybody did the same as me it would matter enormously what I do, but they don't and it doesn't. Immanual Kant suggested that we should do only what we would have as a universal law, or something like that, which was a jolly good idea at the time, a leap forward in our understanding of ethics as being more than about what might make baby Jesus cry. But the ethics of example-setting is perhaps of limited use in a free and diverse society. But what, I hear you ask, if everybody had my attitude, wouldn't it be awful? Yes, I suppose it would. It is so much better only 95% of us being like this.

Let me be clear - people who go out of their way to minimise their impact on the environment are doing good. They should be applauded and not sneered at. But this 5% will only do about 5% of what is needed. The other 95% will have to come from political action, by which I mean measures like international agreements, green taxes, and promoting investment in renewable energy, rather than lecturing. Governments should not be telling individuals that what they choose to do really matters in the big scheme, because it doesn't. See above.

The environmental movmement believes in individual responsibility, largely I think because it was politically out in the cold during all its formative years. It gave us the chance to feel we were at least achieving something. Today politics has woken up and we should have some political ambitions.

The insignificance of the UK

The next reason for doing nothing is that whatever the UK does will be lost the tide of rising emissions from that villain du jour China. And this is quite true - if we were trying to stop global warming on our own, we might as well forget it. In a world population of a few dozen significant countries, the Kantian argument is a little better than it is among individuals. Most countries are doing something, and very few are doing a lot. China is not the worst and the UK is not the best and so that choice of contrast is more than a little snotty. However the feeling we ought to do our bit, the effects on national pride, and so on are still nowhere near strong enough, and will not deliver the measures needed.

What we need are international agreements to cut carbon emissions and make various land use reforms. This is more or less the bottom line. But to make such agreements possible we need a number of things. We need more precise predictions of the effects of global warming. Fortunately, these are getting better all the time, and it is getting harder for people who prefer to believe it will all be fine to cling on to that.

We need ever better ways of generating energy. Fortunately, these exist and they are becoming more economic all the time. Uptake may be driven as much by increasing fossil fuel prices, and energy security considerations, as much as anything else and this is more good news. As Stern commented, energy counts for a tiny fraction of our costs, and so if we have to pay much more for it, while this will hurt, it is not pain on any kind of revolutionary scale.

Finally we need to show that we can do without some of the more marginally useful energy uses without becoming significantly worse off. A large part of this is improving energy efficiency, but we might also make different choices, if the full environmental costs of each choice were included in the price. Again, technology is key here to improving efficiency and giving us more choices.

So green taxes....

Charlotte asked me if there wasn't a better way to combat global warming, and the sort of thing you hear suggested is technology or international agreements. But I am convinced that this is completely the wrong way of thinking about it. Technology and international agreements are not alternatives, they are complementary, because the agreements won't be reached until it can be shown that they will not hurt too much (and that it will hurt a great deal not to make them). Similarly green taxes and technology are not alternatives, they are complementary. Green taxes blend into market signals (and market signals work) to buyers and innovators to make better products and better choices.

If green tax revenue is used to cut income tax, then - within reasonable limits - this shouldn't harm the economy and may even benefit it. It is much like the case for Land Value Tax: taxing things that are intrinsically limited in supply (land, carbon) in preference to those where more can be produced (labour, goods) will reduce the drag and distortion to the economy. The intrinsic limits are of different kinds for land and carbon, but I don't see why the argument shouldn't apply, and doubtless someone will tell me that carbon emissions are a kind of land anyway.

I think Charlotte is right about the political difficulty with green taxes. People are feeling got at and there is a backlash. The other parties may dump green policies altogether. I think there are two reasons for this that we need to challenge. First that there is despair in the face of China, etc, because green taxes are not seen as part of the bigger picture I have painted here. Second is that we are pretty sick of being told what to do all the time and it seems that green taxes are another kind of lecturing and another kind of punishment. We need to convince people that this is not the case - that green taxes are a necessary evil, just like other taxes, albeit one with an extra silver lining. And we need to convince them that we are not trying to tell them what to do, rather that it is after all their job as voters to tell us as politicians what to do. With green taxes in place there is less need to worry about the environmental consequences of a choice, not more. So maybe we can all relax a bit, and backlash against something else this week.


