An interesting and important question for Nick Stern

We’re willing to go along with the concept here but can we please have an actual number?

With oil prices currently at a low level, now would be the ideal time to introduce levies that remove the implicit subsidy for pollution from petrol and diesel. The revenue from these levies could more than compensate the poorer members of the community for the price increases, give a boost to research and innovation, and contribute to the cleaner and more attractive investments that we need.

We know, we’re rather keener on Pigou Taxes than many others are. But, following the IMF report on subsidies to the energy sector (please note, it wasn’t an IMF paper, it was a paper by people at the IMF. It’s not purely about fossil fuels, it’s about the energy system. And it does depend on the idea that the tax system should be hugely regressive in order to reach its totals about how much tax should be raised by consumption. For example, it argues that the lower rate of VAT for domestic fuel is a subsidy. And you can think of it that way if you like. But two points: that subsidy also applies to renewables and can you imagine the furore from the usual suspects if we argued that to save the planet we must charge 20% on domestic fuel?) we have the above from Lord Stern. And the obvious question is, well, how much?

For there’s a very important point about Pigou Taxes. The entire logical case for them, the justification, is that there is one just and righteous rate at which that tax should be levied. Add up the costs of all of the externalities and that is that tax rate. You cannot, not if you are being intellectually consistent, march around shouting “more”. You must, in each circumstance, calculate what the rate is.

So, some 80% of the cost of petrol these days is tax. Is that enough? For example, Stern’s $80 per tonne translates into a righteous carbon tax of 11 p on a litre of petrol. Ken Clarke introduced the fuel duty escalator to “meet our Rio committments”. Which we take to be a synonym for a carbon tax. That escalator has added 23p or so to a litre of petrol. So, purely on the carbon emissions basis we are already paying too much in the UK.

This newer calculation tells us that there’s more. Air pollution and so on. OK, that’s fine, so, what’s the number? What’s the righteous Pigou Tax for that? They also say that a significant portion of the costs of petrol is congestion, accident damage etc. That’s not something that can be attributed to the fuel: if we were all driving electric cars those things would still be there. That’s a cost attributable to the transport system, not the fuel. And by far the largest part of the costs they attribute to this sector is the idea that consumer purchases should be taxed in order to raise revenue. And that if the tax is less than the amount they declare is correct, then that’s a subsidy. But no one can say that UK petrol isn’t paying tax. So that’s out too.

So, in our calculation of what the correct petrol tax is in the UK we’ve got those two things. Carbon emissions, which are already being overpaid for, then pollution costs. So, what’s the number, what should be the tax? And as above, “more” isn’t a serious answer.

We have a very strong suspicion here. The reason we’re not told what the number is is because that correct, just and righteous, number is actually lower than we’re all being charged currently. Which is why Stern, the IMF and everyone else doesn’t actually calculate it. Of course, we’re willing to change our minds if they would calculate it and also let us see their workings….

The perils of fake Fairtrade products

It’s just so difficult to be a properly concerned middle class social justice warrior these days, isn’t it?

Well-meaning shoppers may be wasting money on groceries bearing fake Fairtrade or organic logos, after police in Europe identified counterfeit food labels as one of the fastest growing frauds.

Fairtrade or organic bananas, vegetables, tea and other items are bought by millions of people concerned about the provenance of the food on their plates.

But the certification logos on packaging can be “easily replicated and affixed” by experienced counterfeiters, the Europol law enforcement agency said.

Its experts warn that organised crime groups have “joined forces” to run counterfeiting operations inside the EU.

They are forging quality labels on “everyday products” that can then be sold at a premium, as opposed to the traditional fake handbags and medicines.

As it happens we don’t think this is a particular problem. Fairtrade makes virtually no difference at all to those poor, third world, producers. It has a marginal value as a form of indoor relief for the dimmer scions of the upper middle class. But the real value gained from it is the near holy righteousness that a certain type of shopper feels as they proudly display their status by showing off the correct, socially approved, labels of “organic”, “Fairtrade” and so on. Given that this, the main effect of the system, still applies to fake labels it seems to be a most efficient way of achieving that main effect.

Greenpeace should be allowed to say it even if they’re wrong

We find ourselves a little bit conflicted here. That Greenpeace has been spouting lies making incorrect statements does not surprise. But we are rather absolutist on this free speech thing. Absent incitement to violence and libel we’re pretty sure that anyone should be allowed to say whatever they wish. And we’re most certainly not happy with some organ of the State deciding what it is that people may or may not say. Thus the conflict:

A Greenpeace advert opposing fracking has been banned for claiming experts agreed that the process would not cut energy bills.

