Since there is an election approaching, and people are interested in reducing the country’s output of CO2 I thought I would outline what I think a sensible set of policies would be.
There is only one way to get new CO2, and that is to chemically react something containing Carbon and something containing Oxygen. The only such reaction which is commonly carried out by humans in the UK is combustion, where the Carbon is contained in the fuel and the Oxygen comes from the air.
That’s the physical science. Now for the psychology.
We all know that reducing CO2 emissions will help us in the long run, and that it’s important. We don’t have a ready way to compare the importance of it to other things in our life. Even if we did, we would get it wrong because humans have been selected, over evolutionary time, to discount the future more than we should. For the non-econimists reading this, that means that a gain (or an averted loss) in the future is intuitively perceived by us as being worth much less than it turns out it should be if you do the maths.
What we all need then, is a set of policies that (a) make the cost of CO2 comparable to other costs in our lives, and (b) make the cost of CO2 immediate rather than far in the future. A third requirement is (c) to make it matter to those who don’t already care.
We can make it immediate rather than deferred by calculating the present cost using the normal methods of finance and economics. We can make it comparable to other costs in our lives by converting it into the same units as those other costs: money. We can make it matter to everyone by charging for it directly.
The government has the facilities to do all of this. It is quite easy to quantify how much CO2 will be emitted by the combustion of a fuel: you get a CO2 molecule out for every carbon atom that goes in. Work out an appropriate present cost per CO2 molecule produced and tax everything you buy to burn at a rate based on that and the number of carbon atoms in it. This tax has to be applied uniformly, irrespective of the use to which the fuel is put (no red diesel exceptions). If it’s being burned in a tractor to make what ultimately becomes my cornflakes, the cost will just have to be passed on up the supply chain until it gets to me.
I don’t think this policy would be popular by any means, but it is the only fair mechanism I have heard. The reason it is fair is that the cost you incur is directly related to what you do.
Taxing 4×4 drivers, “gas guzzlers” or whatever is unfair (because it penalises possession rather than use) and will actually do more harm than good. If you drive under 10,000 miles in a 30MPG car you will have done less damage to the environment than someone driving 2o,000 miles in a 60MPG car such as a Prius. I can see why these policies are popular, as they inflict the cost on a few people rather than affecting everyone, but really they are a bad idea. Keeping an old, even inefficient, car on the road saves a lot of CO2 emissions compared to the cost of building and shipping a new, even very efficient, one.
A problem with this is that it needs to be applied internationally to work at its best. However, even with only the ability to influence UK law we could demand that anything imported pays the relevant amount of tax at the point of import, and if the importer cannot adequately show what that amount should be we would levy a punitive amount instead. Trade agreements with countries implementing similar schemes would allow us to only levy the CO2 tax on the fuel used to transport the goods to the UK; reciprocal arrangements would allow the other governments to do the same thing. This arrangement would encourage anyone wishing to trade with the UK to enact the same laws.
Has anyone got a better plan?