Green taxes foster a negative climate

There follows an editorial by me from the 6 November issue of Fund Strategy on green taxes. Mick Hume wrote an article on a similar theme on spiked on 31 October.

The Stern review on the economics of climate change has brought renewed calls for the extension of green taxes. There are several reasons why such a move should be opposed.

For a start they are a restriction on personal freedom. In a free society it should not be up to government to try to influence how much we drink, drive or how many plastic bags we use. As long as we do not harm others we should be free to do what we want. The fact that such arguments are rarely raised shows how widely state intervention into our personal lives has become accepted.

Sadly, many individuals seem to find it acceptable that governments should interfere in our personal behaviour.

Many would counter that such intervention is necessary to “save the planet”. But green taxes cannot possibly help to achieve such a grandiose objective.

Green taxes are generally justified on the grounds of reducing externalities. For example, a driver does not incur the environmental costs of his car when he buys or runs it. Green taxes ostensibly raise the price of the car to incorporate these additional costs.

One problem with this argument is that it ignores the fact that externalities can be positive as well as negative. The huge expansion of physical mobility, which cars have played a key role in creating, has enormous benefits.

It means that individuals are no longer largely confined to their local areas. People can drive to work, school, the shops, on holiday or simply for pleasure. Penalising these activities with a punitive tax is undesirable.

In any case curbing demand for energy is the wrong way to tackle climate change. On the contrary, what is needed is a massive increase in energy supply. The richer we are and the more energy we have the better a position we are likely to be in to counter the effects of global warming.

Much of the technology to achieve this objective already exists, although no doubt it could be improved with more investment. Neither nuclear power nor hydroelectric power emit greenhouse gases. Even fossil fuels can be made clean with the use of carbon capture and storage technology.

The rapid economic growth that the investment in such technology could promote would provide further resources to help tackle global warming.

But instead of investing substantially in such technology, the government is likely to take the easy option of imposing a few green taxes.

It is far easier to make grandiose statements on climate change and start taxing the use of plastic bags than take the necessary action to deal with the problem.