household bills

Taylor Tells of Tol’s Ton Toll

by Iain Murray on December 18, 2008 · 1 comment

in Economy, Energy, Environment, Global Warming, Precaution & Risk, Tech & Telecom

Jerry Taylor of Cato has an excellent summary of what the scientific literature tells us about the social cost of carbon emissions, drawing on the comprehensive but sometimes opaque work of Richard Tol. His conclusion:

So what does Tol 2008 tell us about the social cost of carbon emissions (assuming that the underlying science from the IPCC is correct)? Given our skepticism about the underlying logic of discount rates of 1% or less, any number between $3 per ton and $24 per ton seems defensible. The lower end of that distribution would seem to be more reasonable, however, keeping in mind that the better and more recent studies produce lower cost estimates than do others.

What would this mean for the average US household? A couple of years ago I did some calculations of what taxes (or carbon permits trading at the price) would mean for the average electricity and gasoline bill if set according to a social cost of carbon at $14/ton of CO2 and $5 per ton. For what they’re worth, here they are.

At $14/ton, the tax on 1 KWh of coal-fired electricity would be 1.5c, at $5/ton, 0.5c.
At $14/ton the tax on a gallon of gasoline would be 12c, at $5/ton, 4c.

The average household uses 10,660 KWh of electricity (not all of it coal-fired) and 1,143 gallons of gasoline each year.

So at $14/ton, household bills would increase by at most $297 annually.
At $5/ton, household bills would increase by at most $98 annually.

In other words, the actual increase would be pretty small. Certainly enough to be noticeable at higher levels ($510 if we used the $24 figure, for instance), but probably not enough to change behavior. If you believe, unlike Pigou, that a Pigovian tax should aim at changing behavior, then a mere tax that reflects the social cost of CO2 will not be enough for you. You’ll have to get into the realm of punitive taxation. In any event, a drive to reduce CO2 will probably cost more than the damages inflicted by CO2, and that is pretty silly public policy.

Tories Retreat From Green Taxes

by Iain Murray on November 14, 2008 · 2 comments

in Economy, Energy, Environment, Global Warming, International, Sanctimony

A major part in the rebranding of the British Conservative Party following a traumatic election defeat (sound familiar?) in 2005 was a turn to environmentalism. Part of this was a plan to introduce “green taxes,” theoretically shifting the focus of taxation from labor (taxing a ‘good’) to carbon production (taxing a ‘bad.’) This morning, however, The Guardian confirms what many have been saying for some time; the Tories have decided

To downgrade green taxes in response to growing unease that these could be punitive in a recession.

Now how would green taxes be punitive when they are taxing bads rather than goods? Simple. Given the current strong correlation between the use of affordable energy and economic growth, taxing carbon use upstream (ie at source of carbon production) is a direct attack on desperately needed wealth-creation. Tax it downstream (ie apply the tax when consumers buy the goods associated with carbon production) and you are increasing household bills in a recession in a regressive fashion. Oh, and if Gordon Brown is advocating a Keynesian tax cut as response to the recession, it looks bad politically too.

Green taxes may have made sense if you thought that wealth could be created out of thin air by, oh for example, ever-rising house prices. In a less fantastic world, they are a luxury we literally cannot afford.