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.
Showing posts with label green taxes. Show all posts
Showing posts with label green taxes. Show all posts
Wednesday, June 04, 2008
Wednesday, May 07, 2008
Reinventing the State Chapter 22: Communicating Social Liberalism
The "at least three brains" team of Steve Webb and Jo Holland has made a noble attempt to bring together this disparate collection of essays. As much as I would like to go with the flow I found much of the language and argument grating.
This looks like a straw man to me. Markets do not deliver a society, they deliver goods and services. Relying on markets to deliver a cutthroat dog eat dog society would be doomed to failure because it is a society and not a product. Of course I know what Steve and Jo are getting at, that laissez faire is freedom only for the few. But then this is hardly a shocking statement or a distinctive position - even the Tories won't disagree with this, publicly at least.
And what about the inequalities we have already? How unacceptable are they? Personally it is not the inequalities I have a problem with. Health and education are good things and nobody deserves less of them, however much they have already. What is unacceptable is how little some people have of each. We all agree that we want more access to health and education, particularly for those who have the least access at the moment. But I am bemused by this emphasis on what seems to be an straw man position: instead we should look at where the country is and consider what direction to move it in.
Anyroad, this is the first part of Steve and Jo's argument: "the failures of unfettered markets".
Markets fail due to a lack of competition. Tim Farron's example of milk suppliers is referred to - although how agriculture can count as unfettered while subject to trade barriers and the CAP, is a mystery.
In part 2 of the argument, markets fail when the price of something does not reflect its true cost. This failure can be corrected by Pigouvian taxes and subsidies "in some cases". Now I am a big fan of Pigouvian taxes, particularly green taxes, yet I find myself disagreeing with the conclusion.
In part 3 of the argument, markets fail because of inequalities in income and wealth. Markets, you see, are only geared up to providing things to people who can pay for them. At least that's how I would have put it, and it might be what the authors are getting at with that stuff about horse races and redistributive taxation, I'm not sure.
Again it is so uncontroversial as to be hardly worth saying that we would rather have a national health service than leave the sick dying in the streets. Why is the point so laboured? I don't know. A real dilemma is almost addressed at one point:
They are right that there is a danger of widening inequality here, but, at the same time, isn't it good that more people use better hospitals? Patients choosing a better hospital are increasing the size of the pie, not taking a larger slice of the same pie. This should be commended not bemoaned.
Er, no they don't. For one health and education are not examples of unfettered markets, they are examples of near state monopoly. There are beggar-my-neighbour forces at work in public services - selection of pupils by schools is one (it should be the other way round) - but this has nothing to do with markets.
"Unfettered markets" here seems to be used to mean so-called "market based reforms" of public services. By all means make that case, and I would probably agree with most of it, but do try to call things by recognisable names. "Unfettered markets" would probably also fail, I guess, but we don't seem to have been talking about that.
Moving on, Steve and Jo make a case for intervention when markets fail. This is the natural follow up to the previous section - anti-trust laws, pigouvian taxes and so on - but noting that such intervention should not be knee jerk: some failures are not as bad as the intervention that would be necessary to correct them. So far so good.
They refer to Duncan Brack's argument on inequality as persuasive. (Er, no).
No, That implication is not sound. It may well be that more redistribution is justified, but saying "X is bad for society" only works as an argument in an all-else-being-equal kind of way, yet putting up taxes makes all else very unequal. Brack's argument would be equally applicable to a society with half as much or twice as much inequality as ours, and this is a sign that it is failing to address the nub of the issue.
Inequality may be bad, but I am pretty sure that poverty is worse. Perhaps I benefit from living in the north and not having swaggering bankers on my doorstep. Or perhaps I have taken the stoicism of Featherstone and Boyle to heart to the point of not being so bothered by other people's status - in which case why didn't I agree with them?
At this point Steve and Jo admit that the foregoing arguments "could also be espoused, to a greater or lesser extent, by a socialist." Or a Social Democrat I suppose. And they are right - socialists love attacking markets, especially straw man positions on markets.
The difference is that the state should do as little as possible, as locally as possible and as accountably as possible. While I agree that this is a difference I don't think it is quite good enough. Many socialists will support localism and democracy quite sincerely. Socialism may naturally tend to paternalism and centralism, often in ways I fear this anti-market so-called social liberalism may also do so. If social liberalism is just localist social democracy, why not call it localist social democracy and we can all understand each other better. I don't take the view that something must be called liberalism to be worth supporting, rather I will listen to arguments for any -ism, and be suspicious of anybody trying to shift the meaning of an existing -ism to include what they don't want to bother arguing for.
This is a little unfair of me because Steve and Jo do say that the state should only what needs to be done and no more, although that is the one point of the three they don't expand on. Personally, I support a few things the state does that don't strictly need to be done, so perhaps I am not so extreme a classical liberal as they are. Yet even this principle is empty if it is not proved by example: the state should stop doing this, or that.
Localism too, while I agree we could do with a great deal more of it, is an argument with problems. The same abstract arguments would apply in a country ten times as decentralised already which again suggests that the arguments are missing the nub of the issue. State intervention must be "as local as possible", we are told. But why? This is just dogma. It would be possible, but pointless, to set VAT rates street by street. Surely what we should be saying is that the optimal level for much if not most state activity is more local than the present level.
