Taxing climate change


This is something I've been banging on about for some time now: that those proposing green taxes don't seem to realise quite the rate at which they should be levied. Quite how low a rate that is. Take the recommendations of the Stern Review for example, as the New York Times editorial does yesterday:

Translated into a gas tax, Mr. Stern’s price tag is about 66 cents per gallon...

Given 3.8 litres to the US gallon and an exchange rate around $1.50 to £1 and we get to the 10 pence to 12 pence range per litre that I said it should be when the Stern Review fisrt came out (in these very pages in fact). So should we be adding another 10 pence to hte fuel duty then?

No, absolutely not, we've already raised fuel duty substantially over the years. The fuel duty escalator was put in place by Ken Clarke to aid us in "meeting our Rio committments". To tax the externality of CO2 coming out of your car's tailpipe in other words. And how much has that escalator increased fuel duty over the years? 23 p by my last count actually.

So we are already double taxing petrol use, taxing it twice as much as we should be in order to get the best of all worlds as laid out in the Stern Review. Please note that this is not an attempt to deny that climate change is happening, nor that we shouldn't do anything about it. It is rather, taking the arguments being put forward seriously and looking at their implications. And one of those is that the British Government's own report states that we already tax petrol too highly for climate change reasons. So we most certainly shouldn't let them use that report as an argument for raising petrol taxes even further.

For further fun and games try this paper from Richard Tol (and please do note that he's one of the economists within the IPCC). We in Europe have already got in place just about everything we need to do to deal with climate change. We're done: we've just got to wait for the changes in incentives to work their way through the economy. Which is rather good news at the end of the year, isn't it?