Carbon Tax

Seen in the Daily Mail:

Every adult should be forced to use a ‘carbon ration card’ when they pay for petrol, airline tickets or household energy, MPs say.

The influential Environmental Audit Committee says a personal carbon trading scheme is the best and fairest way of cutting Britain’s CO2 emissions without penalising the poor.

Under the scheme, everyone would be given an annual carbon allowance to use when buying oil, gas, electricity and flights.

Anyone who exceeds their entitlement would have to buy top-up credits from individuals who haven’t used up their allowance. The amount paid would be driven by market forces and the deal done through a specialist company.

Well, that would be one way to incent consumers to behave in a more sustainable .  Rather than loading up prices with “hidden” costs, either in the form of a carbon tax, or a windfall profits drag, you’re putting an actual cost of CO₂ blatantly in front of the consumer.

I’m not sure I agree with the notion of of such a mechanism being a fairer way to allocate costs away from the poor to those who can better afford it.  After all, the less affluent families in society are probably less able to adopt more efficient technology due to the expense of that technology.   It’s all too easy to imagine a world where the rich drive around in their nice shiny new hybrids or electric cars, while impoverished folks try bumming a few carbon credits to enable them to drive their old beaters home.

If you’re going to try to promote “economic/social fairness” in the transition to a world dominated by greener gadgets, I think effort would be better spent in accelerating the availability of affordable green tech.

It’s for that reason that I’m still intrigued with the idea of adopting a carbon or windfall profits tax, but requiring that the additional revenue be considered a mandatory investment, funding research and early production of new, practical, conservation-minded technology.

Driving home from work today, I of course got a taste of the commentary associated with the 1 April Congressional event, where four Big Oil CEO’s were called in to be yelled at for making too much money (and investing too little of that profit into new energy).

Naturally, the pro-environment commentators mentioned the oft-mentioned concepts of windfall profits taxes and carbon taxes, as being ways to combat Big Oil from “taking advantage” of average Americans, and of getting Americans to pay for damage their wasteful ways are doing to the environment.

Now, I should admit that I am not a fan of a windfall profits tax.  Defining a “windfall profit” is a potentially daunting task, and it is the hope for exceptional profits that incent investors to risk exceptional losses.  I’m also not a fan of carbon taxes, due to wishy-washiness of measuring potential harm, and due to the likelihood that the government would waste the extra revenue.

(I’m apparently an evil humvee-driving capitalist for thinking such things.)

With that disclaimer aside…I got to wondering, what if the government sponsored a new capital venture firm, charged with assisting in the funding of new energy or conservation-oriented technology, in return, of course, for an ownership stake.

Initially, this venture capital firm would have the government as its primary investor and shareholder.  However, any windfall profits taxes or carbon taxes would instead be considered additional investment into the venture capital firm…in return for an ownership stake.   Rather than being true taxes, they essentially become mandatory R&D investments.

I could also imagine permitting voluntary investment into this firm.  Let individuals or corporations make, subject to reasonable limits, tax-deductible contributions to this new entity, again in return for an ownership stake.

I’d think that permitting this new entity some tax-advantaged status, given its semi-quasi-public nature, would also encourage this directed investment. 

And perhaps the firm could be chartered to exist for a certain period of time — say 30 or 40 years — with its assets (at that point, primarily in the form of shares in by-then-profitable ventures) distributed proportionally to the firm’s owners, with the government’s portion either being returned to the public in the form of a tax credit, or being used to (for example) supplement the Social Security trust fund.

I know there are probably various gotcha’s.  For example, to be effective, it would need to be run as a real venture capital operation…something that could be challenging given the government’s involvement, and given politicians’ tendency to meddle.

But it’s still an intriguing idea to me.

Seen in The Star:

Finance Minister Carole Taylor introduced an escalating carbon tax on most fossil fuels today, one she says is designed to ignite an environmental social movement in British Columbia and across Canada to fight climate change.[...]

The carbon tax , effective July 1, will be phased in over five years to give consumers and businesses time to adjust to the new tax and understand there is a cost associated with generating harmful greenhouse gases, she said.

The carbon tax will start at a rate based on $10 per tonne of carbon emissions and rise $5 a year to $30 per tonne by 2012, Taylor said. The tax works out to an extra 2.4 cents on a litre of gasoline, rising to 7.24 cents per litre of gasoline by 2012.

Taylor said the carbon tax on diesel and home heating oil will start at 2.7 cents per litre and increase to 8.2 cents per litre over the same five-year period.

Apparently there’s already a similar tax in place in Québec, although the B.C. tax differs from the Québec tax in that British Columbians should see a net offset in their other taxes, while Québec uses the revenue to fund technological investment by the province.

I’ve been intrigued with the concept of a carbon tax for a while now, although I stumble over practical implementation issues. If it is to be an effective incentive to reduce CO₂ emissions, I’d think it needs to be an explicit amount expressed in the cost of every product or service sold, and it needs to be factored into some form of tariff on goods imported from jurisdictions where no similar tax is available.

British Columbia’s goal of making the tax revenue-neutral is, in my opinion, a good one if adhered to. But, I think I’d prefer to see the revenue-balancing go towards helping citizens and businesses over the hurdle of making investments to shift to more sustainable technology, funding any appropriate precautions to be made as a result of climate change, and any smoothing of the local economy required to get through any market disruption arising from the imposition of the tax.

I can see a definite appeal to the idea of using a carbon tax—a load on the price of goods and services to better reflect the damage done to the environment to produce them—as a tool to encourage conservation.

However, as with many ideas, it certain seems possible to take the concept a bit too far. For example, the Ozzie ABC News reported on this idea from the land down under:

The parents of any baby born today in Australia will receive a Federal Government bonus of $4,187. In July next year, that’ll go up to $5,000.

It’s a controversial policy but the argument that it is environmentally unfriendly hasn’t often been raised.

Now though writing in the Medical Journal of Australia Barry Walters, an associate professor of obstetric medicine at the University of Western Australia, is making that case.

Dr Walters says every family choosing to have more than a defined number of children should be charged a carbon tax. He goes on to argue that those purchasing condoms or undergoing sterilisation procedures should be awarded carbon credits.

As if I weren’t already skeptical towards the concept of “carbon credits” (it seems like a good idea in theory, but I wonder how much of the money spent on credits today goes to actually offsetting carbon, or at least towards realistic science in support of conservation)…the idea of offsetting one’s carbon consumption with the purchase of a prophylactic or undergoing a bit of snippage also seems over-the-top.