The chapter and book concludes with a section on communicating this idea of social liberalism. Having not really got the idea myself I have little to say on how to communicate it. But I will have a go at explaining what I mean by social liberalism and how I might communicate it in a later post.
Looking back on the whole book (or rather the Brack-Featherstone-Holmes-Farron-Webb-Holland thread within it) perhaps it works better as a vehicle for communicating liberalism to socialists and social democrats; for saying to them: we share your concerns, come admire our values. A noble project worth a few cheap pot shots at markets. Clearly it is an attempted response to the Orange Book, although it has many of the same authors. I might draw together some of this if I can remember how it started - I started this review in September.
Still, it has been fun. Buy the book, and read the chapters I have said are good. Or better still pass off my views on it as your own to seem better read than you are. Better again, continue the argument. We may yet reinvent the state.
"Relying exclusively on unfettered market mechanisms to deliver a liberal and democratic society is doomed to failure."
This looks like a straw man to me. Markets do not deliver a society, they deliver goods and services. Relying on markets to deliver a cutthroat dog eat dog society would be doomed to failure because it is a society and not a product. Of course I know what Steve and Jo are getting at, that laissez faire is freedom only for the few. But then this is hardly a shocking statement or a distinctive position - even the Tories won't disagree with this, publicly at least.
"There are many areas in society - such as educational or health outcomes - where such inequalities [as arise from unfettered markets] would be totally unacceptable'"
And what about the inequalities we have already? How unacceptable are they? Personally it is not the inequalities I have a problem with. Health and education are good things and nobody deserves less of them, however much they have already. What is unacceptable is how little some people have of each. We all agree that we want more access to health and education, particularly for those who have the least access at the moment. But I am bemused by this emphasis on what seems to be an straw man position: instead we should look at where the country is and consider what direction to move it in.
Anyroad, this is the first part of Steve and Jo's argument: "the failures of unfettered markets".
Markets fail due to a lack of competition. Tim Farron's example of milk suppliers is referred to - although how agriculture can count as unfettered while subject to trade barriers and the CAP, is a mystery.
In part 2 of the argument, markets fail when the price of something does not reflect its true cost. This failure can be corrected by Pigouvian taxes and subsidies "in some cases". Now I am a big fan of Pigouvian taxes, particularly green taxes, yet I find myself disagreeing with the conclusion.
No... Social benefits are largely unmeasurable. You want to keep post offices open because they have a real social benefit, subsidise them, call it a Pigouvian subsidy if you like because that benefit is real. But it is a political judgement what that benefit is worth, not a matter of number crunching. And it should be a simple formula, not a "full reflection" of the value of a pensioner's opportunity to gossip while buying stamps."Whether we are dealing with social costs or social benefits, both need to be fully reflected in market prices if the market is to deliver socially optimal outcomes, and only the state can ensure that this happens."
In part 3 of the argument, markets fail because of inequalities in income and wealth. Markets, you see, are only geared up to providing things to people who can pay for them. At least that's how I would have put it, and it might be what the authors are getting at with that stuff about horse races and redistributive taxation, I'm not sure.
Again it is so uncontroversial as to be hardly worth saying that we would rather have a national health service than leave the sick dying in the streets. Why is the point so laboured? I don't know. A real dilemma is almost addressed at one point:
"However, the King's Fund recently found that the middle classes were likely to choose the best hospitals, while those who were less well-educated tended simply to go to the local hospital."
They are right that there is a danger of widening inequality here, but, at the same time, isn't it good that more people use better hospitals? Patients choosing a better hospital are increasing the size of the pie, not taking a larger slice of the same pie. This should be commended not bemoaned.
"While Liberals are instinctively in favour of 'choice' ... these examples clearly demonstrate that unfettered markets can simply lead to a beggar-my-neighbour form of choice, akin to the biggest and strongest barging past other people in the queue."
Er, no they don't. For one health and education are not examples of unfettered markets, they are examples of near state monopoly. There are beggar-my-neighbour forces at work in public services - selection of pupils by schools is one (it should be the other way round) - but this has nothing to do with markets.
"Unfettered markets" here seems to be used to mean so-called "market based reforms" of public services. By all means make that case, and I would probably agree with most of it, but do try to call things by recognisable names. "Unfettered markets" would probably also fail, I guess, but we don't seem to have been talking about that.
Moving on, Steve and Jo make a case for intervention when markets fail. This is the natural follow up to the previous section - anti-trust laws, pigouvian taxes and so on - but noting that such intervention should not be knee jerk: some failures are not as bad as the intervention that would be necessary to correct them. So far so good.
They refer to Duncan Brack's argument on inequality as persuasive. (Er, no).
"...that inequality of outcome in and of itself can undermine society to the detriment of all. This would seem to imply a greater amount of redistribution than we have sometimes advocated."
No, That implication is not sound. It may well be that more redistribution is justified, but saying "X is bad for society" only works as an argument in an all-else-being-equal kind of way, yet putting up taxes makes all else very unequal. Brack's argument would be equally applicable to a society with half as much or twice as much inequality as ours, and this is a sign that it is failing to address the nub of the issue.
