An Indecent Proposal 2
In my previous outing, I made an indecent proposal — a seemingly impossible journey to explore how we could price carbon properly and fairly in the global economy. Incredibly complex, it boils down to one simple fact: in our daily lives we are not required to pay for the damage we are doing to the planet. To the atmosphere and to nature.
We might complain about the market price we are asked to pay for goods and services we consume— which reflect the labour, materials, transport, and finance costs. But they are often far too low when the cost of the damage is left out. Let’s look at some examples….
A flight from London to Edinburgh (c500km) will emit around the same amount of CO2 as 300 cars doing the same journey. In doing those journeys, the cars will pay the UK government about £5,000 in fuel tax for transporting between 300 and 1200 people depending on car occupancy. That’s about £275 per tonne CO2 (tCO2). The aircraft kerosene to transport around 180 people on the same journey is …. exempt from tax. Zilch.
Some might consider £275 tCO2 a reasonable rate of carbon tax. But there is no evidence that it is dissuading folks in the UK from driving, especially when public transport is no cheaper and less convenient. And if that rate of tax were applied to the Edinburgh flight, it would add £30 to the ticket price. That’s unlikely to change consumer behaviour much.
A different example: few people realise how much energy is required to serve a Netflix movie over the internet. As reported in the New Scientist recently, worldwide streaming of online videos emits about 300 mCO2 per year (nearly as much as the total carbon emissions of France). Of that total, a third is pornography, a third is on demand video such as Netflix, and a substantial further chunk is YouTube. And it is estimated that streaming will double in the next 5 years.
Whilst internet providers such as Amazon and Google have made pledges to minimise their carbon footprint, the current energy sources for server farms are gas and coal. There are mechanisms for pricing carbon in many countries — Switzerland has the highest rate of carbon tax on power generation of any big economy at USD90 per tonne; France is higher than most at around USD50. But even these fall short of the levels needed to reflect the true cost. And the biggest polluting countries (China, US, India etc) barely bother with carbon tax at all.
And so the carbon footprint of watching that movie is not reflected in the price. Audio is not much better — I am simultaneously impressed and disturbed by the calculation from Eureca that “the five billion downloads and streams clocked up by the song Despacito in 2017 consumed as much electricity as Chad, Guinea-Bissau, Somalia, Sierra Leone and the Central African Republic put together”.
But what is the true cost of carbon? If we knew that we could start to work out how to price it into goods and services. Ask ten economists and get ten different answers. Research by the IMF last year suggests a price of $75 per tonne is needed by 2030 to limit warming to 2C (while noting that the average price today is $2 per tonne). Others have said this figure is far too low — figures up to $300 have been suggested — which is the sort of tax level already being applied on car fuel in Europe, but rarely elsewhere in the world or on other uses of carbon.
So what to be done? Some countries are leading the way with modest tax regimes (mainly in Europe). Other countries see carbon as a way of raising government tax revenues. International aviation and shipping sectors are beginning to work on schemes. But the big springboard opportunity is a global agreement that sticks — anybody placing bets on COP26 delivering on this? No, I didn’t think so.
Well, that’s all very depressing. But even if carbon taxes were suddenly seen as a global solution, their macroeconomic and social effects vary depending on what a government does with the revenue and how the markets and individuals react to changes prices. This I will turn to next time….. wish me luck ….
David
