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CO2 TaxBack

It seems clear that our greenhouse gas emissions are causing global warming which is having a damaging effect. Since greenhouse gas emissions are the cause of the problem, they should be taxed to keep within an agreed national cap. Under this scheme, the revenue from the tax would be shared equally between every citizen of the UK. For brevity I'll call the whole idea CO2 Tax Back; it's an application of the TaxBack meta-idea.

The tax should be set in the same way that the Bank of England Monetary Policy Committee sets interest rates to keep inflation below a certain level. All carbon emissions caused by UK citizens or organizations would be subject to the tax. In practice this would mean taxing fossil fuels as they come into the country or are extracted within the UK. It would also mean taxing the emissions from industrial processes such as cement manufacture. The import of electricity from other countries (France at the moment) would be subject to the tax if it wasn't green electricity. CO2 Tax Back would replace VAT on energy, CCL, ROCs, EUETS, REGOs, LECs etc.

The scheme could be expanded to work on a global scale with global cost per tonne of CO2 (or CO2 equivalent) emitted. The revenue would be divided between participating nations according to their population.

Objections and Rebuttals

Poorer people won't be able to afford their energy bills.

With no VAT to pay, the energy bill wouldn't rise hugely but there would be a big incentive to switch to green electricity because it would be cheaper. Gas would rise in price, but I envisage people abandoning their gas supplies and heating their homes and water with green electricity. People would have more money in their pockets because they would have the TaxBack money.

A CO2 tax this high would drive business abroad.

Yes, I think this is a valid objection, although it's no worse under CO2 TaxBack than under carbon trading. There seems to be two choices:

  1. Do nothing, and CO2 emissions will carry on rising
  2. We price CO2 and risk business going abroad, and also risk the absence of carbon pricing in other countries becoming a competitive advantage for them, and make it even less likely that they'll introduce carbon pricing.

I waver between these two arguments. At the moment I think we should take the risk.

Isn't a trading scheme better than a tax?

The main problem with the idea is that there's much more bureaucracy involved than a tax, which means it's more expensive to administrate and more prone to fraud. While it's claimed that a trading scheme based on personal allocations is a fairer approach, in fact the effects are the same as CO2TaxBack.

No energy strategy

Another objection that people make to a CO2 tax is that it abandons a proper national energy policy for the vaguaries of the free market.

I say that all that matters is that national CO2 emissions drop. It doesn't matter if it's done by conservation or renewables, it doesn't matter if it's in the heating, electricity, transport or concrete industries. The problem with FITs is that they favour a particular solution. Government should not pick winners, all CO2 reduction should receive an equal incentive.

Special intests groups

Concern has been expressed that a CO2 tax would be hijacked by special interest groups. I share his concern about special interest groups corrupting government policy, but I think that FITs, ROCs, EUETS etc. are the *result* of pressure by special interest groups! I think we should resist such pressure and go for a CO2 tax, which applies equally, no matter which industry creates the pollution.

Regulatory uncertainty

Finally, the point has been made that investment is harder to obtain if it depends on a government policy that might be repealed at the next election. This is true, but a CO2 tax is *less* prone to this problem than FITs. Say that as a result of a CO2 tax an organization is contemplating making energy efficiency improvements. If in five years time the tax is abolished, they'll still end up with a more efficient organization, not such a terrible thing. On the other hand, if FITs are abolished, renewables companies could go out of business.

FIT's may be based on a contract with the government, but any scheme could be framed as a contract with the government, including CO2 TaxBack. But to be honest I don't buy the argument that a contract with the government is a cast-iron guarantee. A new government can always get out of a previous government's committments by passing new legislation.

You can't be certain of capping emissions

Some say that with a Carbon TaxBack scheme, you couldn't be certain of capping emissions. True you couldn't end up with an exact amount of emissions, you may overshoot or undershoot, but the Bank of England gets inflation about right by setting interest rates, and setting the CO2 TaxBack rate is analogous to that.

A CO2 TaxBack rate would be unacceptably high

It has been opined that to make a difference, a CO2 TaxBack would have to be so high that it would be politically unacceptable. Actually I don't know how high it would have to be, but since all the money is being redistributed back to the people, it wouldn't necessarily be unpopular.


James Hansen appears to support this idea.