Inequality may be bad, but I am pretty sure that poverty is worse. Perhaps I benefit from living in the north and not having swaggering bankers on my doorstep. Or perhaps I have taken the stoicism of Featherstone and Boyle to heart to the point of not being so bothered by other people's status - in which case why didn't I agree with them?
At this point Steve and Jo admit that the foregoing arguments "could also be espoused, to a greater or lesser extent, by a socialist." Or a Social Democrat I suppose. And they are right - socialists love attacking markets, especially straw man positions on markets.
The difference is that the state should do as little as possible, as locally as possible and as accountably as possible. While I agree that this is a difference I don't think it is quite good enough. Many socialists will support localism and democracy quite sincerely. Socialism may naturally tend to paternalism and centralism, often in ways I fear this anti-market so-called social liberalism may also do so. If social liberalism is just localist social democracy, why not call it localist social democracy and we can all understand each other better. I don't take the view that something must be called liberalism to be worth supporting, rather I will listen to arguments for any -ism, and be suspicious of anybody trying to shift the meaning of an existing -ism to include what they don't want to bother arguing for.
This is a little unfair of me because Steve and Jo do say that the state should only what needs to be done and no more, although that is the one point of the three they don't expand on. Personally, I support a few things the state does that don't strictly need to be done, so perhaps I am not so extreme a classical liberal as they are. Yet even this principle is empty if it is not proved by example: the state should stop doing this, or that.
Localism too, while I agree we could do with a great deal more of it, is an argument with problems. The same abstract arguments would apply in a country ten times as decentralised already which again suggests that the arguments are missing the nub of the issue. State intervention must be "as local as possible", we are told. But why? This is just dogma. It would be possible, but pointless, to set VAT rates street by street. Surely what we should be saying is that the optimal level for much if not most state activity is more local than the present level.
The chapter and book concludes with a section on communicating this idea of social liberalism. Having not really got the idea myself I have little to say on how to communicate it. But I will have a go at explaining what I mean by social liberalism and how I might communicate it in a later post.
Looking back on the whole book (or rather the Brack-Featherstone-Holmes-Farron-Webb-Holland thread within it) perhaps it works better as a vehicle for communicating liberalism to socialists and social democrats; for saying to them: we share your concerns, come admire our values. A noble project worth a few cheap pot shots at markets. Clearly it is an attempted response to the Orange Book, although it has many of the same authors. I might draw together some of this if I can remember how it started - I started this review in September.
Still, it has been fun. Buy the book, and read the chapters I have said are good. Or better still pass off my views on it as your own to seem better read than you are. Better again, continue the argument. We may yet reinvent the state.
Monday, November 19, 2007
Reinventing the State Chapter 12: The Economy and Climate Change
As expected, Chris Huhne delivers the goods on this. He
However, I can forgive Chris for getting a little carried away. (Hmm, change of house-style there. First names from now on.)
We start with a nice go at the Green Party's "eco-Marxist" or anti-growth position
Most of the arguments that follow will be familiar to those who have read the zero carbon paper agreed at Brighton 2007. Carbon trading and green taxes are extolled. More direct measures are advocated in areas like home energy efficiency where many are locked to the assets they have and so pure price signals would generate much pain and little movement. We go on to such things feed-in tariffs, LVT, and leapfrog funds for developing nations.
The overall picture here is that we can decarbonise the economy, with technology that largely exists already, at not to great a cost, and that by doing this we can end any dilemmas about supporting development in the third world. This is a position I wholeheartedly endorse.
However, I do have a few issues with some of the details.
First Chris seems unduly keen on cap and trade and the EU ETS. He even suggests it comes before green taxes in the hierarchy of liberal economic instruments. I find this pretty breathtaking. Trading never beats taxation - sure it sounds better - but the two are equivalent in theory: a price is put on something that must be limited, to allow the market to place those limits in the most efficient places. In practise it is easier to calculate the right level for a pigovian tax and let the market find the level than calculate the right level and let the market find the price. A more stable price, futhermore, is a clear political signal and a better guide to investment that might be scared off by volatility.
The EU ETS goes further wrong in giving permits away, which is effectively giving public money away for nothing. And what does this mean? Windfall profits as the "opportunity costs" of not reselling these free permits is passed on to consumers. And new entrants to the market - just what we need to maximize innovation - are virtually kept out as they don't get these grandfathered freebies.
Finally, I would suggest that international agreements on national carbon limits and carbon trading will be vastly more difficult to reach - because it implies a divvying up of the climate commons - than an agreement that each country will simply tax its own emissions and keep the revenue. A lower rate for developing countries if they want, fine. Political transparency for which countries are pulling their weight, and which are freeloading? Yes, please.
Moving on. Chris advocates a legislative requirement on energy companies to sell less energy from one year to the next, hoping this would incentivise them to provide energy efficiency grants to customers. I find this pretty barmy. As long as the power is connected it is the consumer who chooses how much to use. Rather than legislate a duty on suppliers they don't have the power to meet, why not tax or ration or otherwise seek to influence the person with their finger on the switch. And any scheme like this inverts the normal incentives to sell your product with penalties and incentives will be highly gameable. There'll be more windfall profits here and no gains. A better insulated home is a public good and a good for the occupants. Why should an energy supplier (who we might rotate every 3 months) pay for this at all?
