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Robert McIlveen: Don’t axe this tax, the carbon floor price is the best of a very variable bunch

McIlveen-Robert Robert McIlveen was a Research Fellow at Policy Exchange in the Environment and Energy unit. He is Deputy Chairman of his local Conservative Association and writes in a personal capacity.

Matthew Sinclair’s criticism of carbon taxation – that at a time of economic difficulty adding to the tax burden of our biggest employers is the last thing we should do – has a certain logic to it. It’s certainly true that the carbon floor price, effectively a tax, will add costs to those industries which use a lot of energy. But I feel he has the wrong target. Our focus should be on the absurdly bad value for money policies, not the ones that actually make sense.

A year back while still working at Policy Exchange, I wrote the first half of a report, the second half of which, by Prof Dieter Helm, laid out the design of a carbon floor price. Guilty as charged, I was a bystander in the call for a carbon tax. But not any old carbon tax. The political argument made in the report was that those who take the risks of climate change seriously ought to take the costs of tackling it seriously too. For too long the politics of climate change have been hippies versus accountants; one side carefree about costs if their preferred solutions made them feel good, the other missing the big picture by counting pennies. But those who are concerned about climate change have a responsibility to take the costs of tackling it seriously too.

Which brings in the first half of that report. It looked at the costs of various climate change policies, which range from the low (about £3/tonne) to the absurd (about £460 for the Feed-in Tariff for microrenewables, i.e. a subsidy for mini-solar panels and others). I’m proud to lay claim to pointing out just how bad value for money the Feed-in Tariff scheme inherited from the previous government was, which the Coalition have rightly reined in. The alarming thing was that the figure for the cost per tonne came from DECC’s own analysis – meaning that the Labour government knew how bad value it was, and happily signed it off anyway.

So how should a green-but-certainly-not-red Tory respond to Matthew’s core criticism of the carbon floor price? Surely additional taxation is bad and should be resisted? Not necessarily, and certainly not on a last-in, first-out basis. The design of the carbon tax is important – Professor Helm’s version included mitigating measures for energy intensive industries. But even more so is the opportunity to get rid of the even more expensive policies that the government inherited from Labour. If you are going to have any carbon policies that use financial means, the carbon tax is as good as it gets.

Of the many current carbon policies, the carbon tax is the last one we should worry about. Feed-in Tariffs for micro-renewables are terrifyingly expensive for what they achieve, while the Renewables Obligation is driving up energy bills for everyone to meet an arbitrary target (for how much renewable energy we produce, not how much carbon we emit). The coalition’s decision to turn the Carbon Reduction Commitment from a complex cap-and-trade scheme into a slightly less complex tax should be the Taxpayers’ Alliance most tempting target since it has become double-taxed (or more, depending on how you count it).
The economic logic of the carbon floor price – assuming you, like the insurance industry among other hard-nosed capitalist types, accept that climate change is not entirely fictitious – is much stronger than that of any other policy, especially those that try to pick technology winners. It supports nuclear and renewables, and even gas over coal. It goes with the grain of human nature rather than against it. And, if the government so desired, it would offer the opportunity to simplify the forest of incentives, targets and schemes inherited from a Labour government that confused activity with success.

For those who take climate change seriously (at any level, even with caveats and eye-rolling weariness at greens who refuse to care about cost or impact on people) the costs matter. Attacking one of the best carbon policies we have rather than seizing the opportunity to get rid of the worst is an opportunity we shouldn’t miss – but the Taxpayers’ Alliance has.


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