Friday, September 07, 2007

Business Green blog on green taxes

This blog sounds like it is written by someone with aspirations to be an expert on green issues. Unfortunately, their attacks on our study on green taxes are utterly facile. Hopefully business isn't actually taking environmental policy advice from these people. I'll leave aside the lazy ad hominems and deal with the substantive criticisms:

"As The Treasury has already pointed out the TPA report classifies as green taxes measures such as fuel duty, road tax and air passenger duty which the government does not recognise as purely environmental taxes."

These are clearly green taxes. They place a particular burden on activities that result in greenhouse gas emissions. Don't take my word for it, take the Treasury's: look at the last budget report where increases in Fuel Duty and Air Passenger Duty were included in the chapter "Protecting the environment" (PDF). While they may have other purposes, a central contention of our report is that these are in fact devices for raising the tax burden while minimising political protest, if these aren't green taxes the whole concept is utterly meaningless.

"Furthermore, its research offers no clear definition of "social costs". Instead it simply takes an average of four other reports into the social costs of CO2 emissions. These include the Stern Report and research from the Intergovernmental Panel on Climate Change but appear to have been selected based on the undefined criteria that they are "the most widely quoted official and academic estimates of the social cost"."

There is no need for us to define social cost. The term is pretty clearly defined and in common usage in the rest of the literature. It is used as a proxy for the optimal level of taxation throughout the discipline of climate-change economics. If we reinvent the wheel each time we conduct a study we'll waste a lot of time.

There is no objective criteria which one can use to decide which social cost studies should be used. I absolutely stand by our subjective judgement. If anyone can name a study with more justification to be in our list then please let me know but till then I think our selection is pretty authoritative. The most senior academics in the field and the UN body charged with establishing the state of climate change science for the international community.

The only objective alternative is to use every peer-reviewed study. If we had done that Stern, whose estimate is an alarmist outlier, would have been diluted far more and our study would have shown green taxes to be even more excessive than it does now. The social cost estimate would have been more like that of the IPCC or Tol (who has just released a new, lower, estimate of social cost), both give an estimate lower than the average we used.

"The highest figure quoted by the TPA research, from the Stern Report, puts the social cost of the UK's CO2 emissions in 2005 at £30.5bn, while the lowest estimate from research by William Nordhaus puts it at just £2.7bn. As such if it had just focused on the Stern Report figure or perhaps added in other figures to reflect the fact that some scientists regard the Stern Report's analysis as too optimistic then the TPA's research would have found itself arguing that green taxes were far too low."

There are massive problems with Stern's methodology that we discussed in Box 1.3 of our report. These have led to his report being rejected by the most respected climate change economists. If BusinessGreen.Com want us to use that estimate alone they will need to address some of those arguments.

There are very few credible studies that think Stern's analysis was too optimistic. In the peer-reviewed literature his result is at the extremely pessimistic end of the spectrum. I'll reiterate: if we had included more studies we would have reduced our estimate of the social cost and increased our estimate of the extent that green taxes are excessive.

If this and the Lib Dem statement are the best the green movement can offer in response to our report then they are on very weak ground.

1 comment:

Vino S said...

I see from the media that Zac Goldsmith has come up with green tax cuts as a Tory solution to encouraging people to act in a more eco-friendly way. What is your view on this?

If green taxes are bad - are green tax cuts equally wrong? For example, if they make something cheaper than it would otherwise be - isn't that distorting the market from the point of free-marketers?

Personally, I actually think Goldsmith does make some good points. If the tax system is to be used to change behaviour then tax cuts can do so. However, as always with Conservative tax cut plans, my concern is what public expenditure they would cut to finance them.