Oh, well noticed Ritchie!

So let me suggest the obvious, which is that if Opec wishes to cut prices, we should let them. But we must respond by taxing carbon to make sure that all the harmful consequences do not flow.

You know, noticing that the UK already does this? Oil (which for us really means petrol) is already hugely taxed, at rates far above the Stern Review’s numbers?

25 thoughts on “Oh, well noticed Ritchie!”

  1. It may be uncharitable, but I can’t shake the image I have in my mind of this tool dressed in bondage gear, an orange in his gob, all red and sweaty faced, locked in a downstairs loo, furiously jacking himself off over a copy of Tolleys, a picture of Ed Miliband and some of Polly Toynbee’s Graun shite.

    Anyway, Merry Christmas!

  2. OPEC isn’t cutting prices. What they are instead doing is maintaining production, i.e. doing nothing, instead of cutting production to increase prices. Anyone who thinks OPEC is cutting prices is a tool.

  3. bloke (not) in spain

    But….but….but…
    For you Pigou taxers, doesn’t Murph have it right?

    At x oil price there are xa externalities so the Pigou tax is a. But if the oil price falls to y, you’ve wiped out the benefits of xa & there’s a whole new load of externalities yb, so you need to increase tax by yb minus xa.

    I can understand Pigou taxation as a way of capturing the cost of an externality. Congestion charging, for instance. But with carbon, aren’t you saying the tax deters the emission not just prices the emission?

  4. Unsurprisingly, no, Murph does not have it right. A change in the market price does not mean we should change the Pigou tax.

    What is a Pigou tax doing? Adding the cost of the externality to the market price, whatever that is. To make sure that people consider the externality in their market transactions. That the market price changes does not make the cost of the externality change. Re the Stern Review: assume the externality is $80 per tonne CO2-e (his finding). This is 11 p per litre petrol. The correct Pigou Tax on a litre of petrol is 11 p, whether the petrol itself is 1p or £2. We’ve still included the cost of the externality in market prices.

  5. Jeez, Tim, doesn’t the mere agreement between you and Ritchie that AGW exists and is a problem cause you concern?

    Because Ritchie is never right about anything. He is a reliable negative compass on economic directions.

  6. Slightly O/T Tim

    Any thoughts as to the up-side of the oil (and petrol) price drops? How long are they likely to last?

    In Spain we may get a few things coming together.

    GDP is growing slowly but steadily, diesel is dropping to below a euro per litre, tax withholdings on lower salaries are dropping in January, consumer spending is already rising, more mortgages are being signed, unemployment has moved slowly and only a little down but is definitely heading the right way, banks are solid (EU dixit). Latest forecasts offer greater growth for 2015 than forecast just 2 months ago…

    I’m keeping my fingers crossed.

  7. bloke (not) in spain

    Tim. I can see how one might argue that for a congestion charge, where the tax raised is supposedly being allocated to public transport. And so mitigating the cost of congestion on those being congested.
    But, with a country like the UK, the Carbon Tax just goes into the Exchquer to cover the costs of MPs duck houses or invading Luxembourg or something. The cost of the bloody windmills is coming out of electricity surcharges. So there’s no connection between the cost of the externality & the tax. So all you’re left with is the deterrent effect of a higher fuel price. Yes it’s deterring at level y rather than level x but we’ve already decided it was the carbon at x was the problem. So y’s a bigger problem

  8. bloke (not) in spain

    Goes back to the problem I have with Pigou taxes. They work in a nice theoretical economic box where there’s one variable & the tax acts like a regulator on it. But out in the wild there’s all manner of variables. The insatiable appetites governments have for tax, for a start.

  9. Apparently £2/liter (or pick whatever arbitrarily high price you want) petrol is evil when the money goes to the oil companies, but suddenly, magically becomes virtuous when the money goes to the courageous state.

  10. Any thoughts as to the up-side of the oil (and petrol) price drops?

    1. Bloated, inefficient oil companies having to restructure and get more efficient.
    2. Small, overstretched oil companies going to the wall.
    3. Tin-pot shitholes like Venezuela and Russia seeing the chickens of an unreformed economy and years of anti-western bullshit coming home to roost.

    How long are they likely to last?

    At least until mid/late 2015. At least.

  11. “Oil (which for us really means petrol) is already hugely taxed, at rates far above the Stern Review’s numbers”

    Is petrol ‘hugely taxed’ once all externalities of road transport are accounted for. Or is it taxed at just about the right amount, or too little or too much?

    That tax also has to pay for particulate pollution, a proportion of the health, ambulance, police, fire service, court and prison budgets, building and maintaining roads and congestion, to name but a few.

    There are further externalities which aren’t very well covered by the taxation of fuel, eg affects on house prices, noise, effects on communities of having trunk roads routed through the middle of them.

  12. Well, the Stern number is 11 p on a litre. The fuel duty escalator, started by Ken Clarke, was to “meet our Rio commitments”. And it has added 25 p per litre (plus VAT on top) since then.

    So, yes, I think we probably are covered there.

  13. Could the marginal negative externinality rise as consumption rises due to feedback effects or some threshold is passed that changes the underlying relationships of the variables?

  14. Also, a sustained increase in consumption while raising pigiou tax revenue will not offset the negative externalities if there are not sufficient pigiou project to fund.

  15. @Tim

    That’s not really answering the question, just because fuel is nominally over-taxed with regard to CO2 emissions, does not make it ‘hugely taxed’ overall. If the total cost of the road transport system including all externalities = the current revenues from duty and RFL then we could say it is taxed just the right amount.

    Or it could be hugely under-taxed or over-taxed overall, but before we could come to any conclusion we would have to calculate those costs, so, any idea?

  16. Andrew C not sure what your point is? I’m just highlighting that in a complex system there may well be unanticipated effects. If you don’t acknowledge that then the likes of Ritchie are likely to point that out.

  17. bloke (not) in spain

    @snag
    magnusw’s ignoring that there’s externalities to most everything. There’s more externalities to having children than using petrol. If we don’t tax all of these externalities for most other things, why do we have to be extra picky when it comes to fuel?

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