Feed-in tariffs are another measure, widely advocated for domestic microgen, but on which I am fairly cautious. I fully support the idea for big wind and so forth, where a couple of pence per unit will make all the difference. Chris suggests a feed-in tariff of 4 times the feed-out rate for domestic microgen. At that rate I could buy, or build, a flywheel and sell grid electricity back to the grid on a slight delay. We shouldn't feel such a need to pay for something - like tiny amounts of domestic microgen electricity - what is clearly a great deal more than it is worth. We should be doing the cheapest first, and will probably never get to give-away feed-in tariffs for domestic microgen. I dare say this position may be unpopular but it is part of my crusade to promote what is practical at the expense of what is symbolic.
These problems all exist in the zero carbon paper, which, furthermore didn't seem to propose enough to bring emissions down quite that far. Chris has his questionable zeros here too. I didn't seek to oppose or amend the paper because I think it has basically the right approach, as does this chapter.
advocates a package that can be constructed without hurting the poor or even compromising on redistribution.Which is overselling a little - there is real competition for spend between social and environmental projects, and even if the green taxes levied are largely progressive or neutral, they will have knock on effects on product prices and the cost of living.
However, I can forgive Chris for getting a little carried away. (Hmm, change of house-style there. First names from now on.)
We start with a nice go at the Green Party's "eco-Marxist" or anti-growth position
Since growth is, in one view, the end result of so many other actions freely undertaken by individuals and companies, albeit within a framework set by government, this implies that we must abandon the principle that we are free to do as we will so long as the activity is not forbidden by law. It implies a process of licensing and permission that is deeply antithetical to liberal values. It would, indeed, be reminiscent of the Soviet Union's economic planning by Gosplan.this is something I have been trying to say on this blog for some time, but Chris has put it better.
Most of the arguments that follow will be familiar to those who have read the zero carbon paper agreed at Brighton 2007. Carbon trading and green taxes are extolled. More direct measures are advocated in areas like home energy efficiency where many are locked to the assets they have and so pure price signals would generate much pain and little movement. We go on to such things feed-in tariffs, LVT, and leapfrog funds for developing nations.
The overall picture here is that we can decarbonise the economy, with technology that largely exists already, at not to great a cost, and that by doing this we can end any dilemmas about supporting development in the third world. This is a position I wholeheartedly endorse.
However, I do have a few issues with some of the details.
First Chris seems unduly keen on cap and trade and the EU ETS. He even suggests it comes before green taxes in the hierarchy of liberal economic instruments. I find this pretty breathtaking. Trading never beats taxation - sure it sounds better - but the two are equivalent in theory: a price is put on something that must be limited, to allow the market to place those limits in the most efficient places. In practise it is easier to calculate the right level for a pigovian tax and let the market find the level than calculate the right level and let the market find the price. A more stable price, futhermore, is a clear political signal and a better guide to investment that might be scared off by volatility.
The EU ETS goes further wrong in giving permits away, which is effectively giving public money away for nothing. And what does this mean? Windfall profits as the "opportunity costs" of not reselling these free permits is passed on to consumers. And new entrants to the market - just what we need to maximize innovation - are virtually kept out as they don't get these grandfathered freebies.
Finally, I would suggest that international agreements on national carbon limits and carbon trading will be vastly more difficult to reach - because it implies a divvying up of the climate commons - than an agreement that each country will simply tax its own emissions and keep the revenue. A lower rate for developing countries if they want, fine. Political transparency for which countries are pulling their weight, and which are freeloading? Yes, please.
Moving on. Chris advocates a legislative requirement on energy companies to sell less energy from one year to the next, hoping this would incentivise them to provide energy efficiency grants to customers. I find this pretty barmy. As long as the power is connected it is the consumer who chooses how much to use. Rather than legislate a duty on suppliers they don't have the power to meet, why not tax or ration or otherwise seek to influence the person with their finger on the switch. And any scheme like this inverts the normal incentives to sell your product with penalties and incentives will be highly gameable. There'll be more windfall profits here and no gains. A better insulated home is a public good and a good for the occupants. Why should an energy supplier (who we might rotate every 3 months) pay for this at all?
Feed-in tariffs are another measure, widely advocated for domestic microgen, but on which I am fairly cautious. I fully support the idea for big wind and so forth, where a couple of pence per unit will make all the difference. Chris suggests a feed-in tariff of 4 times the feed-out rate for domestic microgen. At that rate I could buy, or build, a flywheel and sell grid electricity back to the grid on a slight delay. We shouldn't feel such a need to pay for something - like tiny amounts of domestic microgen electricity - what is clearly a great deal more than it is worth. We should be doing the cheapest first, and will probably never get to give-away feed-in tariffs for domestic microgen. I dare say this position may be unpopular but it is part of my crusade to promote what is practical at the expense of what is symbolic.
These problems all exist in the zero carbon paper, which, furthermore didn't seem to propose enough to bring emissions down quite that far. Chris has his questionable zeros here too. I didn't seek to oppose or amend the paper because I think it has basically the right approach, as does this chapter.
Thursday, March 15, 2007
Carbon Offsets: sin or salvation?
Neither of course, but wait for it, I will get there.
