Why the answer is a carbon tax and not carbon credits

Back a decade we here at the ASI were mulling through the implications of the Stern Review and associated work. We still differ over the strength of the evidence stating that disaster is imminent. But our views on how to deal with it all assuming the evidence is true have converged.

Some of us were in favour of carbon permits, trade in them across countries and industries, for such markets would be a most efficient manner of gaining the cheapest reductions in emissions quickly. Others of us preferred a carbon tax. Essentially on the grounds that while in theory less efficient the intervention of the necessary bureaucracy would make the cap and trade systems less efficient after all.

Here we show that all projects abating HFC-23 and SF6 under the Kyoto Protocol’s Joint Implementation mechanism in Russia increased waste gas generation to unprecedented levels once they could generate credits from producing more waste gas. Our results suggest that perverse incentives can substantially undermine the environmental integrity of project-based mechanisms and that adequate regulatory oversight is crucial. Our findings are critical for mechanisms in both national jurisdictions and under international agreements.

So we are, assuming the evidence insisting upon action is robust, rather of the view that the tax route is better.

The death of the solar subsidy

This looks like a good idea:

Britain’s solar boom is over after ministers announced they would offer virtually no subsidies for people to install panels on their homes.

For there’s no actual reason for the UK to offer such subsidies. Despite these claims:

Alasdair Cameron, from Friends of the Earth, said: “From California to China, the world is reaping the benefits of a solar revolution, yet incredibly in the UK David Cameron is actually trying to shut rooftop solar down.
“These absurd solar cuts will send UK energy policy massively in the wrong direction and prevent almost a million homes, schools and hospitals from plugging in to clean, renewable energy.”
Dr Doug Parr, from Greenpeace, said: “The timing couldn’t be worse as the young and potentially booming solar industry is on track to go subsidy free but if these cuts happen, it will be too sudden, too soon and too dramatic. It is highly likely to irrevocably damage the domestic solar industry.”

Solar power has indeed been getting cheaper at a remarkable rate. But it’s been absolutely nothing at all to do with any subsidies being offered by the UK government nor any feed in tariffs gouged out of the energy consumers of Britain.

This is not, by the way, anything at all to do with the arguments over global warming exists, whether we need to do something about it nor anything else like that. It’s a simple public goods argument. Let us assume that the problem is real and we do want to do something about it. That something being, well, we’d like solar power to become cheap enough to use effectively.

So, should British people have to pay more for their electricity to make this happen?

Nope, they most certainly don’t need to at least. How cheap solar becomes will be driven by technological breakthrough. And that will be driven by the wall of money that countries like China, Germany and the US are throwing at it. The technology, when it arrives, will be a public good: we Brits will be able to use it when it arrives just like everyone else will.

So, the correct thing to do is let everyone else spend their money on such subsidies and we install it when it actually works. The removal of the British subsidies makes no difference at all to the date at which this wonder-technology will arrive but it makes us all better off while we wait for it. Thus a good decision.

Isn’t Corbyn offering us all such lovely sweeties?

As the cynics realists among us know, the art of electoral politics is to bribe enough people with other peoples’ money that you’ve managed to buy enough votes. Which is what Jeremy Corbyn is doing here:

Corbynmania went into orbit when the Labour leadership frontrunner revealed he would reopen coal mines if he becomes Prime Minister.

Bookies favourite Jeremy Corbyn has unveiled his vision for the country, which includes nationalising parts of the gas and electricity sector and “where you can” reopening pits.

That’s all three of the remaining members of the NUM onside, plus any number of Labour Party romantics who get all hot and sweaty at the thought of manly men doing manly things like dying of black lung and being crushed by cave ins.

“I think we can develop coal technology. Let’s do so because energy prices around the world are going up. Open cast mining is not acceptable, deep mined coal is possible and is an alternative.

Open cast mining: it’s not that it creates a hole in the ground that is the problem (and the spoil piles of deep mining are just as much of an eyesore) it’s that it can be done with two men and a dog which isn’t going to revive that industrial proletariat that all too many still swoon over.

And clean coal, carbon capture, simply isn’t going to happen in anything approaching a reality that we would want to live in. Quite apart from anything else, any technology that actually works (not something we’re sure can be achieved) would turn out to be vastly cheaper if applied to natural gas rather than coal. So the very idea of clean coal is pretty much a non-starter.

But then this is an election campaign, isn’t it? Nothing anyone says has to make any sense, it just has to buy those votes….

To disagree a little with Allister Heath here

We like Allister around here, really we do, but we fear that he’s fallen into a slight error here in his list of taxes that should be abolished:

Third and fourth, the supplementary charge on the profits of oil and gas firms working in the North Sea, and the petroleum revenue tax, which hits older fields. Adam Memon of the Centre for Policy Studies is right to be calling for the immediate abolition of both taxes. The official statistics are grim: in 1998, Britain’s oil and gas output reached 230m tonnes of oil equivalent; in 2014, this was just 76m.
One consequence of this catastrophic shrinkage is that the Scottish National party’s stated plan to rely on North Sea revenues to keep the welfare state going in an independent Scotland are deluded – but it also means that the Government must stop using the tax system to discourage what is left of this industry.
Offshore corporation tax receipts have collapsed from £9.8bn in 2008/09 to £2.1bn in 2014/15, the Centre for Policy Studies reminds us, and is set to fall further to £600m and below shortly. Many fields still face horrendously high marginal tax rates, yet yield less and less for the Treasury. The supplementary charge and the petroleum revenue tax should both be axed. This wouldn’t be enough to turn back the clock but it would help engineer at least a minor renaissance for the sector. As a result, it is possible that the industry would, on balance, yield more cash for George Osborne.

Even The Guardian once managed to note that there really is a Laffer Effect on oil taxation. Noting that Gordon Brown has managed to raise tax levels so high that production, and thus revenues, declined. But that’s an issue about tax rates, not about the existence of a tax. And the truth is that these are resource rents and those really should be taxed until the pips squeak.

The point being that such natural resources simply exist. No one created them and thus there’s not really any reason why anyone in particular should profit from their existence. And we do need some tax revenue because we do need to have some government (no, we are not anarcho-capitalists). That people should profit from their capital, ingenuity and work in extracting and refining is just fine: but not that a private company should profit simply from the existence of such natural resources. That value, that resource rent, should be taxed away.

That is, we can have productive arguments about whether the tax rates are currently too high, but we shouldn’t then fall into the error of arguing that such taxes should be done away with. The price of oil is set by the market in general: thus all such resource rent taxation does is change who profits from that happenstance of the creation of a natural resource, private company shareholders or all of us from lower taxation upon our incomes or consumption.

Change the oil taxation system by all means but don’t end up not taxing resource rents.

Old myths die hard, don’t they?

Well, no, not really Geoffrey, not really:

Poor harvests, far away, were famously one of the causes of the Arab spring. In 2007-8 grain prices spiked after poor weather cut worldwide production, at a time when food stocks had been run down – and export restrictions, by countries wishing to secure their own supplies, made things even worse.

This is to introduce the idea that climate change is going to lead to extreme weather and…..yes, you guessed it….Aieee! We All Die!

Except of course it wasn’t bad harvests that caused the problems. It was the idiot idea of feeding corn (and, to a lesser extent, wheat) into car fuel tanks rather than people. As much as 5% of the crop was diverted to this process leading the World Bank to tell us that “large increases in biofuels production in the United States and Europe are the main reason behind the steep rise in global food prices”.

That is, the problem was caused by one of the sillier attempts to deal with climate change. And as ever, if you misdiagnose the cause of a problem you’re never going to be able to solve it.