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back to article Climate Bill scores a fail in economics

The stated objective of the Climate Change Bill, recently passed by Parliament, is: "To avoid the impacts of dangerous climate change in an economically sound way." It's an excellent idea, one worth supporting - but possibly not entirely the one that the Government itself is pursuing. The quote comes from the Government's own …

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Just one problem

Even an amateur economist must realise the the government (ours or anyone else's) will NOT replace current taxes (fuel duty, car tax, air passenger duty, VAT, or any of them at all) with a carbon tax. What they WILL do is add an extra tax on carbon, at as high a rate as they think they can get away with, without regard to any assessment of what it ought to be to counter the (entirely phony) environmental effects of carbon use. The global warming myth is a godsend to the tax-and-spenders that our economy is saddled with. This false god will shortly be requiring human sacrifices, if it hasn't already begun.

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Funny as hell!

That was a great article, made me laugh no end. Now, what are we really going to do about climate change? Oh wait, you were serious?

Our country is 93rd out of 141 countries for energy efficiency, and 77th for its greenhouse gas emissions. We live in a society built on consumerism. Our government is doing its best to convince us we can dig ourselves out of the current economic hole by buying even more crap that we don't need.

But somehow we've already done everything we need to do to combat climate change, and now we can sit back and relax. Well, that's a relief. Cheers Tim!

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Good analysis

I always suspected there was something dodgy about a carbon market - way too many speculators trying to cash in without even trying to fix the problem its intended to solve.

This is a good, reasoned argument why a carbon tax is better than carbon trading.

However, I must admit that I don't understand why Tim says politicians can't bugger up a carbon tax by applying the same pork-barrel exemptions they've already used to screw the trading scheme.

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simplistic?

Isn't there a tiny problem you've neglected?

Suppose the tax on petrol reflects the supposed cost of CO2. But my main journey - my commute to work - cannot reasonably be done other than by car. So I'll just pay the tax and emit the CO2. The cost of the CO2 would have to be sufficiently high that the inconvenience of paying it outweighs the cost of changing. The cost of changing might actually be quite high if I have to move house or find a new job.

So the carbon dioxide tax should be set at a point higher than the cost of avoiding the emissions, if you really want to reduce emissions. Otherwise we'll just end up highly taxed but the ice caps will still melt.

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Anonymous Coward

Blimey!

A coherent and reasonably argued climate change post on El Reg!

It all makes sense to me. For what it's worth, I do think the main problem is that unlike other forms of pollution, carbon dioxide is invisible. The public easily understood the link between coal smoke and blackened buildings, cars and smog, factory pollution and orange rivers and dead fish.

The WEEE directive is also another good example of putting the externality back into the market equation.

The big question, of course, is who should set the tax, and whether it can be effectively enforced without China, India, et al, claiming protectionism. With local pollution it was relatively easy to say 'polluter pays'. And largely the polluter went off to a country with a more lax regime. Global pollution is a relatively new concept (I guess the previous example is CFCs?).

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Criticising the dismal science

has the effect of legitimizing the junk science - no?

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If the final paragraph is true, why is global climate change happening at all?

I can only assume it's because the American and Chinese consumers are paying next to nothing for their oil products.

The effect on the climate of the carbon tax also does depend on what it goes to. I'd say revenue should be directed towards reducing greenhouse gas emissions, and I don't care how this gets done, energy efficiency, renewables, carbon capture, outright bribery, whatever's most effective.

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Black Helicopters

price of CO2 emissions

One way to price CO2 emissions is the cost of cleaning them up later by sequestration from thin air. It's pretty clear that most of the CO2 emitted now will have to be removed within 20-30 years before runaway warming sets in.

Typical estimates for cost of sequestration from thin air are about $250/ton, compared with $50/ton for sequestration from power stations. This cost differential is unlikely to change: the energy cost of sequestration from thin air has a thermodynamic lower bound.

So even with a discount rate of 6% / year, a currrent carbon price set by the estimated cost of cleaning up CO2 in 20 years' time will be high enough to price out coal-fired power without carbon capture.