Tom Papworth has been writing about carbon offsets, and issue of cap-and-trade versus carbon taxes.
As I have said here before, there is nothing wrong with the principle of offsetting carbon emissions, it is just as good or bad to cause a net emission of a tonne of carbon one way as another. It is quite absurd to suggest that emitting a tonne of carbon here is so irredeemably sinful, that it can't be redeemed by saving a tonne of carbon somewhere else. It is not like offsetting infidelity.
The practise of course is much murkier. The world can't be divided into segments such that each of use is solely responsible for one of them. Tom quotes the economist blog suggesting that "rebound effects" will undo some of the good of offsets spent on wind power. I think this objection is overstated - I would agree with comment 2 on that blog - and, perhaps more to the point, I don't imagine offsetting to be a very precise science in the first place.
Because as I have argued, carbon emissions are bad but not sinful, it follows that offsetting is good but not obligatory - it is superogatory to use the technical term. It is much like making a charitable donation. And of course this means it should compete for attention with other charities, and probably fail. But it does mean that we should be glad that our donation is doing some good, and not worry whether a "rebound effect" is trimming a few percent off. Of course if the rebound effect were big enough to cost most of the benefit, that would be much like the hypothetical charity that spend most of its income on administration - we would look for another charity.
Of course to be brutally frank, I don't think global warming is going to be solved by having a few motivated people make effectively charitable contributions towards offset schemes. I bring the subject up on a political blog because I think that some political action is merited.
Green taxes of course are one such measure, but I don't think they can be made high enough to do the whole job for a couple of reasons:
Tom Papworth has been writing about carbon offsets, and issue of cap-and-trade versus carbon taxes.
As I have said here before, there is nothing wrong with the principle of offsetting carbon emissions, it is just as good or bad to cause a net emission of a tonne of carbon one way as another. It is quite absurd to suggest that emitting a tonne of carbon here is so irredeemably sinful, that it can't be redeemed by saving a tonne of carbon somewhere else. It is not like offsetting infidelity.
The practise of course is much murkier. The world can't be divided into segments such that each of use is solely responsible for one of them. Tom quotes the economist blog suggesting that "rebound effects" will undo some of the good of offsets spent on wind power. I think this objection is overstated - I would agree with comment 2 on that blog - and, perhaps more to the point, I don't imagine offsetting to be a very precise science in the first place.
Because as I have argued, carbon emissions are bad but not sinful, it follows that offsetting is good but not obligatory - it is superogatory to use the technical term. It is much like making a charitable donation. And of course this means it should compete for attention with other charities, and probably fail. But it does mean that we should be glad that our donation is doing some good, and not worry whether a "rebound effect" is trimming a few percent off. Of course if the rebound effect were big enough to cost most of the benefit, that would be much like the hypothetical charity that spend most of its income on administration - we would look for another charity.
Of course to be brutally frank, I don't think global warming is going to be solved by having a few motivated people make effectively charitable contributions towards offset schemes. I bring the subject up on a political blog because I think that some political action is merited.
Green taxes of course are one such measure, but I don't think they can be made high enough to do the whole job for a couple of reasons:
- demand for energy is not particularly elastic so the levels of tax would have to be very high to have big effects
- hardship would result for many people on low incomes - it is important that these people are helped, through for example, being the focus of the tax cuts paid for by the green taxes; but I admit this help won't be perfect
- there is the problem of competitiveness if domestic production is taxed and imports aren't; applying special taxes to imports to compensate for some (perceived) domestic disadvantage is the sort of thing that upsets trade wonks terribly. But it would need to be done if the effect of the policy isn't simply to be the offshoring of production and therefore of carbon emissions.
Friday, June 09, 2006
If Green Taxes work
...won't they raise less over time?
This question is on many lips. Those of Nick Robinson for example.
Here's my answer: No they won't.
Demand for energy is fairly inelastic. Most users do not think much about the cost when switching on a light or driving to the shops. This means that we are a long way from the peak of the Laffer Curve in the eco-tax rates we're proposing to apply.
Prosperity is increasing, demand for energy is increasing, so the potential for eco-tax revenues is increasing and will go on increasing. The threat to prosperity is minimal or negative because we are reducing other taxes at the same time. So society will be richer in future and therefore willing to pay even more for energy.
This does not mean that eco-taxes fail. They succeed in reducing demand a little from what it would have been otherwise, and they succeed in raising revenue, allowing other taxes to be cut. These are both big positives.
Now perhaps there is a case for i) much bigger eco-taxes, that cause significant reductions in consumption, and ii) bigger still that lead to reductions in eco-tax revenues. And then we could have a lot more than 2p off income tax. Or perhaps that policy would be disproprotionate to the problem. But it is laughable to consider the hypothetical spectres of that policy to apply to this policy of only £8bn in eco taxes.
Tags: ecotaxes, Green taxes
This question is on many lips. Those of Nick Robinson for example.
Here's my answer: No they won't.
Demand for energy is fairly inelastic. Most users do not think much about the cost when switching on a light or driving to the shops. This means that we are a long way from the peak of the Laffer Curve in the eco-tax rates we're proposing to apply.
Prosperity is increasing, demand for energy is increasing, so the potential for eco-tax revenues is increasing and will go on increasing. The threat to prosperity is minimal or negative because we are reducing other taxes at the same time. So society will be richer in future and therefore willing to pay even more for energy.
