Tuesday, June 02, 2009

Things that I do not understand
I leave the room for 5 minutes, and someone breaks logic

I have thought about this for several hours, and I still can't make sense of it. 

We've just had a crowd of Nobel Laureates telling us all how urgent is the need to do something about climate change. And we've also just had a group of not scientists telling us that hundreds of thousands are already dying from the effects. That latter used some, umm, creative methods to reach that conclusion, for I was previously entirely unaware that earthquakes were indeed caused by climate change.

However, this leads to me to ponder a little on what Lord Stern told us. That was that we could sort this all out for the remarkably low price of 1-2% of GDP, spent year by year over the next few decades. Given the size of the UK economy this means some £14 billion to £28 billion a year. And we're also told that this amount should be used to correct the price system, so that matters currently external to the markets become internal to the pricing system. This so called Pigou taxation.

This makes sense, I have to say, as the amount of damage, by Lord Stern's figures again, done by Britain's emissions are again in this sort of range: £14 billion to £28 billion.

Now whether I actually swallow all of these numbers is a different matter, but let's take them at the logic of their proponents. We know  the problem, we know how to solve it, we know how much the problem costs and we know how much the solution costs. Excellent.

But, but....well, how much are we already paying in such green taxes? That depends a little on exactly how you want to calculate what is a green tax but adding up landfill tax, air passenger duty, the petrol tax rises from the fuel duty escalator and so on we get to a figure of....£14 billion to £28 billion again. Which means that, by the logic of the Stern Review, we've actually already solved climate change.

No, not even I think that to be actually correct, as Lord Stern himself doesn't. For he keeps telling us that we must do much more, much more quickly, in order to solve the problem, as those Nobel Laureates were also telling us last week.

Which, sadly, leaves us with one inescapable conclusion. We're not going to crack this at that low cost of 1-2% of GDP per year over the decades. It's going to be much much more expensive than that: which means we really need to reopen the calculations of whether we want to stop climate change or would prefer to adapt to it.


I am being terminally stupid, or does this make no sense whatsoever? The conclusion is not inescapable, and it's all very well raising the money thru' taxation but presumably it needs to be spent on climate change mitigation efforts to actually do something about mitigating climate change. Presumably, the money is currently spent on other things.

Have I completely missed the point? If so, could someone explain it simply and in words of one syllable in the comments?

2 comments:

LemmusLemmus said...

The writer is confused, as evidenced by this passage:

"That was that we could sort this all out for the remarkably low price of 1-2% of GDP, spent year by year over the next few decades. Given the size of the UK economy this means some £14 billion to £28 billion a year. And we're also told that this amount should be used to correct the price system, so that matters currently external to the markets become internal to the pricing system. This so called Pigou taxation."

The idea of a Pigouvian tax is to reduce the demand for a good that has negative externalities by raising its price by putting a tax on it. It hence could be argued that existing taxes on fuels are already Pigouvian taxes. (Whether they're high enough, or maybe too high, to be called true Pigouvian taxes would have to be decided on the basis of an economic analysis.) What the money raised through Pigouvian taxes is spent on is at best an afterthought in this framework (as far as I am aware, that is. I'm not an economist and haven't read Pigou's work.)

The author's reasoning must have gone roughly like this: Money is supposed to be spent > Has gotta come from somewhere > Tax on fuel and the like > Fancy econ concept to reduce pollution I once heard about > but we already pay taxes on pollutants > environmentalists have nothing to criticize

Or in other words, you're absolutely right.

Political Scientist said...

Hello LemmusLemmus - thanks, I thought I might have gone mad for a bit there.

I rather like Tim Worstall who wrote this - I link to him on my blogroll - but I see from this source he's been made an "Environment fellow" at the Adam Smith Institute. Deary deary me.