The national press ad said: “Fracking threatens our climate, our countryside and our water. Yet experts agree – it won’t cut our energy bills.”

The Labour peer Lord Lipsey, who said he understood there was a range of views on the subject, complained that the ad was misleading for claiming experts were in agreement.

Greenpeace said the claim was made in the context of a public debate on Government policy, and cited quotes from David Cameron, who has repeatedly backed fracking and claimed that it could bring down energy bills.

The organisation provided quotes from 22 people, groups or organisations supporting the view that fracking would not reduce energy prices.

That Greenpeace are wrong is something we’ve proven here and elsewhere before. However, there is that free speech issue. And as we say, we don’t think that such speech should be banned.

Quite apart from anything else if people are banned from spouting obvious lies then how can we spot them when they’re being a bit more disingenuous and spouting non-obvious lies?

What just about everyone is getting wrong about climate change

The Telegraph has an interesting report today on the costs of decarbonising Britain’s electricity generation system over the next 15 years. It’s vast and it’s not a sensible thing to do. But in their discussion there’s this, which shows just how badly everyone is approaching this question:

All political parties (apart from Ukip) support the 2008 Climate Change Act which commits Britain to reduce emissions by at least 80pc from 1990 levels by 2050. Analysis by the Department of Energy and Climate Change has shown that, to hit those targets, there must be significant decarbonisation of the power sector by 2030. The Committee on Climate Change has set a target of reducing carbon intensity from 450g of carbon dioxide per kilowatt hour to 50g by 2030.

This is entirely the wrong way around.

Let’s not get into the science of this, that’s always a boring and unproductive shouting match. Instead, let’s just say the IPCC is correct and then look at the economics of it. And there we find that this approach is *still* wrong. Because it is not correct to announce a target for emissions: it is correct to announce a cost that we’re willing to pay to reduce them.

This is the Stern Review argument. There’s some future damage to come from emissions. How much should we be willing to spend now to reduce such damages? We reach our answer (which translates into that $80 per tonne carbon tax) and that’s it. We should not spend more than that to reduce emissions. We should not have a target for emissions: we should be targeting only those emissions that we can reduce below that cost.

And yet every political party except Ukip is targeting the emissions number. This is simply wrong, it’s an entire misreading of what the settled science on this issue is. The settled economic science as laid out in that Stern Review and backed up by every other economist who looks at it (Nordhaus, Tol and so on). We set the price of the actions we’re prepared to undertake and go and do those things that cost less than that to do.

The reason for this is that the actual logic that says we should be doing anything rests upon that estimation of the cost of future damages. Spending more than that cost makes the future poorer than it could or should be. It is quite literally impoverishing our grandchildren.

It’s not the first time this has happened of course. When the political classes have entirely misunderstood the entirely reasonable (please note, economists might differ on what the price of emissions should be but not on the logical approach itself) result of economic research and so garbled the implementation as to end up doing the opposite of what they should be doing. But it’s impressive to see them doing so all the same.

Introducing the climate deniers at the Renewable Energy Foundation

John Constable of the Renewable Energy Foundation finds that he gets attacked for being something he is not:

Work like this has caused a flurry of unease in certain circles. REF has been falsely accused of hiding its donors, while our new Energy Institute – established with the University of Buckingham – has been branded a “front” for climate sceptics. The Independent quoted one academic who called me a “doubt-monger”.

We feel the pain, we’ve been accused of similar things ourselves. So, what is it that Constable suggests?

But it also means that there has to be a clear economic signal, which I think is best provided by putting a consistent, economy-wide price on carbon, probably through a carbon tax with corresponding offsets in other taxation. This would be flexible, so economic harm could be kept under control, and it would be technology-neutral, allowing the economy to gravitate towards the cheapest ways of reducing emissions that human ingenuity can discover.

That is also what we have been suggesting this past decade. And it’s extremely surprising to be told that we’re climate deniers for doing so. For this was, of course, the major recommendation of the Stern Review itself. That source document that everyone is using to tell us that something must be done. Stick on a carbon tax at the social cost of carbon emissions, reduce other taxes to compensate and she’ll be right. Perhaps sprinkle a bit of R&D fairy dust tax money around the place as well.

This is not an odd view, is not some denial, it’s the straight up mainstream view. We could get everyone from Bjorn Lomborg through Nick Stern, Bill Nordhaus, Richard Tol all the way out to James Hansen to sign on to this. Yes, there’s technical arguments about what the social cost is but the basic structure of what needs to be done is evident to everyone who has spent more than 30 seconds thinking about the economics of this.

But then, of course, it’s when the economics profession is most united in their view of a matter that no one else takes a blind bit of notice, isn’t it?