This does not mean that eco-taxes fail. They succeed in reducing demand a little from what it would have been otherwise, and they succeed in raising revenue, allowing other taxes to be cut. These are both big positives.
Now perhaps there is a case for i) much bigger eco-taxes, that cause significant reductions in consumption, and ii) bigger still that lead to reductions in eco-tax revenues. And then we could have a lot more than 2p off income tax. Or perhaps that policy would be disproprotionate to the problem. But it is laughable to consider the hypothetical spectres of that policy to apply to this policy of only £8bn in eco taxes.
Tags: ecotaxes, Green taxes
Thursday, May 18, 2006
The Green Switch
Chris Huhne has put the flesh (pdf) on his eco-tax bones. I discussed this at the time here and here.
Of course this paper doesn't commit us to any particular totals - that would be treading too much on the toes of the tax commission. But I hope it makes a clear impression on that process.
We can see from the appendix that of £35bn eco-taxes levied in 2004, £32bn are taxes on motoring. (The climate change levy and air passenger duty are each less than £1bn.) Motoring is of course a significant environmental problem, but this seems disproportionate. What about industrial and domestic uses of energy? There is a perception that industry=jobs=good, domestic=pensioners not freezing=good, motoring=shopping sprees and school runs in chelsea tractors=bad. And of course there is a good dollop of truth to this, but it is not a balanced picture, and it distorts incentives to place almost the whole burden on motoring.
On the other hand we should probably subtract spending on roads, when considering how much of the £32bn is in fact an eco-tax, rather than a charge for the infrastructre that makes motoring possible. And we should also bear in mind that motoring imposes some specific externalities such as poor air quality that industrial and domestic uses of energy do not, to the same extent.
And before long people may well be charging batteries in their hybrid/electric cars from the mains. This will cause a dent in revenues and eco-taxes even if we go a long way to rectifying the imbalance.
So, it is a little disappointing that the nettle of domestic energy use has not been firmly grasped. The problem, I guess, is that it can't be done in a revenue-neutral way, without cuts elsewhere, if, as would be necessary, we want to compensate the pensioners who might otherwise freeze and various other needy groups. It would still be a good policy: it would promote efficiency and microgeneration more effectively than all the regulations we have (having just had a loft conversion I have immediate experience of this). But it would pour mud on the clarity of the "Green Switch" policy, so it doesn't belong in this paper. One for the following election perhaps.
Tags: Green Switch eco-taxes
Update: The carbon tax will include household emissions, with "provision" for the less well off. So my disappointment was due to not reading carefully enough. And of course if the "provision" amounts to a rebate on the carbon tax, then it needn't comporomise revenue neutrality despite what I said above.
1. An increase In Green Taxes As A Share Of National Income. Green taxes have fallen from 3.6 per cent of GDP in 1999 to just 3 per cent of GDP, and we are committed to reversing this trend. Revenue would be used to cut taxes elsewhere so that this is a green tax switch, not a rise in taxes.Excellent. This is a very powerful statstic, and worth shouting about.
2. Reform The Climate Change Levy: The Climate Change Levy is a positive step forward but is too complex and bureaucratic. It should be restructured as a tax on carbon across the economy, but we support the Government’s intention for the first time to raise it in line with inflation. That should be the norm, not the exception.This is good - it is simplest and least distorting to treat all carbon emissions the same. And as the package is to be revenue neutral, there will be direct benefits to low-carbon parts of the economy.
3. Raise Vehicle Excise Duty On Polluting Cars: The Chancellor has increased Vehicle Excise Duty on high polluting vehicles by less than the cost of half a tank of fuel. If it is to be effective as a measure to reduce emissions and encourage greener transport, VED will have to be radically redrawn to penalise emissions and reward clean cars. The top-rate of VED should be significantly higher than at present at £2000 a year for high emission cars.This is a good measure. Fuel demand is not very elastic, but the choice of large inefficient vehicles is one that can be made to pay its way without hammering those who try to motor efficiently.
4. Keep Fuel Duty In Line With Inflation: Incentives to save fuel depend in part on developments in the oil market, but duty on fuel should normally keep track with inflation rather than decline in real terms. The failure to raise fuel duty since 1999 has led to a rise in emissions, and we support the Chancellor’s intention to raise fuel duty in line with prices in September.Right, better than real terms cuts. And in my view aviation, industry, and domestic uses are higher priorities for real terms increases in eco-taxes.
This may sound a bit dull, but it amounts to putting the cost of carbon up, and generating some more revenue.
5. Tighten Allocations in The EU Emissions Trading Scheme, And Auction 10 Per Cent Of The Permits. The recent fall in the price of carbon for industrial users reflects the unambitious overall cap set by the EU, together with the failure to allow national governments to hold back a part of the national allocation for sale to the highest bidder at auction. We will press for both reforms and for auctioning the maximum 10 per cent of permits currently allowed for 2011.
6. Tax Emissions Not Passengers: We have led the way in calling for reform of the way air travel is taxed. Instead of Air Passenger Duty on each passenger, airlines should pay an emissions charge per flight. This would reward flights that were full and penalise those wasting a full tank on a few passengers.This is a good step, and it is a framework that would allow us to move towards treating motoring and aviation more consistently.