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Anonymous Coward

At last, something that is worth responding to

Tim,

You and I have never really seen eye to eye. But we do here, with some large caveats which I will go on to explain.

1. Evaluating externalities

Ok, this is probably my main gripe with the economic view of pollution/climate change. In the end I guess I agree that to accomplish anything in this world you have to try and put a price on it. I'm just not very sure existing methods do the world justice. You tell me Tim, just how much exactly is Lake Baikal worth ? How much is clean air worth ? Analysis would probably approach this by linking it to excess deaths and then putting a price of a person as regards economic activity. It would be a number, but would it be an accurate reflection of the cost of things?

There is a damn good reason that they ARE externalities, you are right, there is no market, because economics can't get good numbers to apply to them, and in that case they ARE failures. A market that can not evaluate its goods is no market at all.

2. Discounting

"plus a rather odd view of discount rates"

I would like to cut to the chase here and say that discounting when used in regard to the environment is a BIG fail. You can disagree, but I doubt I will accept your arguments. The value of a pound in your pocket tomorrow versus one in the hand today IS NOT relevent in the context of a world you would like your children to inherit. Discounting seems to fly in the face of what is accepted, that people will sacrifice current wellbeing for the sake of their children.

3. Politics

If you are going to make a market for CO2, lets at least make one that works. That means setting a value that actually achieves your goal. We will probably disagree here again, but at least its an argument solvable with a little horse trading.

A Politicans job is too keep themselves in power, an economists job is to keep themselves in money, an environmentalists job is to ensure subsequent generations have a functioning Earth. There is no mark II .. lets not fuck it up too badly.

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Cliimate change is natural

Cliimate change is natural, taxing carbon is organised crime. What are they going to come up with to explain we're now in a cooling period not a warming period except getting the likes of Harrabin and Black at the BBC to keep turning up the paranoia?

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Surely a cap is much more effective

I don't see the difference between politicians setting the cap too high, or raising the tax too high. If you don't trust them to do one, surely you can't trust them to do the other.

However, there is one difference between the two: science can calculate with some degree of accuracy the actual amount of carbon we can safely emit. But putting a cost on that is a much more difficult process. In fact, the usual way economists deal with that is to leave it up to the market. If I *really* need to emit x tonnes of CO2, then I'll have to pay the price based on supply and demand for that percentage of the pie.

I think the problem isn't so much about not bearing the cost of our actions, but of the market not acknowleding this is a basically a scarce resource. Putting a cap on that, allocating x tonnes to companies, and x tonnes to individuals (or households), and letting anyone sell of their excess is surely both the most economically *and* environmentally sound approach.

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Disagreements

AC.

I accept the criticisms.....which is why, having mentioned the various issues (the costs of externalities, the value of Lake Baikal, Stern and discount rates etc) I then took the value that the government is using. Values are as the IPCC or Stern Review, discounting is as Stern etc.

However, "That means setting a value that actually achieves your goal." That is what we get here. We're trying to balance the benefits of emitting now against the costs of those emissions in the future.

We're "not" trying to stop all global warming: we're trying to balance the rights and desires of those alive now against those to come in the future. Stern deliberately uses very low discount rates which means that we have a high tax. But that tax does, all on its own, balance out those rights now against rights in hte future....very much precisely because he's used a very low discount rate.

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Anonymous Coward

@Obama Smith

Luddite

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Anonymous Coward

Global Warming

Is just God hugging us a little tighter.

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Lack of Understanding

I suppose it's no longer surprising that environmentalists have little understanding of economics and especially markets. Leaving aside as to whether AGW is real, for the moment:

@Richard Johnson - The aim is not the change your individual behaviour but the general population in aggregate. You might still have to drive to work, but, honestly, no-one cares what you (or I) do. The idea is to push a lot of people for whom it is currently just economic to drive, over into a state where it is not economic for them to drive. Probably you're not one of them, but still, CO2 reduced, without you doing anything.

