Willy Hutton on Climate Change

Economists use what is called a discount rate to compare income and welfare in the future with income and welfare today. If we forgo just a little welfare today through burning less fossil fuel, even applying a modest discount rate, we can guarantee that there will be no catastrophic loss of welfare in 2050.

That is indeed precisely and exactly correct. It\’s what gives us the Stern Review number of $80 per tonne CO2.

Now it is the right\’s turn. There is climate change. No gardener, farmer, sailor, festival-goer or refugee from floods doubts it – let alone the scientific community. This requires a response from the state that will include taxation and regulation, however much Tea Party activists, Niall Ferguson and Lord Lawson may deplore it. Reality put the left on the defensive for a generation before it came to its senses. The same is about to happen to the right. Lived experience is about to show how wrong it is – and Britain and the world cannot afford the mistake.

And then the fuckwit entirely ignores the point that he\’s just made.

The solution, as all those economists go on to point out, is that we should have a Pigou Tax at $80 per tonne CO2. It is not that we need regulation, the taming of capitalism, the resurgence of the left nor even, whisper it who dares, to live according to the Heorot of Hutton. It is to have the Pigou Tax and nothing else.

And, if you go and do the sums, you\’ll see that we in the UK do roughly, around and about, have a carbon tax of roughly the correct amount. We\’re done: we have solved climate change. There\’s a bit of marginal tinkering to go but nothing major.

37 comments on “Willy Hutton on Climate Change

  1. Now you’ve really confused me. How can a tax interfere or moderate a predominately natural process utterly beyond human control? Pigou taxes and the rest of the Green plan to Make Poverty Global, are about as effective in controlling the climate as sticking brown paper on windows would be on mitigating the effects of a nuclear bomb. Both are government policy, which says all you need to know about governments.

  2. Time and again I’m told that climate change is not weather.

    So why do the faithful keep giving examples of changing weather as proof of climate change?

    I do seem to remember that one of the predictions of global warming (before they changed the name to implicate the innocent) was that there would be vineyards in Newcastle and deserts in Kent.

    Now that Newcastle needs 10 bridges across the Tyne it appears that this, too, is proof of climate change.

  3. There is climate change. … This requires a response from the state that will include taxation and regulation …

    Begging the question much?

  4. The climate always “changes”… It’s what it does.

    Before leaping to the iliiterately-named “carbon tax” wouldn’t it be better to first have some proof, not provided by computer models that are programmed to give precedence to CO2-induced effects, that CO2 is in fact a problem?

  5. How do you arrive at a value of $80 per tonne CO2? Don’t you need to have a pretty good idea of what effects “climate change” will actually have first?

  6. And shouldn’t we be spending that money on, or putting that money aside for, the mitigation of climate change?

    It seems to me what we are actually doing with those carbon taxes is transferring the consumption of carbon-emitting things from those paying the tax to the political classes collecting the tax. Which means the effect of the tax on consumption of carbon-emitting stuff is zero.

  7. “It seems to me what we are actually doing with those carbon taxes is transferring the consumption of carbon-emitting things from those paying the tax to the political classes collecting the tax. Which means the effect of the tax on consumption of carbon-emitting stuff is zero.”

    The Pigou tax changes the price of carbon to include the externality (climate change). Once this is priced in, if we continue to consume carbon then consuming carbon is the correct thing to do in economic terms, taking into account the environmental degradation involved. The end.

  8. Surely for the Pigou tax to work you don’t just have to levy the externality on the consumer but also use the money raised to mitigate the loss caused by the externality? Sure the tax will depress consumption by those paying the tax, but it then goes and increases consumption by those collecting the tax. That would be fine if those collecting the tax were those harmed by the externality and effectively had the money as compensation for their losses to the externality.

    So pre Pigou tax we have A consumption by consumers, B consumption by politicians and C damage to those affected by externalities. Post Pigou-tax we have A-P consumption by consumers, B+P consumption by politicians, and no change in C.

    Unless the politicians are spending the money on flood defences rather than duck moats and “fact-finding missions”. But we don’t really believe that, do we?

