Green taxes are already too high

So say the TPA.

I saw this in draft . The estimates of the social costs of emissions are spot on. They use Tol, IPCC, Nordhaus and Stern (that last being what DEFRA actually uses) and show that the costs of our emissions are, tops, around the £16 billion a year level.

They then show that we\’re paying more than this in green taxes, thus we\’re paying more than the damages already and are thus being over taxed.

Now it\’s definitely true that certain activities are indeed over taxed. Car driving for one, air travel will be in the future when we have both APD and the effects of the EU ETS added.

However, the TPA have slightly weakened their case by arguing that only the costs of road building should be deducted from car taxes paid, the rest being considered green taxes. Well, sorta. It\’s true that there are positive externalities to driving as well as negative ones like noise, particularates and so on, and it\’s a valid argument to say that these balance out. But it\’s an unusual argument to make.

That one caveat aside it\’s a great report. Their argument is slightly stronger than my own. They say that we\’re currently overtaxed in general on green grounds. I argue that we\’re currently over taxed on certain specific actions on green grounds (and I\’ve never even tried to do economy wide calculations).

The major point to take away from this report though is very much the same as one I\’ve tried to make a number of times. The arguments for Pigou Taxes on environmental grounds are that there\’s a certain optimal level of taxation. Optimal here does not mean ever higher. It means that there\’s a certain correct level. That level is a great deal lower than many currently assume and concerning at least some activities we\’re already above said level.

It\’s also true that the raft of planned taxes take us well above that optimal level in general, not just on specific activities.

If the social costs of emissions are £16 billion (as Stern and DEFRA argue they are, others giving much lower numbers) then once we\’ve imposed taxes of that £16 billion we\’re done, problem solved. We have the socially optimal level of emissions. Even if we\’re not quite there yet (see above about road taxes) we\’re damn close and soon to go over it.

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