Peter Welch said...

Good post as ever, Joe.

We need to listen to Charlotte because her views on this are exactly what you hear on the doorstep: they are what real people think.

There is a good article on this subject in the NYRB
(not to say that I necessarily agree with it) that includes this qutoe from Nordhaus:

Whether someone is serious about tackling the global-warming problem can be readily gauged by listening to what he or she says about the carbon price. Suppose you hear a public figure who speaks eloquently of the perils of global warming and proposes that the nation should move urgently to slow climate change. Suppose that person proposes regulating the fuel efficiency of cars, or requiring high-efficiency lightbulbs, or subsidizing ethanol, or providing research support for solar power—but nowhere does the proposal raise the price of carbon. You should conclude that the proposal is not really serious and does not recognize the central economic message about how to slow climate change. To a first approximation, raising the price of carbon is a necessary and sufficient step for tackling global warming. The rest is at best rhetoric and may actually be harmful in inducing economic inefficiencies.

(To be frivolous, this may suggest that invading Iraw (and thus raising the cost of carbon) has been the greatest conceivable contribution to fighting global warming.) But it is certainly an argument we should be listening to - even if CO2 reduction in one country does not have a lot to offer the planet.

Charlotte's general theme is that our policies need to be forward-looking and (perhaps) pareto-optimal, rather than sado-masochistic. She is right.

There is a case for a shift to taxing resource use on at least two grounds (that meet her criteria)

a) it is better than taxing work
b) it helps us face a future in which carbon is going to be more expensive.

But whether the first of these stacks up in the medium term is a moot point. As carbon gets more expensive it is going to be more difficult to raise revenue by taxing its use.

If fuel prices reach 200 dollars a barrel, will we still be advocating a green tax shift, or will we be looking for policies to cope with a situation in which transport has become more expensive than we would want it to be?

Charlotte Gore said...

Hi Joe,

A very considered piece. So Green Taxes are part of system to, in effect, rebalance the markets a little so that the economic effects are actually taken into account, and we're doing it not because it'll save the earth but because it'll show it can be done and set a good example.

If this is going to be our policy, no matter what, we need to work quite hard to actually pursuade people that this is something that is a 'necessary evil' and what knock on positive effects such a policy would have. I think you've described the difficulty quite well. This party acts like Green Taxes are a necessary evil and that everyone is already convinced of need to have them, that it's *obvious* why they're needed and why they're a good thing - but that's not the reality.

Hmm much work to do...

Joe Otten said...

Peter, thanks, yes.

Charlotte, I don't really see it as setting an example - that has some value but not a huge one. The value I think is in showing that it can be done without much pain.

Clearly then, we shouldn't over-do it to the point of sado-masochism (thanks Peter) - not least because we are trying to demonstrate to parts of the world rightly desperate to prosper, that low carbon prosperity is possible.

Neil Stockley said...

Could I suggest that people read our climate change policy paper: Zero Carbon Britain, to see our proposals on green taxes in context. For a start, they are not our sole solution to climate change.

NB - The question of how we should frame and market the green tax switch (for that's what it is), as part of an overall package, is quite a different matter.

Here's something to ponder: in the "best party to handle the issue" polls, why is the environment the only policy issue that we regularly lead on? At the end of 2007, post the green tax switch, post the climate change paper, we had a big lead on the environment.

Jennie said...

I'm with Charlotte on this: it's not that people think they are being told what to do, it's that they think they are going to be punished.

I would also point out that, disproportionately, those who suffer under "green" taxes on usage of things are the poor. It's not that this can't be compensated for, but we need to explain to people how and why we are doing this so that they don't feel victimised.