Carbon Tax

Whatever else we do in this country, the introduction of a carbon tax is an essential tool to combat climate change. The important point of the carbon tax is that it should be considered the last policy tool we should use and not the first. Other policy tools, for example: education; persuasion; regulation; cap and trade; and, targets can provide reductions but a carbon tax, which only increases if we are not meeting our target of an 80% reduction by 2050, tell industry and the public at large that the government means business.

How should the rate be set? In my view the best way of setting the rate is to form a commission charged with a single brief to set a rate that will enable us to reach our target on time. This would be rather like the way that the Bank of England sets the interest rate.

This rate would set five years in advance. When the ETA first suggested a carbon tax nearly two decades ago we felt a £1 tax would be the initial rate. We wanted the tax to be introduced very gently. So that people got used to it before it began to bite. However, sadly, today we would recommend a figure not lower than £10 a ton of CO2. Even so I dare say the commission would have to increase the rate significantly in the fifth year and beyond.

Although the government has set targets for 2030 and 2050 and many like the ETA are calling for more demanding targets a halfway measure could be that the Carbon Tax Commission is set brief to ensure that Britain meets the easiest of the following targets: 80% reduction by 2050 (10 tons CO2 equivalent down to 2 tons CO2 e); 30% reduction by 2030 (10 tons CO2 e down to 7 tons CO2 e); lower CO2 e than the average person in the world produces (the world average is currently around 4 tons CO2 e but increasing); or lower CO2 e than the average country (we are currently 37th we would need to reduce our CO2 e to just over 3 tons to be average). Setting the easiest target now would not preclude choosing a harder target later. The more countries that followed our lead (although some countries have already introduced a carbon tax) the more able we will be politically to set ourselves more exacting goals.

Most of the tax would be levied on the fossil fuel producers at the point the fuel arrives on the surface if produce in this country or on the importers at the coast when the fuel arrives. I say most become there are a number of other contributors to climate change gases and the Carbon Tax Commission would have to evaluate the need to tax other sources – even cattle produce climate change gases – and the method by which the tax should be collected.

Some people say that the carbon tax should be hypothecated – in other words allocated to specific spending like public transport, insulating roofs, renewal technology research etc but although I see the reason for doing so – to ensure public support – I think carbon tax should just go straight to the national Treasury. It is up to the political parties to decide whether further taxes should be lowered as a consequence. For my part, I think other taxes should be lowered as carbon tax kicks in. The first taxes to be lowered would be those that are currently regarded as climate change gases such as aircraft tax and fuel duty but later on other taxes could be reduced.

As taxes go the logistics of collecting the tax would be easy.

If the government introduced this tax next year – It would do wonders for its prospects but we might have to wait until after the next national elections.

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