Carbon Taxes (Labour Policy Portal) | Brussels Blog

Carbon Taxes (Labour Policy Portal)

posted by on 11th May 2013
11th,May

This was originally posted on the Labour Policy Portal in March 2013. The Labour Policy Portal no longer operates. Thanks to Martin Leah for his help in editing.

A recent poll by YouGov for the Fabian Society found that 73% of respondents believe the way we live now is damaging the planet. Only 14% thought we should leave future generations to fix the problems.

In the Climate Change Act, the UK has “a long-term legally binding framework to tackle the dangers of climate change”. The Act requires that emissions are reduced by at least 80% by 2050, compared to 1990 levels. The Committee on Climate Change say that emissions have fallen by 22% by 2012, which would appear to be on course to keep within the limits set by the Climate Change Act.

However, Sir Robert Watson, Chief Scientific Adviser to Defra, has pointed out that if carbon emissions caused by the manufacture of imported goods and services are counted, then UK emissions have actually risen by 18%. Our consumption from imports is causing carbon emissions, largely in China.

2050 targets that counted real carbon emissions would be out of reach if we rely only on relatively no pain policies such as insulating houses or increasing the energy efficiency of transport. These policies do not produce the changes in lifestyles that are really needed to help mitigate the effects of climate change. The problem is that we have large numbers of affluent people whose lifestyles create large emissions of climate-changing carbon dioxide which are having a devastating impact on the planet. The poor, because they have lower consumption, generally have lower emissions.

We need policies that do not just make our lifestyles a bit less carbon-intensive but change them by reducing our carbon-intensive consumption. An industrial policy that creates new technologies could benefit everyone. Clean energy sources do not damage any section of society, except possibly by increases in cost, but the good news is that carbon taxes would generate large revenues to ease the pain.

Hansen’s fee-and-dividend scheme

Dr Jim Hansen heads the NASA Goddard Institute for Space Studies. His fee-and-dividend is the best known carbon tax scheme.

He says in an article written for the G8 and Rio meetings:

“Fee-and-dividend has a flat fee (per ton of CO2) collected from fossil fuel companies on domestic sales of all fossil fuels. Collection cost is trivial at the small number of collection points: the first sale at domestic mines and the port-of-entry for imported fossil fuels. All funds collected are distributed electronically (to bank account or debit card) monthly to legal residents of the country in equal per capita amounts. Citizens using less than average fossil fuels (more than sixty per cent of the public with current distribution of energy use) receive more in their monthly dividend than they pay in increased prices. All people have an incentive to reduce their carbon footprint to stay on the positive side of the ledger.”

An important point is that most people receive more in their monthly dividend than they pay in increased prices and given that the rich generally have more carbon intensive lifestyles than the poor, most households will gain at the expense of the wealthy. In this scheme, none of the income is spent by Government: it goes directly to the citizens. This would help gain public acceptance.

Dr Hansen’s scheme would spread once adopted by a substantial economic block. If Europe, for example, agrees to a carbon tax, EU countries could place border duties on products from nations without an equivalent carbon tax, based initially on standard, but appealable, estimates of fossil fuels used in making the product. Border duties would create a strong incentive for exporting nations to impose their own carbon tax, so they can collect the funds rather than have them collected by the importing country.

The market place would choose new clean technologies. Eliminating subsidies for all energies would spur innovation and stimulate the economy as price signals encourage the public to adopt energy efficiency and clean energies. All materials and services naturally incorporate fossil fuel costs. Sustainable food products from nearby farms would gain an advantage over highly fertilised products from halfway around the world.

Other carbon tax schemes

Carbon taxes are sometimes thought to cause fuel poverty and destroy jobs but it is possible to compensate the poor for increases in price by payments paid from carbon tax revenues. The carbon tax revenues paid by the affluent can easily compensate the poor. Revenues from carbon taxes could also be recycled into job creating measures, particularly at the bottom end of the labour market. This would create jobs and for the lowest paid, increase their wages using appropriate market signals. This is similar to the wage effects described in a report Kim Swales and I wrote for the European Commission.

Political support for carbon taxes

When asked at the Progress Annual Conference last year, Phil Collins of The Times, Peter Kellner of YouGov and Mary Riddell of The Daily Telegraph thought that a carbon tax could become mainstream politics. More recently Friends of the Earth in the USA have published the results of a survey on carbon taxes. They report “U.S. voters favor carbon tax by 4-to-1 margin”. The survey found:

  • Carbon tax v. spending cuts: 67 percent of respondents thought that, compared with cutting spending on social and environmental programs, taxing “carbon dioxide pollution from big polluters such as oil, gas and other companies” was a better way to reduce the nation’s deficit (59 percent strongly, 8 percent not strongly). Only 15 percent favoured cutting spending.
  • Impact on jobs: 28 percent of respondents thought that taxing carbon pollution would cost jobs, 25 percent thought that it would create new jobs, while 28 percent thought that it would have no effect on jobs.
  • Use of carbon tax revenue: 70 percent of respondents said that they would strongly favour or favour a carbon tax that directed revenues towards helping to “solve our budget problems,” while 72 percent said that they would strongly favour or favour a carbon tax that directed revenues towards the dual purposes of helping “solve our budget problems and fund programs that help deal with the effects of climate change and create clean energy jobs.”
  • Arguments against and in favour of a carbon tax: Respondents were posed with an argument against a carbon tax that included the statement “with the economy in trouble and too many people struggling to find jobs, this is a wrong time to pass a new tax on every business and consumer in America.” 67 percent of respondents still supported a carbon tax when posed with the rebuttal that the tax would curb greenhouse gases while providing revenue. 64 percent still supported the tax when presented with the rebuttal that it would spur clean energy investments and fund efforts to combat the effects of climate change.

Perhaps carbon taxes could have more support from voters than politicians think. Answering another question in the Fabian Society poll mentioned earlier, 37% of respondents thought we are seeing the effects of man-made climate change in recent extreme weather events. Only 15% disagreed. There were 43% undecided.

There is certainly a growing body of scientific evidence to suggest the chances of extreme weather events occurring are increasing. For example, Professor Peter Wadhams of Cambridge University and Professor Jennifer Francis of Rutgers University believe that Arctic sea ice is disappearing very quickly and that this is the main cause of extreme weather events. Extreme weather events that may support this include the Russian heatwave of 2010, floods in Pakistan of the same summer, Australia’s hottest year in 2012, continuing droughts and storms in North America – and, of course, our own very wet 2012.

If extreme weather events such as these do occur more frequently and the number of people who believe this to be a direct result of climate change increases, then carbon taxes may become more acceptable to politicians.

I believe that the Labour Party must examine the possibilities for carbon taxes.

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