Green Taxes Are Already Too High!

I\’ve been saying this for some time (in relation to petrol, admittedly), that some green taxes are already too high.

Airline passengers now pay more in green taxes than is needed to cover the cost of environmental damage they cause, the Government has admitted.

The disclosure emerged in the Emissions Cost Assessment which was quietly released before MPs departed for the summer recess.

According to the Department for Transport, aviation now pays £100m more than its environmental costs a year as a result of the doubling of Air Passenger Duty in February last year.

OK, it\’s not very much too high, about £1.50 per ticket. But when we add in the effects of the EU ETS then the sector will be paying twice its environmental costs. And that isn\’t what green taxation is supposed to be all about. Pigou Taxes should be set at the social cost and no higher: that\’s the point of them, to get market pricing to reflect all costs.

We\’re being scalped again.

However, this is a valid point:

But Richard Dyer, aviation campaigner with Friends of the Earth, believed aviation taxes should continue to rise.

"The cost of carbon used by the Government in this assessment is less than that used by its own climate change adviser, Nicholas Stern," he said.

I don\’t know whether he\’s actually correct here (and I\’m not going to try and look it up) but the correct level of taxation does depend on that very difficult thing to calculate, the social cost of carbon. Various different people come up with various different numbers, say, Nordhaus at $2.50 per tonne CO2-e and Stern at $85.

But OK, let\’s take Stern as the valid number (rather than the £20 to £30 which I think the government uses). Let\’s add that to the cost of flights. Once we\’ve done that (and the combination of APD and the ETS will take us well over that) then that\’s all we need to do. Problem solved, we can stop arguing about new runways, more airports and all the rest. If everyone is indeed paying the full costs of their actions then there\’s no reason at all to try and stop them from taking those actions.

More than that as well, if we all insist that such taxes must be at the Stern levels, when are we going to see FoE arguing that petrol taxes must come down? The correct CO2-e level would be 11 p a litre and we\’re paying a great deal more than that, are we not?

2 thoughts on “Green Taxes Are Already Too High!”

  1. Actually, the Government number is consistent with Stern, because it assumes other countries are controlling emissions too.

    Stern’s point is that the marginal damage associated with each additional unit of CO2 increases with CO2 levels. For ‘business as usual’, in which CO2 levels are high, the shadow cost of carbon is indeed about $85/tCO2. But for a global path leading to stabilisation around 550ppm, it’s $30 in year 2000 in the Stern Report. DEFRA explicitly adopted this 550ppm assumption, and at the 2000 exchnage rate, followed by uprating at 2% per year this apparently translates to the Government’s £25/tCO2 today.

    Box 13.3 in Ch 13 of Stern sets it out.

    Of course, brutal economic logic suggests that if the rest of the world really does act to stabilise CO2 at 550, the right shadow price in the UK is zero! But I suppose the point is to be seen to be doing our bit.

    That’s much higher than Nordhaus at $2.50, partly because Nordhaus assumes lower economic growth, so business as usual has lower CO2 levels. But mainly because Nordhaus assumes a much higher discount rate, as was discussed so much when the Stern Review came out.

    I think this discount rate difference might logically mean that Nordhaus’s shadow price rises over time (much faster than Stern’s) so in a sense the difference between them ‘today’ is unusually large. But I’m not sure about that.

    Tim adds: Thanks for that. And from memory, yes, N’s numbers do rise strongly into the future.

  2. Neither the government nor the greens are interested in Pigou taxes. The government just wants an excuse to take more of our money, and the greens really want punitive taxes to stop people doing things that they disapprove of.

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