Taxing or trading?

Jock — Fri, 10 Nov 2006 06:42:53 +0000

I asked this question a few weeks ago when I heard Chris Huhne talking about carbon trading being a better incentive than carbon taxing for businesses to make cuts in their pollution output, but nobody responded with an argument either way. Now, in Obscenity of carbon trading:

The Stern Review's emphasis on carbon trading is wrong, Kevin Smith argues; only cutting emissions at source will curb climate change.

So I'll ask again, since Kevin Smith doesn't actually put forward any mechanism by which people and businesses should be encouraged to cut their emissions.

You see, the air is mine, and yours, and yours, and yours. It belongs to us all collectively. We need it to survive, and there is, sort of, a finite supply of it. So why would we want governments or some other trans-national body, to hand out permits to businesses to pollute a certain portion of it, allowing them to sell some of that portion on if they don't use it all themselves? It is enclosure of the air, just as surely as the enclosure of land sent millions off to rot in the hell of the satanic mills. If it has value at all, and there doesn't overall seem to be much argument about that, it is value that we, the people, own collectively and should be used for our benefit and not for the benefit of corporations.

Smith reports that companies collectively have made windfall gains of £940bn across Europe after persuading governments to allocate bigger chunks which they have then been able to sell on - under any definition that is what is known as "rent seeking".

The polluting widget manufacturer is in the business of making widgets, not trading air (I have a similar problem with UK Coal deciding it is now a property company rather than a coal miner). If it can't break even by making widgets it needs to change its way of working or close. That's the market.

So, why not tax every process and business on its total carbon consumption. Of course, you would want to use that tax to reduce tax on good economic processes. If you can make the same widgets in a less polluting way why should you also pay corporation tax or the consumer sales tax on them. It is consistent with our "Green Tax Shift". It is consistent with Georgists' "Tax Shift" onto economic land and externalities. And it doesn't give away our air to someone to make money out of.

You could get tax credits if you invent a process that actually takes more pollution out of the atmosphere than it puts in, which is fair enough - a sort of "negative carbon tax". The same calculations need to go on anyway whether you use the trading or the taxing mechanism - each process, or end product, needs to have a carbon assessment somehow. And that must already be underway for companies to be able to participate in the various trading schemes that have sprung up around the world.

Keep it simple. There would be no need for a separate aviation pollution tax - it's a process just like any other (though there are other externalities in aviation that ought to be taxed - like use of physical airspace through landing slot auctions), no need for a separate vehicle pollution tax system - the vehicle must have a carbon rating on which any of the suggested emissions based vehicle tax systems will be based.

I don't think you would even need to make it personal, on individuals. They would be paying for the pollution their lifestyles may cost in the price they pay for goods - no need for a complex "personal carbon allowance" as has been suggested. read more »