7. Provide Help Where Cars Are Essential. In sparsely populated rural areas, cars are essential due to the lack of public transport. To reflect this need, we proposed an amendment to the Finance Bill introducing a 50 per cent discount on all but the top rate of VED for one car registered in such rural households.I'm not a particularly rural-friendly person: I don't see why the rural lifestyle deserves subsidy any more than any other expensive lifestyle. But the promise was made and this is a good way of delivering on it. It is important that this sort of compensation should be in the form of tax cuts because otherwise you have to find money from elsewhere or lose the revenue neutrality of the package.
Of course this paper doesn't commit us to any particular totals - that would be treading too much on the toes of the tax commission. But I hope it makes a clear impression on that process.
We can see from the appendix that of £35bn eco-taxes levied in 2004, £32bn are taxes on motoring. (The climate change levy and air passenger duty are each less than £1bn.) Motoring is of course a significant environmental problem, but this seems disproportionate. What about industrial and domestic uses of energy? There is a perception that industry=jobs=good, domestic=pensioners not freezing=good, motoring=shopping sprees and school runs in chelsea tractors=bad. And of course there is a good dollop of truth to this, but it is not a balanced picture, and it distorts incentives to place almost the whole burden on motoring.
On the other hand we should probably subtract spending on roads, when considering how much of the £32bn is in fact an eco-tax, rather than a charge for the infrastructre that makes motoring possible. And we should also bear in mind that motoring imposes some specific externalities such as poor air quality that industrial and domestic uses of energy do not, to the same extent.
And before long people may well be charging batteries in their hybrid/electric cars from the mains. This will cause a dent in revenues and eco-taxes even if we go a long way to rectifying the imbalance.
So, it is a little disappointing that the nettle of domestic energy use has not been firmly grasped. The problem, I guess, is that it can't be done in a revenue-neutral way, without cuts elsewhere, if, as would be necessary, we want to compensate the pensioners who might otherwise freeze and various other needy groups. It would still be a good policy: it would promote efficiency and microgeneration more effectively than all the regulations we have (having just had a loft conversion I have immediate experience of this). But it would pour mud on the clarity of the "Green Switch" policy, so it doesn't belong in this paper. One for the following election perhaps.
Tags: Green Switch eco-taxes
Update: The carbon tax will include household emissions, with "provision" for the less well off. So my disappointment was due to not reading carefully enough. And of course if the "provision" amounts to a rebate on the carbon tax, then it needn't comporomise revenue neutrality despite what I said above.
Friday, February 03, 2006
Eco-taxes and ashes
So Chris Huhne's manifesto is out. I was waiting for this point to look at the issue of eco taxes in more detail and contrast Chris with Ming. I don't mean to suggest that policy is the main factor when choosing a leader - it isn't - so it is a little self-indulgent of me to focus on policy. On the other hand if there are signs of an ability to construct a compelling narrative that would be a big factor.
Unfortunately there isn't much detail that we haven't already seen. Chris argues that "the money raised should go back to those most in need, including the rural communities that rely on cars." This is very much the correct sentiment in my view, but there is a conflict here with the commitment to revenue-neutrality. For eco taxes to be revenue neutral, they must be matched by tax cuts not spent on compensation packages. How many of the "most in need" will be taxpayers? Which taxes, exactly, should be cut only in rural areas?
That this is only one part of a bigger manifesto, relatively unexpanded, suggests that Chris may realise that he has over egged this one. I think he has.
Chris said on Question Time yesterday that we can't tackle global warming without reducing our energy use. Well this isn't strictly true. We could generate as much carbon-free energy as we want, if we were willing to pay for it. If fossil fuel prices rise further and stay high we will probably do this anyway. But the likelihood is that they will not rise fast or far enough to make the economic case for investment in renewables and nuclear not just competitive, but compelling.
Chris's preferred argument against nuclear is the economic one. It is a good argument, but where is the joined up thinking? If we make fossils more expensive to combat global warming, that will change the economics of nuclear. What then?
So how about Ming? I largely agree with James Graham's analysis, although I would defend Ming on road user charging. Contrary to what James says, lack of public transport options is a serious urban problem in much of the country. Bus fares in Sheffield's private monopoly are out of control to the point that if there are 3 of you, take a taxi. "All road user charging does is make roads more economically efficient." All!?!?! That's a great thing. And it will improve urban air quality, which has an immediate impact on health and morbidity. Civil liberties are a concern with nationwide road user charging by satellite, but they will probably have all the speed cameras wired up to do the same job by then anyway so it won't make any difference. But "a case to consider the expansion" is not "charge for every inch of road with satellite monitoring".
On the other hand I don't agree with James and Ming on carbon accounts. There isn't a fixed amount of carbon to go round, and if there were rationing still wouldn't be efficient. What there is, is a relatively fixed environmental cost to emitting it. A simple tariff would correct this and save us the bureaucrat's wet dream of individual carbon accounts.