@A C @15:25 (1) - That is one way to price CO2 emissions, but it is a stupid way. Consider: Tim accepts the Stern figure of taxation at $80 a tonne, not because it is right but because it at least has some reasoning behind it, unlike the 'Stop CO2 at any cost' idiots. Now, to sequestrate CO2 from a power station, you say, would cost $50 a tonne. And would save $80 a tonne in tax. That to me seems like a pretty risk-free 60% return. Even in the current credit market I reckon that could be borrowed against, so it would get done. One small part of the problem solved.

@A C @15:25 (2) (don't you people have names?) - the whole point of the tax is to reduce CO2 emissions so that the environment is preserved in the most cost effective way. So, in effect, you ARE putting a price on the next Baikal. As we have to, as otherwise we have no idea what the most cost effective way is. Lots of apparently good things - like wind generators on houses - seem green, but in fact aren't. The tax should tease out these knee-jerk stupidities and actually drive the good stuff.

Assuming that it is actually about saving the planet, of course, and not just increasing tax for people richer than you happen to be.

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@MikeStreet

no, Richard Johnson is right, because the level of reduction in CO2 required is so large (check out George Monbiot on the largeness of the cut and on what's required to achieve it, eg in his book Heat). We're not talking about a marginal change, where a few people can change behaviour because they're close to indifferent between options anyway, and a small tax can push them the right way. We're talking about changing nearly everyone's behaviour in many respects, often dramatically. (a) this can't be done without govt coordination (public services, long-term planning, other compensations for market failure) and (b) to the extent that market pricing is used to change behaviour, it's either got to be very specific to different situations/contexts, or at a general level massively high, to ensure changed behaviour from nearly everyone (what sort of tax do you need to make a millionaire stop using his private jet - that sort of question).

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Taxes don't really help

It will just widen the gap between those that can afford the taxes and those that can't.

John Travolta will continue to fly a 707 for fun and poorer folk will move from driving Minis to catching the train.

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Tim Worstall fails at math...

"We've got a possible range of nice to nasty of + 52 to – 95"

What you need to do is look at the extremes maximum benefit for minimum outlay and maximum outlay for minimal benefit. That gives us two sets of figures which are -

Good - £110 billion benefit - £30 billion cost = +£80 billion

Bad - £82 billion benefit - £205 billion cost = -£123 billion

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Anonymous Coward

(not a title)

"Once we have the externalities properly embedded in the market system then we can stand back and let those markets do their stuff."

Given the way the global economy is going, you'll forgive me for being skeptical of any claim that the 'market' will magically fix everything all by itself.

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Anonymous Coward

@Mike Street

Except that all the power stations going in at the moment do not feature carbon capture, and wont. I was on here a year ago shouting about a massive need for a "well designed, integrated carbon capture coal fired power station". Laughed off the boards I was ! By both sides. You have to have an efficient design before they will build it. Tax it and they will come, seems a somewhat hopefully policy.

Also if you read my post I am actually in agreement with environmental taxes, as long as you also have a regulatory framework in which to apply them. I would argue that framework is not in place, to be effective you will have to get the world and his dog on board.

To all those suddenly shouting about the rich and how do you stop them polluting, my answer is this. You get off your arse and you vote, and you complain and you stand on the kerb and fling shite at them. You single out the tossers, like Lewis Hamilton, and you charge them standing room. You make it personal. The rich run this country because they are more motivated, with fingers in many pies. But that is only because you let them, the number of people on here complaining about their tax bill .. well do something about it. The rich own a disproportionate amount of the country and do not pay their fair share of the tax bill. But we have a voting system that values each person equally. Its as simple as that.

Thanks Tim for the response.

P.S. Stern's valuation of CO2 at $80 per tonne is too cheap to get the job done. Thats not looking at a zero carbon future, thats just aimed at handing on down a reasonable looking planet two generations down the line. That's the horse trading I referred to. But lets start at $80 and see how we go.

