I have for some time resisted writing about why I found the issues of carbon pricing and carbon taxation so difficult. I think the time to address those issues has arrived.
At its core the reason why I dislike both those notions is that they miss the point of the climate crisis. What they presuppose is that we can price our way out of an emissions crisis that we now know threatens the future of life on earth. And the simple fact is that we can't do that. There is no way we can be priced out of this issue. We can only solve the emissions crisis by stopping emissions. And taxing them won't do that, any more than taxing tobacco has ever stopped smoking. Other measures - like bans - have been needed to make progress on that goal. That is even more the case for carbon.
As importantly, the essence is that what both carbon tax and carbon price arguments suggest is that business can carry on supplying products emitting carbon as before, but that those products will simply suffer a price differential when compared to lower or non-carbon emitting products and what we are then supposed to rely on is the price mechanism of the market to alter consumer demand. I suggest that logic is wrong.
First, this assumes that none of the responsibility for the climate crisis rest on the manufacturers of the products that have get us into this mess. That's definitely wrong. They are primarily to blame. They have known for decades what they have been doing with regard to carbon emissions, and have carried on doing it regardless. And we can be quite sure that they will carry on doing so into the future if they can pass the blame to us as consumers who, they will say, clearly indicate we still want their polluting and life-threatening products if we still buy them after carbon taxes are added. What this ignores is the fact that much of that demand will be driven by an absence of alternatives, which business will have no incentive to promote if there are carbon taxes, and that consumer behaviour is anyway heavily influenced by supplier behaviour through advertising and other market-distorting activities.
Second, this assumption presumes that we, as consumers, know as much about the products that we buy as those who sell them do. It is presumed, therefore, by the proponents of carbon taxes and carbon trading that we can make rational, informed decisions on this issue after tax is added to a price. That, though, is clearly absurd. The makers of products known massively more about the carbon impact of what they are doing than a consumer might ever do. The asymmetries between the two are enormous. In that case to presume that the consumer can make an informed choice on such an issue, even after a tax is added, is just wrong.
And third, there is no market for carbon. There has never been. It's a fictional creation that pretends that something is being done when that is not true. No one wants to buy or sell carbon. It's an externality that cannot be priced. That's partly because no one wants it. That essential quality of a market - a willing buyer - does not exist. But it's also because you cannot price something that we know has to be unavailable to any market. A market presumes that there will be demand. The reality is that we have to eliminate that demand to ensure there can be life on earth.
The ideas behind both carbon taxes and carbon pricing are, then, wrong. But carbon tax is also wrong in practice. First, that's because there is no one who denies that these would be regressive, because all consumption taxes are and this would have to be a consumption tax. Second, that's because this would mean that any carbon tax would have to be matched by redistribution through other tax and benefits mechanisms, largely neutering its impact and making the whole thing a folly. And third, if the goal of the carbon tax was to create a fund for redistribution beyond international boundaries so that carbon emissions in developing countries can tackle their energy issues that oil not going to happen a) because politically that is nigh on impossible to achieve with tax and b) there will little or be no tax to redistribute for the reasons already noted. Tax is an amazing thing, but there are some tasks it cannot achieve and this is one of them.
In summary then (and this could, and maybe will, become a much longer piece) carbon taxes, like tobacco taxes, will not kill demand for the ‘bad' product that forms their tax base.
Carbon taxes also shift the whole blame for carbon consumption from the manufacturers, who willfully create the carbon outputs, to consumers, who are offered few or no alternatives to polluting products.
In addition, carbon taxes, by shifting the blame to consumers, put no responsibility for innovation or change on manufacturers. The result is that they will still sell polluting products, knowing they will still be bought.
And consumers will, because of the differences in information available to them compared to manufacturers, have no choice but go along with this.
Whilst, alongside this, carbon trading is just a charade or sham because there is no such thing as a carbon market at the literal end of the day. What there is, instead, is a need to eliminate the carbon and that will be the last thing carbon traders will want whilst they can make a living from its perpetuation, at cost to us all.
Of all the ways to tackle climate change these ideas are, then, just about the worst way to go. The primary fault is that they perpetuate the status quo by maintaining the market's right to pollute, neatly hidden behind a convenient claim that we will have paid the supposed price for doing so. Little could be worse for our futures than that.
Carbon taxes and carbon pricing are not the way to tackle climate change.
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Thank you Richard.
