The carbon tax is the cheap way to do it
Yes, yes, some don’t think it’s happening, others insist that leave be even if it is. But, leaping over those thoughts and to the important point, for we can all see that politics has its head up and the fools are going to do something. It’s then a duty to point out that the carbon tax is the cheap way to do it:
In 2023, the UK squeezed £52.5bn out of the economy in green taxes, a 4.9pc increase year-on-year, and it is now close to its pre-pandemic high. The revenue raised by green taxes has almost doubled since 2000. Within that, fuel duty is by far the biggest contributor, accounting for nearly £25bn.
The UK’s Emissions Trading Scheme – which seeks to reduce greenhouse gas (GHG) emissions in energy intensive sectors – now raises close to £6bn. Air passenger duty brings in £3.7bn, and the climate change levy – an environmental tax charged on the energy businesses use – close to £2bn.
OK. But what this tells us is that we already more than charge ourselves for climate change.
For, UK consumption emissions (no, not merely domestic production, but all consumption) are a shade under 600 million tonnes CO2-e a year. The Stern Review said that the appropriate carbon tax is $80 per tonne CO2-e. $48 billion a year, or £38 billion a year. But we already tax ourselves £52 billion a year for this same thing.
Well, OK, allow us just that tad of rhetorical excess in claiming that environmental taxes and the carbon tax are the same thing. But we’re pretty sure that £38 of that £52 is indeed upon carbon. And that’s before we get to all the other sillinesses like EV subsidy, boiler bans and all the rest.
We are already paying more than the cost of the Stern solution. Much more than the Nordhaus one. Very much more than the result from not quite swallowing the arguments about hyperbolic discounting and lower discount rates. But, given the political rhetoric that’s shouted at us, we’re nowhere near a solution.
Paying more than necessary but not achieving the goal? Ah, yes, that’s planning then, isn’t it? Exactly the thing that we’ve been told not to do. This is why the economists’ answer is that carbon tax - because it’s the efficient method of dealing with the problem as presented. Stick the answer into the price system and leave the market to sort out the rest.
Perhaps we shouldn’t worry all that much about the price when we’re out to praise Gaia - religious observance is often not really about costs after all. But that other economists’ observation (it’s in Stern for example). Humans do less of more expensive things, more of cheaper. Which is the reason that we have to be efficient about dealing with climate change - so that we’ll do more, not less, of it.
Shifting the UK from that current dog’s breakfast of plans to a simple carbon tax would be cheaper, more efficient and we’d end up doing more dealing with climate change.
Have we pointed out before that we prefer markets to political plans?