  9. As an amateur gardener I indeed noticed that less hardy plants survived winters from 1990 to 2005, but no more. Was the climate change reversion to normal caused by CO2? Mr Hutton seems to allege this. How dare he take my opinion as a gardener in vain!

  10. First we had global cooling and a new ice age. Then a few years later we had global warming with temperatures rising, ice caps melting, hotter summers and wetter winters.
    Past few years I’ve noticed cooler summers in Britain and apparently dryer winters the met office were saying back when hosepipe bans were introduced recently. Wettest hosepipe ban I can recall…..

  11. Tim, could you please show us your calculations on this. It seems to me that whereas we have car fuel duty vastly in excess of the Pigou level, we actively encourage domestic consumption of natural gas (relative to competing goods such as warm clothing) by levying a reduced rate of VAT.

    Tim adds: 500 million tonnes CO2 a year. $80 per tonne, call it £25 billion among friends.

    Fuel duty is £29 billion a year inc. VAT.

    That VAt thing on gas BTW, doesn’t really work. For it’s all and any home energy. Inc. renewables. Even then even the greenies claim it’s only £3 billion a year.

    Then add climate change levy, landfill tax, APD etc etc.

    We may not be applying the tax in all the right places but we’re paying enough in aggregate.

    Ish.

  12. With respect to Tim. I don’ t know if he really believes CAGW exists. I don’t suppose he’s any more qualified to judge than the rest of us. But as the current paradigm is that it does, taking it as a given, then arguing the least damaging way to mitigate it makes sense.
    It’s certainly better than joining in the endless, circular climate rows that proliferate elsewhere. The ‘consensus’ may be weakening but it’s still the current mode. The warmists aren’t going to be convinced by reasoned debate & the warmists are calling the shots when it comes to energy policy & taxation. Politicians are only interested in justifying taxes, so that suits them fine. What’s necessary is to destroy the justification for the taxes on a “whether they are necessary to deal with climate change” basis. Once that’s achieved, doesn’t matter a sweet fuck what the greenies believe as long as they’re not driving the economics.

  13. JamesV,

    Surely for the Pigou tax to work you don’t just have to levy the externality on the consumer but also use the money raised to mitigate the loss caused by the externality?

    Nope. You just pay people. People might decide that it’s worth the risk of a few more extreme weather events in exchange for seeing a tax reduction that’s the equivalent of a better TV.

  14. “There is climate change. No gardener, farmer, sailor, festival-goer or refugee from floods doubts it – let alone the scientific community.”

    http://opinion.financialpost.com/2012/06/13/junk-science-week-climate-models-fail-reality-test/

    Just how good are climate models at predicting regional patterns of climate change? I had occasion to survey this literature as part of a recently completed research project on the subject. The simple summary is that, with few exceptions, climate models not only fail to do better than random numbers, in some cases they are actually worse.

    No one in the actual scientific community thinks that Man-Made Global Warming is actually happening. At best they think it might be. That the risk is high. Although I think that history will show them to be wrong even on that. There is no evidence of global warming in the satellite temperature records, the proxies are useless and it looks like they are being misused, and the models are worthless.

    “Lived experience is about to show how wrong it is – and Britain and the world cannot afford the mistake.”

    The Sky is always about to fall on our heads, but somehow it is always tomorrow. Will Hutton is as full of it on this subject as he is on all others. Like so many others he shows what is wrong with the British oligarchy – it rewarded the mind numbingly stupid as long as they agree with everyone else. The poverty of conventional thinking. Willy has made a career out of it.

  15. JamesV, it doesn’t matter what you do with the money. The aim is to change consumer behaviour. A really effective Pigou tax shouldn’t increase tax revenue – it might even reduce it – because consumers would reduce their usage of the taxed good or service.

    Unfortunately, Pigou taxes are inevitably seen as an easy way of raising revenue and are likely therefore to be raised to levels that far exceed what is necessary to achieve the desired effect. As Tim has pointed out previously, the problem with Pigou taxes is that they are imposed by politicians, who are much more interested in raising money for pet projects than they are in effecting changes in consumer behaviour – which is the whole point of a Pigou tax. This is the one reason why hypothecation of Pigou taxes for projects related to the reasons for imposition of tax would be sensible. No politician would ever do that, though.