Next introduce the concept of rationing
Finally announce the “We will count as from 1st Jan 2020” using credit card records etc
I am really excited my this concept of pre-announcing a retrospective policy.
Peter
I do not disagree with what you say, however, currently, the trajectory is carbon trading. In the case of the EU ETS it has never worked and it will never work.
2010: me @ DG Environment talking to one of the people working on the EU ETS: “we failed to take account of the impact of renewables in power generation” (leading to low carbon prices). This was in reaction to my question on low EUA prices.
CEPS: “EU ETS was a project driven by Gordon Brown amongst others and was the only politically acceptable system – because what the politicians in the 1990s wanted was market mechanisms”
Vattenfall 2016 “EU ETS has zero impact on the reduction of emissions from the power sector – all the heavy lifting was done by renewables”.
The problem is wrt the EU is that Commission careers have been built on the EU ETS which means that there is very great interest in keeping a failed emissions reduction instrument going. Furthermore, the Chinese have also drunk the kool-aid & are going down the same path. At the same time, the EU is very keen on much higher renewable targets which will further undermine carbon trading schemes because there are always too many emission certificates being traded – because the politicians cannot agree on timely reductions in numbers (to increase scarcity & thus prices) – now go back to 2010.
Maybe Alice in Wonderland needs to be updated? Call it Alice in ETSland. The above was intended as real-life examples of how & why carbon trading does not & cannot work. Dieter Helm did an entertaining demolition of the EU ETS in 2009 (a classic of its type) – he favours carbon taxes – I am certain they would run into the same political problems as EU ETS.
In power generation renewables on price alone kick the fossil bunch into a cocked hat. passenger transport is heading in the same direction wrt electricifcation. So targets could/should work. In the case of the hard stuff (industry: steel, process heat, cement, chemicals) industrial strategy bolted onto renewables build out is the way forward with the aim of moving from coal/nat gas to hydrogen. Certainly could do that for steel and cement within 10 years with a “mission oriented” approach. Taking this approach would result in carbon trading fading into the background – one would still need “border carbon taxes” – “pour encourger les autres” i.e. the Chinese, Indians and the USA.
Thanks
Carbon Trading is just buck passing – hoping that someone else is dealing with the risk or problem.
The things is – just like the dodgy mortgages in the collateralized debt obligations that helped the 2008 crash – someone will be left holding the bag – in this case, the whole bloody planet.
This is completely correct.
The tax and pricing approach fails to send the clearest of unambiguous signals to manufacturers/producers. When faced with a ban on selling their product as is, they either adapt or face collapse. That’s clear. A clear signal of a ban which will come into force at date X is exactly what will trigger substantial investment in a replacement product.
Just such investment is already being made in transport following on from EU and national regulation in both the road and transport sectors – regulation works because it doesn’t offer choice. Just because you don’t see a lot of change right now, doesn’t mean that it isn’t happening right now – it is. Takes a good amount of time to come through – many years to build the new-production capacity and supporting infra.. Announcement of UK 2040 ban on fossil-only vehicles triggered another substantial raft of investment – regulation works.
Carbon pricing offers a fudge which delays that critical investment on the grounds that all too many are well capable of paying the price for at least a good while. Delay slows down the delivery of economies of scale in the new product types and retards the provision of new infrastructure.
There isn’t time for any such delays.
Not least because change in many of these sectors is slow in any case, by virtue of the product/provision lifespans. Here’s a thought, most of the ships which will operate in 2050 are already built or are being built now. Similarly, there’s a good chance that a fair portion of the heating systems being installed today will be still be around in 2050. 80%+ of buildings in 2050 already exist … A lot of stuff lasts a long time and what we do now already matters a great deal in 2050. That target is not 30 years away, it’s now.
Fudgy pricing capers (they will become capers – think fuel tax havens) don’t cut it. Those claiming that they will, really don’t get it and frankly aren’t worth taking any lessons from.
Thanks
If carbon taxes were used to finance renewable alternatives, rather than being defrayed in other tax reductions, then they could have the effect of giving ‘green’ activities a competitive edge, motivating the general public to move in the right direction.
For example, subsidising the railways could help offset the problem that it is cheaper to fly many places than to go by train.
We need more constructive ideas, not just long explanations of why this is a difficult problem to fix.
