Carbon taxes cannot be progressive

I was listening to Green party TD Ciarán Cuffe on Today FM a few weeks ago trying to make the case for Carbon taxes. His case was weakened by his attempt to weasel around the issue of precisely who would be hit by an addition Carbon tax. Despite the cliché, it isn't really possible to hit two birds with the one stone and one major difficulty a leftist environmental party like the Irish Greens are going to have is the fact that Pigovian taxes are not always going to neatly align with taxes aimed at redistributing wealth.

The purpose of a Carbon tax (assuming that the problem I identified below is somehow addressed) is to correct for the fact that the "costs" of emitting carbon dioxide are not internalised - these costs are spread and don't depend on level of use - and therefore provide no incentive to cut back. The only Carbon tax which will work is one which is blind to other considerations and applied equally. It's either meant to tackle carbon or not. The climate doesn't know whether emissions come from an SUV, a Jet plane, an industrial plant in India or some old lady's clapped out diesel boiler.

There is this popular view that the rich and powerful are the greatest "polluters", but what if they weren't? There is no direct relationship between pollution and wealth and no particular reason to believe that the rich emit more than the poor. What if the rich young man in his well insulated home is responsible for considerably less emissions than an elderly woman in a poorly insulated home with that clapped out diesel boiler? The Carbon tax, to work properly, must "punish" her more than him. This is a conclusion the Greens would prefer to shy away from, but there are always going to be cases where the interests of the environment are opposed to the interests of "social justice", and they are going to have to decide whether they are primarily a leftist party or an environmentalist party.

Comments

[Peter Nolan]

I think that you presume too much of their intellectual abilities, never mind their honesty.

[Ciaran]

Peter,
A tad harsh methinks. Frank, hi. Sue Scott from ESRI gave various ways of addressing the effects of carbon tax on low income households in her paper at "The sky's the limit: Efficient and fair policies on global warming" back in 2002.

I don't think that it's right to allocate carbon allowances to the major polluters / emitters for free, and deny new entrants to the market (such as green cement manufacturers) any benefits.

I also feel that it’s a bit short-sighted of the Government to increase fuel allowances instead of increasing the funding to Energy Action or similar bodies that upgrade the energy performance of inefficient homes.

The problem with the EU / Irish approach to carbon taxes is that companies belching out CO2 like Aughinish aren’t been forced to pay their fair share, and taxpayers will have to pay for carbon credits that the Government needs to buy in order to meet our Kyoto obligations.

I’d say now is the right time to push the economy towards reducing emissions, particularly when the costs of measures such as tightening up the Building Regulations would fall equally on all players, and running costs would be reduced – a measure that would favour lower income households,
Ciarán

[Frank McGahon]

Hi Ciarán

Sue Scott from ESRI gave various ways of addressing the effects of carbon tax on low income households in her paper at "The sky's the limit: Efficient and fair policies on global warming" back in 2002

The point is that low income high emission households will have to be "punished" in some way (let's say when compared to a low income low emission household) by any effective carbon tax (to encourage them to make the switch) and I think it's better to be honest about this.

I haven't seen that ESRI paper but I'll try and dig it out but if there is a proposal to, say, award grants to improve insulation or replace boilers, there could be a perverse incentive for marginally low emitting housholds to emit more so as to qualify for a new boiler or spruce-up.

I also feel that it’s a bit short-sighted of the Government to increase fuel allowances instead of increasing the funding to Energy Action or similar bodies that upgrade the energy performance of inefficient homes.

I don't think that's the particular conflict- the conflict is in subsidising fuel on the one hand and aiming to get people to conserve fuel/reduce emissions on the other.

The problem with the EU / Irish approach to carbon taxes is that companies belching out CO2 like Aughinish aren’t been forced to pay their fair share, and taxpayers will have to pay for carbon credits that the Government needs to buy in order to meet our Kyoto obligations.

The problem is much deeper than that. The point of a Carbon tax is to "internalise" the externalities associated with emissions so that anyone who emits CO2 does so in the fulll knowledge and bearing the full costs associated with that volume of emissions, then they can decide whether it's worthwhile or not. That's a Pigovian Tax. For such a tax to work it has to be directly related to the volume of emissions and "blind" as to the source. Problem is that politicians will always want to adjust such a tax to take account of the source, either on the "pro-business" side, to favour established industries, or on your own "social justice" side to favour, say, low income households. Of course, the huge elephant-in-the-room problem underlying all of this is that Kyoto is effectively dead anyway.

I’d say now is the right time to push the economy towards reducing emissions, particularly when the costs of measures such as tightening up the Building Regulations would fall equally on all players, and running costs would be reduced – a measure that would favour lower income households,

Better energy conservation is a good thing anyway and should end up paying for itself, but that's not necessarily the same thing as reducing emissions - it's entirely possible for a focus on emissions to encourage the "wrong" alternatives, say expensive wasteful but not-directly-emitting energy sources.