Are Green Taxes Pointless?

OVER the last two decades UK carbon emissions rather than falling have increased by 20 per cent, according to figures recently published by the Department for Environment, Food and Rural Affairs (DEFRA).

Carbon emissions associated with our spending on goods and services contribute to the national carbon footprint wherever these emissions arise in the world. Imports such as products made in China now account for almost half of the country’s carbon emissions.

The lack of progress on carbon reduction has led many to question the use of green taxes at a time when there is an urgent need to kick-start the economy. Critics believe green taxes have imposed unnecessary costs on UK industry – shifting emissions and jobs overseas.

Speaking at last year’s Conservative Party conference Chancellor George Osborne said: “We’re not going to save the planet by putting our country out of business”. So are environmental taxes pointless and are we wasting our time trying to cut the UK’s carbon footprint?

Taxation and death are two certainties in an increasingly uncertain world. Tax is a way we all contribute to our society yet the link between tax and enjoying the benefits of a good society seem to have been lost some time ago. Mark Twain once wrote: “The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin.”

Public resistance to taxation seems particularly strong when it comes to the use of green taxes whether this is a tax on carbon, fuel, bins or plastic bags. Green taxes have been used both to raise revenue and reduce environmental impacts.

In 2010 environmental taxes accounted for 8 per cent of total taxes and social contributions – equivalent to 3 per cent of the UK Gross Domestic Product. In total the Government received £42 billion from environmental taxes – £3 billion more than in 2009. The increase in tax revenue came mainly from fuel duty and the associated VAT on petrol and diesel.

Fuel duty was never intended as a green tax but has successfully discouraged car use. In last year’s budget the Chancellor cancelled the fuel duty escalator which each year added an extra penny on top of inflation. However, a planned rise in August will increase the price of petrol by 3p per litre. This has already resulted in pensioners, cabbies, van drivers and hauliers taking to the streets in protest.

Rising oil prices mean pump prices will reach a record high and has sparked fears that there could be a repeat of national fuel protests similar to those seen in September 2000. In an age of austerity fuel increases is seen as an additional pressure on hard-pressed motorists and businesses that rely on fuel.

Another green tax is the air passenger duty which has been used to discourage air travel. The duty will rise by 8 per cent this year, eventually rising to 50 per cent by 2016. Britain’s four largest airlines EasyJet, British Airways, Ryanair and Virgin Atlantic claim the increase would mean fewer visitors to the UK and will result in job losses in tourism, aviation and hospitality industries. The rise will price out families from flying with an average family of four facing a £500 levy to fly to Australia in four years’ time.

If the UK is to meet its target of an 80 per cent reduction in carbon emissions by 2050, major reforms of the electricity sector are needed. From April 2013 the conservative-led coalition government will introduce a ‘carbon floor’ price to increase the financial incentive to adopt low-carbon technologies. This tax aims to make the polluter pay a minimum amount for the right to pollute.

The floor price will start at around £16 per tonne of carbon dioxide and reach a target of £30 in 2020. The policy has been criticised as being ineffective and unfair as other EU companies will not face a minimum price for carbon.

The government admits around 40 per cent of the total costs of the floor price is likely to be borne by households – increasing the average household electricity bill by as much as 6 per cent.

Much of the opposition to green taxes is based on the impression that individuals and businesses are already being taxed too much. Unfortunately, there will always be opposition to green taxes until there is widespread recognition of the environmental and societal costs caused by our high consuming lifestyles.

Whether this is the health and environmental impacts of vehicle-related air and noise pollution or the greenhouse gas emissions resulting from air travel and the domestic energy sector. We have become so disconnected from the natural world that we do not see it has been fundamental to our way of life. Nor does our current economic system place enough value on the services the environment provides to society.

A 2009 report by the Green Fiscal Commission claims there is overwhelming evidence to suggest that environmental taxes are effective. Numerous examples of successful green taxes in other countries exist. These include the Danish energy taxes, the Swedish tax on nitrogen oxide emissions from energy plants, the German energy and transport taxes, the UK climate change levy and fuel duty escalator, the Finnish, Swedish and UK waste taxes, the London congestion charge and the Dutch waste water effluent charge.

The failure to cut national carbon emissions over the last two decades is being used to argue for green taxes to be diluted or scrapped altogether. Such an argument misses the point. What we need to address is our insatiable appetite for cheap throwaway products we find in pound shops up and down the country.

The surge in imported goods from developing countries that rely on dirty coal-fired power stations means we have successfully exported our pollution. It also means that we should accept responsibility for the emissions caused by the production of the goods that we buy.

If green taxes are to be made more publicly acceptable and effective they need to be straightforward so that taxpayers understand the behavioural change signal being sent. In order to build trust and acceptance of green taxes there needs to be greater use of ‘hypothecation’ of revenues.

This means earmarking tax revenues derived from a green tax for a specific environmentally friendly purpose. For example, the licence fund is used to finance the BBC. Therefore transport taxes could be used directly to improve public transport and infrastructure. Taxpayers will then clearly see the benefits of the green tax.

In an age of austerity it is easy to claim green taxes inhibit growth. However, such an argument does not recognise the economic, cultural and social benefits we gain from the multitude of resources and processes that are supplied by nature. Collectively, these benefits are known as ‘ecosystem services’ and include products such as clean drinking water and processes that result in the decomposition of wastes.

Green taxes are therefore important to ensure we protect our ‘life support system’. Rather than being seen as stealth taxes they should be seen as transparent incentives to change behaviour and to help us to make the transition to a low carbon and sustainable society on which our future prosperity depends.

© Gary Haq 2012

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