    PaulB points out that the current fuel duty is far above $80 per tonne of Co2. The reason for this, obviously, is that fuel users are a captive audience so an easy target for tax raising. Nothing to do with trying to reduce fuel use and everything to do with raising revenue.

  16. bloke in spain,

    The best part of Tim’s argument is that it neutralises the watermelons, which is most of the problem. The watermelons are mostly unscientific, often some of the fiercest critics of “big pharma”, or the dominant strands of economics or GM.

    The collapse of the Soviet Union wrecked the statist argument. Green issues allowed the left to regroup. The argument was no longer that communism made us richer, it was that capitalism would eventually make us poorer by destroying the planet.

    The watermelons are not going to let go of it easily. The problem is that they sold the problem as being at a disaster movie level, and it was never going to be that, and the public is realising that, and questioning the science.

  17. >>>
    No one in the actual scientific community thinks that Man-Made Global Warming is actually happening.
    <<<

    Pardon?? Everyone in the actual scientific community thinks that AGW is happening. This is because everyone thinks that burning fossil fuels has increased atmospheric carbon dioxide, and that increasing carbon dioxide increases surface temperature. Being scientists, and the climate being a complicated system, they admit to some uncertainty about the size of the effect.

  18. The point I have manifestly failed to make is that the Pigou tax doesn’t reduce consumption (which is part of the goal of the tax) by pricing in the externality – it merely transfers consumption to the recipients of the tax revenue.

    That means we don’t have $80 of carbon-damage not happening because of the tax, or alternatively $80 of carbon-damage happening but compensated for by the person doing the consuming paying for the damage they did.

    Let’s use a less abstract example. The (entirely hypothetical of course) antisocial me dumping all my used beer cans on the pavement. My consumption of beer causes an externality (messy pavement), which results in a cost to society at large (cleaning up my mess). We could institute a Pigou tax on beer cans (actually they have something of the sort in Germany but that’s another story). This would reduce my consumption of beer, creating less mess. But the money would not be put to cleaning the streets it would be put to buying votes or buying junkets for politicians. So it only actually works properly if you use the money to fix the problem the consumption causes.

  19. In fact it’s worse than that – in my example the politicians all buy beer that I am no longer drinking and also dump the resulting trash on the pavement.

  20. Thanks for the numbers Tim. It seems to me that the if the tax on vehicle fuel is a Pigou tax, it’s a tax mainly on congestion, albeit crudely applied.

    It would indeed be sensible to apply a tax of $80 per tonne of carbon dioxide to all fossil fuels, whatever they’re used for (and pay separately for carbon capture). And then to tackle road congestion with congestion charges.

    However, as some of your commentators would delight in pointing out, this would do nothing about emissions overseas. So let’s tax imports of manufactured goods from countries which do not impose a suitable carbon tax, according to a plausible estimate of the carbon dioxide emitted in making them.

    Carried unanimously?

  21. PaulB – “Pardon?? Everyone in the actual scientific community thinks that AGW is happening.”

    No they do not. The popular view (to some degree it is hard to calculate but let us assume it is a majority) is that there is a high probability that MMGW is happening. That is not the same as the belief it is happening. Even the shrill case put forward by the IPCC was that there was a high probability.

    “This is because everyone thinks that burning fossil fuels has increased atmospheric carbon dioxide, and that increasing carbon dioxide increases surface temperature. Being scientists, and the climate being a complicated system, they admit to some uncertainty about the size of the effect.”

    Sorry but no. It is true that burning carbon releases CO2 and CO2 is a Greenhouse gas. But we do not know whether it increases surface temperatures or not. The climate, and the atmosphere, being complicated. It may. In fact it is a reasonable assumption it does. But we have no secure knowledge. Indeed any geologist worth much will tell you the world has been cooler with higher levels of CO2 (as well as warmer with higher levels of CO2) so, as I said, it is complicated.

    We don’t know enough to be certain.

