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Carbon Dioxide to pay off the deficit - can you tax something you cannot see or feel?

It's something of novelty to see economists arguing for green taxation, but a policy paper by Professor Michael Jacobs published by the Grantham Research Institute on Climate Change and the Environment and the Centre for Climate Change Economics and Policy claims that carbon pricing can help European countries to raise revenue and reduce their fiscal deficits more effectively than other taxes.

The report ‘Less pain, more gain: the potential of carbon pricing reduce Europe’s fiscal deficits’, published yesterday reviews analysis by Vivid Economics (a London based consultancy) on the potential impact of energy and carbon taxes, as well as changes to the European Union Emissions Trading System, in several Member States, and finds that they could raise as much revenue as other forms of taxation while having less damaging side-effects on economic growth and reducing greenhouse gas emissions.

The paper concludes: “Many European countries are running high annual fiscal deficits and have high debt liabilities, and are looking at options for raising tax revenues. While energy-carbon taxes have generally been considered to be instruments of environmental rather than fiscal policy, it is time to reconsider that view.”

"The analysis indicates that energy and carbon taxes can have a less detrimental effect than labour taxes and other indirect taxes, such as Value Added Tax (VAT), on gross domestic product (GDP) and employment. An illustrative energy tax package for Spain, including an increase in duties on transport fuels, could raise more than €10 billion per annum by 2020, while packages for Poland and Hungary could generate annually €5 billion and €1 billion, respectively."

The study adds that tightening the cap within the Emissions Trading System to achieve a 30% reduction in the European Union’s emissions by 2020 compared with 1990 could generate €30 billion per year.

The paper points out that the evidence shows energy and carbon taxes “currently play too small a role in the tax portfolio of many European countries”. It adds: “This evidence is not widely known, which perhaps is why energy-carbon taxes do not fulfil their potential role in fiscal strategy”.

It states: “Unlike the taxation of labour or consumption via VAT, there is an appropriate minimum level of energy taxation. This minimum reflects the costs energy consumption imposes on society. Those costs are primarily proportional to the carbon content of energy (more precisely, its contribution to global warming).”

The paper suggests: “It is crucially important for the future low-carbon competitiveness of the EU to get the taxation of the major fuel types - petrol and diesel - right. Currently, EU countries collect less revenue from diesel than they could, with negative implications for the fiscal balance.”

“The solution is to agree a collective increase in diesel tax rates. Of course, rates which have for so long remained differentiated cannot be raised overnight, because the public would not accept it. Yet, a gradual programme of alignment would be worthwhile for all countries and for each individually.”

The study says that The Energy Tax Directive, which is currently being revised by the European Council before being finalised next year, may require higher minimum tax rates to be charged on diesel.

 

Elon Musk favours a Carbon Tax too

The James Martin School have written up Elon Musk's talk at Oxford last Wednesday, in which he also was in favour of a 'Carbon Tax'.

As per their writeup on their blog:

"According to Musk, the fundamental issue in energy and transport is the tragedy of the commons – the CO2 capacity of the oceans and atmosphere is ‘unpriced.’ “We are dumping garbage into the atmosphere and no one is paying for the rubbish collection” is how Musk describes it. The significant vested interests in oil, gas and coal makes clean energy a difficult battle to fight. In the absence of a tax on CO2 Musk believes in the necessity to create products that don’t rely on hydrocarbons. Hence the Model S which was unanimously voted Motor Trend’s 2013 Car of the Year."

 

Visualising the invisible

The notion of taxing something you can't see or feel, does seem rather far fetched and difficult to argue.

So, the best approach for something complex - make a video, which Adam Nieman and a team from Carbon Visuals has done, in this case (above) to illustrate the volume of Carbon Dioxide emitted by the city of New York. 

By representing carbon emissions in terms of 10 metre-wide balls that pile up around the New York City skyline.

 

 

Links

New study shows carbon pricing can help European countries to cut deficits 

Electric Dreams

 

 

 

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