How hugely cheap a carbon tax would have been
Of course it’s possible to insist that climate change isn’t a thing, if it is it’s of no matter, or that we’re not doing it. It’s also true that whatever the truth of any of that society as a whole insists it is, it is and we are therefore something must be done.
At which point we should have had a carbon tax:
The environmental impacts of meat consumption could be rapidly and cheaply reduced if governments applied full VAT on products such as beef, pork, lamb and chicken, a study has shown.
Depending on how the additional tax revenues were redistributed, such a change could cost households as little as €26 (£23) a year, while cutting ecological destruction by between 3% and 6%, the paper found.
The paper:
We find that removing current VAT reductions on meat products has the potential to decrease food consumption-related greenhouse-gas emissions, water consumption, land use, biodiversity loss, and the nitrogen and phosphorus footprints of EU27 household food consumption by 3.5%–5.7%. A greenhouse-gas emission price of ~€52 per tCO2e on all food products leads to equivalent emission reductions with higher associated environmental co-benefits. The mean net welfare costs of the two policies amount to €12–26 per year per household.
Again, leave aside whether this needs to be done. Instead, look at the cost of doing it. €52 a tonne CO2-e is pretty close to the Stern $80 a tonne. Of the same order at least. UK emissions are 500 million tonnes a year (-ish) meaning we should be taxing ourselves $40 billion a year, or perhaps £30 billion a year. This is what fuel duty currently costs us. That $80 per tonne is in fact 11 p a litre and the fuel duty escalator (meant to meet “our Rio commitments”) has already added well over twice that.
As we can see from this estimation of a “meat tax” (which should not be a meat tax at all, it should be a carbon tax) the nett cost is trivial. As Stern, Nordhaus and everyone else have pointed out the nett cost should in fact be zero for we should reduce other taxes to balance. The aim is a revenue neutral carbon tax, one that changes relative prices, not one that increases revenue to the Treasury.
At which point we would be done. Lower petrol tax and raise, modestly, taxes elsewhere and we’ve solved climate change.
All of which is, of course, just a repeat of the grand lesson of the 20th century. Those places which tried to use planning, direction and insistence as a method of economic management remained poor. All of those that used markets and prices to achieve the same end, that of economic management, became grossly rich by global or historical standards. Despite the shrieking of all too many there is nothing about this latest problem, climate change, which obviates that lesson. We have an economic coordination problem, use markets and prices to solve it. Perhaps we need to stick a crowbar into the gears to get it humming along quite precisely but long experience does show that the one single crowbar is hugely, vastly, better than allowing GOSPLAN to show the error of planning once again.
At which point we repeat our insistence. Anyone who does not advocate a carbon tax as the necessary solution to climate change is not taking the problem seriously. We would then argue that it’s the sole necessary step but let’s start with those baby steps. As with all economic problems markets and prices are the best solutions.
Tim Worstall