Anyway. Neither man is entirely convincing on the policy detail. (Meaning neither entirely agrees with me.) But more importantly, what is the story? Chris's story is the old doom 'n' gloom: talking about the Gulf stream and so on. This goes in the 'about fear' category. The fears may be justified, but I would prefer to be positive. Ming doesn't have a story to his environment policy. He rather sits on the fence. He equivocates, or recognises the nuances, depending on your perspective. The story is that Ming's story is about something else.
Unfortunately there isn't much detail that we haven't already seen. Chris argues that "the money raised should go back to those most in need, including the rural communities that rely on cars." This is very much the correct sentiment in my view, but there is a conflict here with the commitment to revenue-neutrality. For eco taxes to be revenue neutral, they must be matched by tax cuts not spent on compensation packages. How many of the "most in need" will be taxpayers? Which taxes, exactly, should be cut only in rural areas?
That this is only one part of a bigger manifesto, relatively unexpanded, suggests that Chris may realise that he has over egged this one. I think he has.
Chris said on Question Time yesterday that we can't tackle global warming without reducing our energy use. Well this isn't strictly true. We could generate as much carbon-free energy as we want, if we were willing to pay for it. If fossil fuel prices rise further and stay high we will probably do this anyway. But the likelihood is that they will not rise fast or far enough to make the economic case for investment in renewables and nuclear not just competitive, but compelling.
Chris's preferred argument against nuclear is the economic one. It is a good argument, but where is the joined up thinking? If we make fossils more expensive to combat global warming, that will change the economics of nuclear. What then?
So how about Ming? I largely agree with James Graham's analysis, although I would defend Ming on road user charging. Contrary to what James says, lack of public transport options is a serious urban problem in much of the country. Bus fares in Sheffield's private monopoly are out of control to the point that if there are 3 of you, take a taxi. "All road user charging does is make roads more economically efficient." All!?!?! That's a great thing. And it will improve urban air quality, which has an immediate impact on health and morbidity. Civil liberties are a concern with nationwide road user charging by satellite, but they will probably have all the speed cameras wired up to do the same job by then anyway so it won't make any difference. But "a case to consider the expansion" is not "charge for every inch of road with satellite monitoring".
On the other hand I don't agree with James and Ming on carbon accounts. There isn't a fixed amount of carbon to go round, and if there were rationing still wouldn't be efficient. What there is, is a relatively fixed environmental cost to emitting it. A simple tariff would correct this and save us the bureaucrat's wet dream of individual carbon accounts.
Anyway. Neither man is entirely convincing on the policy detail. (Meaning neither entirely agrees with me.) But more importantly, what is the story? Chris's story is the old doom 'n' gloom: talking about the Gulf stream and so on. This goes in the 'about fear' category. The fears may be justified, but I would prefer to be positive. Ming doesn't have a story to his environment policy. He rather sits on the fence. He equivocates, or recognises the nuances, depending on your perspective. The story is that Ming's story is about something else.
Thursday, February 02, 2006
Sackcloth and eco-taxes
Simon Mollan has clarified his assertion that eco-taxes are "sackcloth".
Oddly, however, the arguments he goes on to make are about social justice, not prosperity in general. Yes, pensioners, students and unemployed people will be hit by fuel taxes. Perhaps there will be specifics in the Huhne manifesto as to whether all these groups will be compensated. Even so there will be winners and losers, but if that were going to stop us we would never change tax policy at all.
Simon also argues that "a certain amount fuel consumption is inelastic – both for business and people, and therefore increased taxation will not have the behaviour altering effects that Huhne thinks it will have." Yes, I agree. I have low expectations of eco taxes to change behaviour. They will a little, but lets not forget the good they do by raising revenue.
"In this scenario ... business will be less competitive..." Well obviously, if any particular tax is too high, there will be a cost to prosperity. (But not to overall competitiveness because exchanges rates will adjust.) But within a fairly wide range one tax can be substituted for another will little overall effect on prosperity. If we are already at the point where energy is so expensive compared to, say, labour or land, that economic choices are being grossly distorted, I would like to hear the case made before damning eco-taxes.
And although I am doubtful of the prospect of eco taxes changing individual behaviour an awful lot, they can change investment and lifestyle decisions in the long run, and investment in renewables is what we want.
Oddly, however, the arguments he goes on to make are about social justice, not prosperity in general. Yes, pensioners, students and unemployed people will be hit by fuel taxes. Perhaps there will be specifics in the Huhne manifesto as to whether all these groups will be compensated. Even so there will be winners and losers, but if that were going to stop us we would never change tax policy at all.
Simon also argues that "a certain amount fuel consumption is inelastic – both for business and people, and therefore increased taxation will not have the behaviour altering effects that Huhne thinks it will have." Yes, I agree. I have low expectations of eco taxes to change behaviour. They will a little, but lets not forget the good they do by raising revenue.
"In this scenario ... business will be less competitive..." Well obviously, if any particular tax is too high, there will be a cost to prosperity. (But not to overall competitiveness because exchanges rates will adjust.) But within a fairly wide range one tax can be substituted for another will little overall effect on prosperity. If we are already at the point where energy is so expensive compared to, say, labour or land, that economic choices are being grossly distorted, I would like to hear the case made before damning eco-taxes.
And although I am doubtful of the prospect of eco taxes changing individual behaviour an awful lot, they can change investment and lifestyle decisions in the long run, and investment in renewables is what we want.
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