If we banned carbon emitting cars the process would be a lot quicker and more effective
Nudge might have a role in marketing
It has none in saving the planet
or if we provided a viable alternative to private cars then consumers would be able to make a choice,
I’m most frustrated by the fixation on ‘the invisible hand of the market’ which is supposed to be guided by individual consumers choices when there isn’t an alternative for the consumer to choose,
when an alternative doesn’t exist or is seemingly suppressed it is impossible for consumers to send the market a signal with which to guide the invisible hand.
the fact that we refer to ‘private transport’ infers that there also exists ‘public transport’, anyone who uses public transport is only too aware of it’s current limitations.
the state should back public transport to the hilt, private transport has monopolised the transportation market and currently lacks a serious competitor.
Colin Townend says:
“We need more constructive ideas, not just long explanations of why this is a difficult problem to fix.”
Agreed, in principle.
But one thing we don’t need is vast effort setting-up projects doomed to fail. Carbon Trading is such a scheme, it will be counter-productive (even viewed just as a delaying tactic it has massive potential to waste time) and we would do well to knock it firmly on the head. Then we can concentrate our attention on mechanisms which have a better chance of creating desired effects.
Excellent and thanks for addressing it all – another useful article to bookmark and share.
I keep trying to tell everyone who frets so much about the mega propaganda to recycle plastics- children are more susceptible ( some adults more so) – that it is not OUR fault! We have no choice about the products we are presented to buy in the shop.
We rely on the ‘government’ to make sure it complies with ‘standards’. They are supposed to be the experts!
If the state did not want plastic packaging it just has to legislate for it.
If industrialists manufacture and distribute deadly products to make money from – THEY shoud be the ones penalised.
Precisely
I can’t disagree with anything you say but the transition will take time. Phasing out petrol and diesel powered vehicles over a 10 year period is sensible and essential but we need to know the carbon cost of replacing all these vehicles and the cost of all battery material. In the meantime petrol and diesel will still be consumed by those polluting vehicles. We don’t have to live with this we can do something to reduce it by making these vehicles more efficient. The papers are full of adverts about rechipping the cars’ engine management systems to produce more power. These systems could be remapped to produce less power with better fuel consumption. Most of today’s vehicles are grossly overpowered and many have top speeds of well in excess of 120 mph; this in a country with a 70 mph speed limit. An improvement of 10% in fuel consumption should be easily achievable and owners could be encouraged to do this with a reduction in vehicle duty. Those who refuse should be penalised. It doesn’t solve the problem but it is better than doing nothing.
Regulation then, as I suggest…..
Tax will not achieve this
There is literally n o reason now why speed limiters could not be fitted to vehicles based on GPS
I have to say there is no justification for having vehicles that can reach speeds past 70mph at all. That is quite fast enough and engines should be governed to go no faster. We might also want to think about a slower top speed too.
We might
Agree. Taxes cannot solve extreme market failures (l doubt that Pigou and Hayek would have even joined the Pigou club). Although I like the analogy with a smoking ban, it is worth mentioning that ecocide is much worse as whereas tobacco affects the health of the individual and people very close, ecocide affects the health of people on the other side of the planet, as well. In one hundred year people will look back and say why were emissions not addressed much sooner.
Agreed, entirely
If it cannot solve tobacco it is beyond hopeless for carbon
[…] By Richard Murphy, a chartered accountant and a political economist. He has been described by the Guardian newspaper as an “anti-poverty campaigner and tax expert”. He is Professor of Practice in International Political Economy at City University, London and Director of Tax Research UK. He is a non-executive director of Cambridge Econometrics. He is a member of the Progressive Economy Forum. Originally published at Tax Research UK […]
[…] By Richard Murphy, a chartered accountant and a political economist. He has been described by the Guardian newspaper as an “anti-poverty campaigner and tax expert”. He is Professor of Practice in International Political Economy at City University, London and Director of Tax Research UK. He is a non-executive director of Cambridge Econometrics. He is a member of the Progressive Economy Forum. Originally published at Tax Research UK […]
@Martin Gilbert:
Try not to be so utterly pathetic.
Brexit is about taking back control, if waiting for somebody else to do something about is all we can expect we’re all going to fry and in poverty too. We lead or shrivel. Take your pick.
Question..Is all of this discussion relating to the UK? Surely we cannot price ourselves out of a climate crisis BECAUSE of — China. The Chinese Communist Party will not impose price controls that puts Chinese CO2-emitting industries at a “disadvantage”.