  22. SMFS: Believing something is true with high probability is the same as believing it’s true.

    If you want to hold that there is a small but non-zero probability that recent anthropogenic increases in atmospheric carbon dioxide have not given rise to a measurable temperature increase, then ok, for some value of “small”. But so what? You want to take no action on climate change because you’re hoping a small probability pays off?

  23. “No gardener, farmer, sailor, festival-goer or refugee from floods doubts it”

    There’s a much simpler solution.
    See, all you need to do is have everyone attend festivals (with exemptions for gardeners, farmers and sailors). AGW skepticism will disappear immediately, and then environmentalists can do whatever they want.

  24. JamesV,

    The point I have manifestly failed to make is that the Pigou tax doesn’t reduce consumption (which is part of the goal of the tax) by pricing in the externality – it merely transfers consumption to the recipients of the tax revenue.

    That means we don’t have $80 of carbon-damage not happening because of the tax, or alternatively $80 of carbon-damage happening but compensated for by the person doing the consuming paying for the damage they did.

    Well, it might reduce consumption, or get someone to use a less environmentally-damaging form of consumption.

    Let’s say that a trip to London costs you £x and a trip to Prague also costs you £x-5. Prague has flight costs, but hotels are cheaper.

    Now, let’s say that the Pigou tax is £6 for the flight. Prague now costs you £1 more than London. So, the more cost effective thing to do is not to fly.

  25. scrabbler (#24) – a simpler solution – tax carbon emissions, and use the money to buy everyone a yacht.

  26. Pingback: Will Hutton: A catastrophe if global warming falls off the international agenda | JunkScience.com

  27. @The Stigler,

    What do I do with the £1 I have saved?

    Don’t tell me I spend it on something that results in carbon emissions for clearly there is a magic mechanism to stop me doing that.

  28. Interesting illustation the Stigler gives because it highlights another problem with Pigou taxes.
    So our thrifty traveller opts for London rather than Prague & adds to the congestion of an already congested city. Not only does he make it that much harder to cram onto Tube or find a hotel room, he brings the city a tad closer to the tipping point, that occasionally occurs, when the congestion grid-locks solid & carbon emissions sky-rocket. Meanwhile Prague which could comfortably absorb more tourists, runs half empty public transport.
    The localism argument has reared its ugly head again.

  29. > Time and again I’m told that climate change is not weather. So why do the faithful keep giving examples of changing weather as proof of climate change?

    Because Hutton is an economist, not a climatologist. If you want to read someone who knows something about climate, look elsewhere.

    http://scienceblogs.com/stoat/2012/06/25/carbon-tax-watch/

    > proof, not provided by computer models that are programmed to give precedence to CO2-induced effects

    You made that up. Nice to have proof that “the other side” knows nothing about climate, too.

    > How do you arrive at a value of $80 per tonne CO2?

    He’s already told you: that’s the Stern Review number (although, as PaulB points out, Timmy is playing fast-n-loose with the details). You could try reading it, I suppose. That might be hard work though.

    > First we had global cooling and a new ice age

    Rubbish. See, e.g. http://en.wikipedia.org/wiki/Global_cooling

    > There is no evidence of global warming in the satellite temperature records

    Twaddle. And you have no excuse at all for talking this rubbish, because the data is available. http://en.wikipedia.org/wiki/Satellite_temperature_record for a summary, or http://woodfortrees.org/plot/rss/from:1979/to:2012/plot/rss/trend if you want to draw your own graphs. But you can’t have your own reality.

  30. bloke in spain,

    Interesting illustation the Stigler gives because it highlights another problem with Pigou taxes.
    So our thrifty traveller opts for London rather than Prague & adds to the congestion of an already congested city. Not only does he make it that much harder to cram onto Tube or find a hotel room, he brings the city a tad closer to the tipping point, that occasionally occurs, when the congestion grid-locks solid & carbon emissions sky-rocket. Meanwhile Prague which could comfortably absorb more tourists, runs half empty public transport.

    And what about if someone lives in Bristol and decides to go for a weekend in the Cotswolds rather than New York because of the Pigou taxes? What if someone chooses to go to London on a weekend when it’s empty?

