The carrot or the stick? Tax or tax relief? Which is the best way to tackle climate change? Well, not surprisingly, business would rather take the carrot. So much so, in fact, that a report by Pricewaterhouse Coopers suggests that the current disjointed array of government policies aimed at tackling carbon emissions are simply ineffective. A massive 71% of industry respondents to the scheme claimed that their behaviour had been changed. But almost half said that Government policy and economic instruments - taxes, duties, the climate-change levy and investment allowances - are "not effective" in encouraging business to "significantly" change its behaviour. I am not surprised either - I have long said that taxation as a method of tackling climate change is a smoke screen. It is a very effective way of raising money for the government and most people back it because of misinformation and a blind desire to "be green".
Never before has the appetite for business to adapt to change, yet the government is actually stifling their ability to pursue more "green" methods by limiting their behaviour rather than encouraging green behaviour. The report stated that "Government needs to find a way of getting companies to do the right thing, but in a way that doesn't penalise companies". The first step to this would be to actually have a framework across government departments for tackling the problem rather than thinking that slapping an arbitrary tax on an activity will solve the problem. I wonder if Chancellor Darling (aka Gordon Brown) will make a difference? After all, these are times of change.
Comments
What's your alternative?
Mandy Rice-Davies had something to say about the sort of self-serving opinion reported by PWC. This is economically illiterate. Do you want to target business emissions differently to other emissions? Why does carbon from business do more or less harm than carbon from other sources?
How would you approach this from a point of principle? What does one do about carbon externalities? Put a price on carbon and let the market figure out the best way to respond to that, possibly? How are you going to do that the PWC way?
The current mechanisms are not carbon taxation. But if one had a proper carbon tax, why would that have to go to increasing the overall level of taxation, rather than displacing other, more harmful types of tax, such as taxes on employment?
You can find my explanation of why one of the principle alternatives to taxation - cap-and-trade - is wrong in principle and practice in my Bush is Right post. Am I wrong about that, or are you proposing an alternative to both pricing mechanisms (tax and cap-and-trade)?
My biggest criticism of the
My biggest criticism of the current system is that it is geared not to change of habit but to raising money. This is based on a simple estimate by the government, it seems, on what they can get away with - hence there is no single framework and, as you say, carbon from a plane is not worth that of carbon from a car. Whilst I'm sure that businesses had a good motive for saying that taxation is not an effective method to encourage change, I am sympathetic to the idea up to a point. Afterall, it's not making much difference at the moment and I do not believe we should all be taxed out of business either, just for the sake of a few scare mongers.
I guess underlying all this is my scepticism in the actual extent the damage we are doing through carbon emission, the true financial cost and a believe that the solution is in encouraging solutions rather than prevention.
Doesn't work ≠ can't work
That's like saying that medicine is no good, if it doesn't work when administered at the wrong dosage. As you say, the CCL is designed not to make a difference - the last thing The Treasury want is for people to cut down their carbon and their tax-payments. But that doesn't mean that pricing doesn't/can't work. It means that this lot (and probably the other lot) are either knaves or fools in their use of pricing mechanisms.
Your second paragraph raises an altogether more difficult point, though. I agree that neither an arbitrary cap nor an arbitrary profile nor an arbitrary price is sensible. I am working on a proposal for how one could establish the real price of carbon in a global market that takes account of uncertainty and risk, differences in perception, the costs of avoidance and adaptation, carbon-absorption as well as carbon-emission, etc. which none of the current mechanisms do in a rational way. It may well be that the cost of carbon discovered in a rational market is quite low, but we ought to discover that, and not assume it. I'll stick it on this site when there's a readable draft (unless I am committed to publishing elsewhere). But this mechanism would still leave it up to individual nations how to internalise the information from the global market (one of the political benefits of the proposal), and I would still suggest that the UK would be best using a carbon tax to internalise it, once one had a rational rather than arbitrary price.