Various climate scientists have estimated that the world needs to reduce CO2 emissions by 73% to avoid “catastrophe” — China produces 28-and-a-bit% the Rest of the World 71-and-a-bit% so we cannot do it without Chinese co-operation. Meanwhile China is increasing emissions each year (on average it increases emissions every two years by an amount roughly equal to the UK’s annual emissions — so the effect of totally eliminating our CO2 emissions would be wiped out in six months by China’s increase).
To tackle Climate Change tackle Xi JingPing.
I found this so boring…..
So China has not got it yet. True. But will it ever get it if no one ever does anything?
Unless we begging to show there is an alternative all I know is that my children have a decidedly torrid future. And you’re too
Is that what you want?
And don’t you think as pioneers in polluting we have a massive responsibility to begging the innovation required to move on?
Or do you just not think?
Well Richard i am sorry you find this so “boring” but this is where the issue lies..its easy playing the “my children’s future card” and i am not disputing it. But the risk is with other countries not ours. You want the UK to be upstanding role models whilst China, India and other nations laugh as we price ourselves to oblivion and we will achieve nothing in the process? If you want to engage in real change then work alongside campaigners on an international platform targeting the Countries that really matter to our children future. Or do you find the issue “boring” because the challenge is too difficult and requires real tenacity, guile and diplomacy and you don’t fancy the idea of hitting a brick wall?
I know how international campaigns work
I know how change works
All starts from good ideas, proof of concept and roll out as example
Exactly what I am doing
Exactly what you seek to undermine
At best you are a fool….
“All starts from good ideas, proof of concept and roll out as example”..well using the analysis you behold even if the UK adopts all you want tomorrow we will all be dead because China etc will not follow suit.
You call it undermining i call it questioning your intent, which at the moment is highly delusional, misguided but you believe allows you to stand on a pedestal and take the moral high ground..and who knows get some funding in the process. It looks like bandwagoning to me.
And you call me a fool, making judgements on people because they challenge you is undoubtedly a sign of weakness or is it insecurity..
I suggest you go and read George Bernard Shaw on the unreasonable man
You may think yourself reasonable
The impeder of progress always does
“…whilst China, India and other nations laugh …”
Oh, dear. Are we frightened to be laughed at for doing the right thing. I don’t think we should be. We won’t be wrecking our industry and economy we’ll be making both substantially more robust.
And this: “You call it undermining i call it questioning your intent, which at the moment is highly delusional, misguided but you believe allows you to stand on a pedestal and take the moral high ground..and who knows get some funding in the process. It looks like bandwagoning to me.”
There must be a ‘Trolling for Dummies’ manual which I haven’t seen. Is it available online with cut and paste sections ?
Therre’s either that or a briefing sheet on trolling me…
I’m unrealistic
Deluded
Bandwagonning
Money grabbing by seeking to sell ideas
Haven’t got a real job
Etc
Etc
The number doing it suggest a common source
Once upon a time, people in aircraft flying around used to smoke when they felt like it.
Yes, true !
Some passengers didn’t like it, nor did the staff and pilots who thought it dangerous, increasing the risk of fire.
Option 1.
To reduce the degree of smoking, put a price on each cigarette that is lit. And maybe use the revenue to reduce the airfares. Also there are people who say that it’s impossible for them to be ten or fifteen hours without a smoke.
Smoking is reduced and the consequent risk.
Economists are pretty happy with this idea.
Option 2.
Give every passenger a cigarette entitlement, say a coupon on boarding. Now the heavy smokers can buy their extras from the non-smokers, and a market can get going. Next step, automate the process and have a private manager in software adjusting quantities and prices, and–oh, heaven !–clip the ticket along the way.
Smoking is reduced and the consequent risk.
Economists are ecstatic with this idea.
Option 3.
Ban smoking on flights.
Smoking is eliminated with the consequent risk.
Economists are utterly miserable.
Precisely……
Is the idea yours or attributable elsewhere?
My idea inspired by your tobacco example.
Excellent….
May I use on the blog?
Of course.
I’m indebted to you for this blog; I am happy to make a contribution.
Thanks
Maybe tomorrow….
[…] un article courageux publié sur son blog récemment (taxresearch.org.UK, 6 novembre 2019), le fiscaliste britannique Richard Murphy explique qu’un marché ne peut […]