    In other words, the “problem” that you have highlighted, only works by you using a partial set of the data, and that there is no correlation between raising the cost of CO2 and the likelihood that someone will visit a busy rather than an empty place.

  31. “In other words, the “problem” that you have highlighted, only works by you using a partial set of the data,”

    Thanks, that was rather the point. You always are. Not only in where the tax is raised but also where it’s spent. As James implies, it could all end up subsidising environmentalists to climate junkets in the world’s better tourist destinations.

  32. I would really like Tim to comment on this because I don’t see how the Pigou tax works. For consumption that happens despite the tax the tax achieves nothing unless the money raised is either used to clean up or compensate for the externality. For consumption that doesn’t happen because of the tax, the consumer still has that money in their pocket to spend on something else and will ultimately end up causing the same carbon emissions as before. Even if you spend the money on an ayurvedic aromatherapy massage rather than a planet-killing flight to Prague, the masseur will probably spend the money on that flight to Prague.

    What am I missing?

    Tim adds: OK, Pigou Taxes 101.

    This applies to all externalities but we’ll stick with carbon.

    Our aim is to maximise the utility (the happiness, the gloriousness of the human experience) of humanity of space and time. We understand that the price system does not take account of certain things that people do. For example, CO2 emissions now will lead to some Bangladeshi farmer drowning in 2100…..or his fierlds drowning at least. So, we have the benefit to people of making emissions now (they get to drive their car) and we have the damages of climate change in the future. Because we want to maximise utility we want to make sure that these damages actually are included in the price system.

    From the Stern Review we know the damages are $80 per tonne. Leave aside that calculation and just accept it for the moment.

    So, what we want is an $80 tax on a tonne of CO2 emissions. Why?

    Because, we are utility maximising. We want people to continue to emit where the benefit of doing so is greater than the costs in the future of doing so. We also want them to stop emitting where the costs in the future are less than the current benefits.

    An example: I drive to the shops to get my lunchtime bread. Assume, however unlikely, that I emit a tonne CO2 to do so. This causes $80 of damage to those Bangladeshi farmers in the future. But, arguably, my getting fresh bread isn’t worth $80. I certainly wouldn’t pay $80 for a fresh loaf over toasting yesterday’s crusts instead. So, the $80 tax stops me driving to get the bread. The tax has stopped an emission where the costs are higher than the benefits.

    Another example, pregnant woman with pre-eclampsia, needs an ambulance to get her to hospital for that magnesium drip. This also emits 1 tonne CO2, also causes that $80 worth of future damage. Saving two lives as against $80 of future damages? Go for it, drive and whoop that siren.

    What our tax has done is dissuaded someone from emissions which are worth less than the damages, while still allowing emissions that are worth more than the damages. Thus we are getting the optimal emissions to maximise human utility over time.

    What happens to the tax is irrelevant. This works if we just burn the cash. Compensation for damages equally so.

    We have adjusted the price system to take account of the externalities.

  33. Well it’s a wonderful theory Tim but it’s a bit like Keynesian economics. Would work if it wasn’t for politicians.
    For the political mind if it’s a good tax at $80 a ton then it must be an even better tax at $160 per ton. Eventually it just means bloody expensive fuel. The ambulance can’t be afforded for the trip to the hospital. Meanwhile politicians find ways for themselves & their special friends to insulate themselves from the cost.
    And maybe it would be better if you could just burn the cash – although picks up the tab for the carbon permits…..
    Past the basic necessities, it’s a fair assumption that any government spending does more harm than good. Heaven for bid, they might use the taxes to help poor Bangladeshi farmers. The resultant glut of Merc stretch limos amongst Dacca bureaucrats could gridlock the entire city.

  34. Currently petrol and diesel for road transport are taxed at above $2000 per tonne of CO2 (not including VAT), which is why they’re so expensive.

    On the other hand, energy for domestic consumption (from whatever source) attracts a lower VAT rate than competing goods.

    Tim’s claim that redistributing this to give a uniform tax of $80/tonne would be “marginal tinkering” seems to me to be at variance with the facts.

  35. Pingback: Carbon tax watch [Stoat] « Random Information

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