Last point. CO2 emissions are not going down, and in a world where 1 billion people still live on a dollar a day, its not likely to happen. The environment is inextricably linked with development, and the human condition. That's why the future is socialist.

....any chance of a red flag icon : ) with maybe a "fuck the pigopolists" byline.

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Stern has said he underestimated costs

Stern himself has said the economic costs are now known to be much more than his report said. http://www.guardian.co.uk/environment/2008/apr/18/climatechange.carbonemissions

Also a key thing to remember here is the risk - would you be prepared to, for example, have a 10% chance of a 50% cut in GDP? And would it be worth spending 2% of GDP to avoid that?

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@AC 1st Dec 14:51

Aha! So it IS just about taxing people who happen to be richer than you.

I am not rich, so I have no particular axe to grind. But actually, 'The Rich' don't produce most of the CO2, even though they may produce more per head. There just aren't that many of them. Mostly what there are are middle income people and so, just like income tax, they will bear most of the cost of your environmental taxes.

I have often suspected that 'environmentalism' is sometimes just Socialist Worker propaganda of the old-fashioned 'soak the rich' mentality. That may achieve something (though the result may not be what is desired), but it won't save the environment.

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Anonymous Coward

@Mike Street

Err, I think you are conflating two seperate issues there.

One was on Carbon taxes which when properly implemented should be result neutral. They should not change the tax burden either way as they should replace existing taxation. To my mind it should be VAT being replaced as that is by far and away the most unprogressive form of taxation.

Which leads me to the other point you are willfully conflating, and my last statement should have shown my loyalties.

TAX THE FUCKING RICH !

I hope that shows my feelings on this subject. The ideals of progressive taxation are public policy for all the political parties in the UK. Are you saying that you do not agree with this accepted fact ? Seems strange to me if you are. Maybe you are a secret flat taxer.

I just think you haven't understood the seperate issues.

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Anonymous Coward

@Mike Street

Actually I do some conflating myself there Mike when I read back the piece. Apols, it was not intended. I do think that environmental taxes should be neutral. A main reason why they should replace VAT, imho.

On the other hand a massive increase the amount of earnings before income tax kicks in, with a subsequent raise in the base rate after that amount, should be a political goal for every "normal" worker in the country. You know, those people who make the average income of about 18k.

I look at the earnings required for a worker not to be considered poor and I just despair, surely taxing the poor is not acceptable for the world's 4th richest country. Or whatever we are now.

<red flag>

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@Mike Street

Mike, the richer you are, the more the taxes benefit you. So why shouldn't the rich be taxed more? It's even more equitable when you consider the cost of assessing small tax returns for 1 million people is a lot more expensive than large tax returns for a few hundred (reducing the cost of tax collection reduces the tax burden).

If you're wondering why the rich benefit from taxation more (per pound) then these are a few areas:

1) Education.

If you are educated you can earn more because you are more productive. That is one salary enhanced by free education.

If your workforce is educated, your profits are higher and you get every single employee enhanced by free education.

2) Police.

If you're wealthy, you will have more to protect. If you're poor, you have nothing worth stealing.

If you're wealthy, the police are much less likely to ignore your requests for aid. If you're poor, you get an incident number and then ignored. Unless it is a serious crime.

3) Defence.

The rich have more that needs protecting so a defence force is defending their greater wealth much more than someone who rents and has little.

4) Laws

If you're rich, you can afford better counsel you get more respect from the judicial system and your stuff (of which you have plenty) is protected because of the law. If you have nothing, nothing is protected.

5) Connections

Rich pop stars get to talk to the PM. Rich businessmen get to talk to MPs. Lobbyists get to take cabinet members out to lunch to "clarify" the needs of "the country today". If you're poor, you get ignored mostly.

This is not an exhaustive list.

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Boffin

Arithmetic!

You say "We've got a possible range of nice to nasty of + 52 to – 95".

Well, no we haven't - the possible range is +80 to -123. That is, of course, a fail. A pretty dire fail. So it makes no difference to your argument. But it would have been nice to have the arithmetic right.

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