Those green taxes

So, My Noble Lord Stern said that we can beat climate change at a cost of 1-2% of the economy per year. This should be done by imposing green taxes: Pigou taxes as they are technically called.

Green taxes already make up 7 per cent of the Government\’s tax take.

The government\’s tax take is somewhere around 40% of the total economy meaning that those green taxes are currently some 2.8% of the economy.

Thus we\’re done. We\’ve solved climate change.

Or, of course, for those arguing that we should be taxed more, we have to assume that they don\’t believe Lord Stern\’s pronouncement that it can all be done for 1-2% of GDP. And given that Nicholas Stern is one of those who insist that taxes should be higher, nor does he believe his own report.

Bit of a conundrum really: if we believe the report that says that we can solve climate change at that price, then we\’re already doing it. If we insist that taxes should be higher than the report said, then of course the cost benefit analysis in the report is not to be believed.

6 comments on “Those green taxes

  1. They are probably misallocated though at least, with green taxes on road transportation too high, and air transportation too low.

    I would bhe happy to see them even higher if, and its a big if, they were matched with tax cuts on things like employment. After all we charge companies for employing people even though there is a social benefit rather than a cost.

  2. Tim,

    I think the response to this would be that Stern is citing the economic cost whereas you are measuring the transfer from taxpayers to government. A transfer doesn’t inherently have any economic cost, though there are obviously deadweight losses associated with most of them.

    Best,
    Matt

  3. Matt hits the nail on the head, but without sufficient force.

    Stern’s argument is that we need to stop global warming, but that doing so will require us to accept a level of GDP 2% below where it would otherwise be and, furthermore, that a suitable instrument to achieve the required changes is Pigouvian taxation.

    How this statement can be mangled into ‘if Pigouvian tax revenue equals 2% of GDP we’ll be fine’ is utterly beyond me and I think Tim owes his readers an apology.

  4. The tool says we should all turn vegetarian to save the planet. I had a delicious New York strip tonight just to say fuck him.

  5. I’m more interested in how he came up with his 1-2% number in the first place.

    Personally, I can’t shake the feeling that an estimate with a 33% possible error has been pulled from someone’s bum.

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