"Green" taxes are just there to boost the Treasury's coffers

Keen readers of Picking Losers will know that I am not likely to become a fully paid up member of the Green lobby any time soon.  I do believe that we have a duty to look after the environment and that it is a duty we have neglected in the past.  However, much of the nonsense our politicians and members of the green lobby come out with are simply unbalanced opinions portrayed as fact; often with the intention of getting more money out the tax payer or pushing through a potentially unpopular policy packaged as a green measure.  Fuel tax is one of these areas.

David Newbery, a professor of economics at Cambridge University has concluded from his studies that motorists pay twice the cost of the damage they cause to the environment.  And this study didn’t take in to account the soon to be £25 low emissions zone charge in London, the rises in parking permits for environmental reasons and rising tax disc costs.  In fact in one study, Mr Newbury estimates that the total environmental damage done by motoring at £5.45 billion - about a quarter of the amount paid in fuel duty by motorists at the time.  We pay in the region of 50p per litre on fuel duty alone, yet even the Stern review put the figure needed to cover the cost of CO2 emissions at 20p per litre - a government back study no less.  So why are we being charged so much on the grounds of climate change when actually we are more than covering the cost?  To boost the Treasury coffers of course.


Christ, where do we start? This is right, as far as it goes. But it doesn't do justice to the absurdity and partiality of our carbon-pricing mechanisms. And I say that as a fully-paid-up member of the Green lobby (well, sort of - our business makes a real difference to UK carbon emissions, rather than prognosticating on draconian measures, so that probably makes me far too practical for the Green lobby).

You could divide our carbon-emitting activities into energy and non-energy, and then divide the energy roughly into three equal-size sectors (in terms of energy used): transport, heat and electricity. It doesn't seem to me that carbon from transport is better or worse than carbon from heating, is better or worse than carbon from electricity-generation. But the mechanisms the Government has introduced to put a cost on carbon seem to indicate that they think that carbon from road vehicles is much worse than carbon from electricity-generation, and carbon from both those sources is much worse than carbon from heat.

But they haven't left it at that. That would be much too simple. Carbon from planes is not (in their world) the same as carbon from trains, which is not the same as carbon from cars, which is not the same as carbon from boats. A unit of electricity is assumed to produce the same amount of carbon whether it was produced using coal, gas or nuclear, which means, in effect, that they price carbon from nuclear very expensively and higher than carbon from gas, which is much higher than carbon from coal. And they think carbon from industrial heating is much worse than carbon from domestic heating, which they think is such good carbon that they actually subsidize people's use of it (through zero cost of carbon and a special low rate of VAT).

Then there's the carbon avoided by renewables. Once again, they differentiate the carbon saved through renewable electricity (the most expensive) from carbon saved from renewable transport fuels, from the carbon saved from renewable heat (the cheapest - almost free, apart from a few lucky recipients of government funds, for whom the carbon is very expensive). Within the renewable electricity sector, it used to be that the carbon avoided by burning waste or using old hydro power stations was valued less highly than the carbon avoided by other forms of renewables, which was valued as very expensive carbon, but at least treated equally to each other (e.g. wind vs biogas vs solar vs tidal etc). Now, they propose to differentiate also between these types of carbon-savings, so carbon saved from wind turbines located offshore will be valued more highly than carbon saved from wind turbines located onshore, and carbon saved by running power stations on forestry products will be valued less highly than carbon saved by running power stations on energy crops (trees or giant grasses grown specifically for the purpose of generating electricity).

The most expensive carbon is that saved by solar photovoltaic panels, which receive not only the highest level of carbon-pricing through the renewable-electricity support mechanism, but are also eligible for grants that value the carbon at thousands of pounds per tonne (typical costs would be tens of pounds per tonne). The cheapest forms of carbon are either from some of the non-energy sources, many of which are not valued, or from any renewable-heat schemes that do not qualify for grants, which otherwise receive a negative price for their carbon (in that the fossil-fuel alternative - gas - is subsidized through low VAT rates).

Personally, I doubt that the Professor, or anyone else, knows what the cost of carbon really is. Economists do calculations based on dozens of assumptions, and end up with a range of possible costs that, if they include the full range of uncertainties, stretches from a few pounds per tonne to thousands of pounds per tonne. They then pick a number which they say is the central estimate, and call that the cost of carbon. I think we'd only know the real cost of carbon (and how it varies) if we created a proper carbon market that allowed global adaptation and mitigation costs and risks to be measured against each other. All current carbon markets don't even pretend to do that - they start from an arbitrary assumption of the optimal balance, add in assumptions about who should be allowed to carry on emitting how much, ignore half the sources of carbon altogether, and then price the marginal cost of reducing carbon in a limited number of ways (many of them a con), upto a limited volume. The whole thing is a fraud, but economists and politicians love it, because it is a "market". Well, if I kidnap your daughter and offer her services to punters, that is a market too, but it doesn't make it a legitimate one.

So we don't know what the cost of carbon is. I reckon there is some risk, so there is probably some value. But beyond that, in the current circumstances, all I can say is that, whatever the cost of carbon, it has the same impact and therefore should have the same price however and wherever it is produced. We need to move to a carbon-pricing mechanism that recognizes that very simple truth.