September 24, 2006

Green Taxes (another thought arising from Prospect)

So Prospect takes a side swipe at The Boy George this week. According to the "Numbers Game" Osborne is wrong to be so smittened by Green taxes as both a way of tackling climate change and redistributing the tax burden more fairly.

Look no further than London's congestion charge to see where this sort of thinking can go wrong.

When initially imagined the Mayor claimed the scheme would generated £1.3Bn over the next ten years, and to prove this was the case he made himself busy spending it. Unfortunately for Red his congestion charge proved more successful than he hoped in persuading people to keep their cars at home, but not as successful as he hoped at furnishing him with the readies.

A few years down the line and the congestion charge is up and soon to be expanded further to make up the deficit.

No surprise concludes Prospect. Whilst increases in green taxes appear are the only ones which the public will stomach, and so rather appealing to politicians, they should not be confused for gold mines. After all if you want to tax 4 by 4's off the road, that revenue won't be around for much longer.

However Prospect misses a wider point here, and not just that the Conservatives are not the only ones guily of such a crime. (The cynic in me would speculate that Prospects' editors wanted to write something horrible about the Cameroons on the same page as they let "One and half Brains" Willetts talk sensibly about Blair's political legacy.)

No the problem in the long run is as follows.

Take bio-fuels as the case in point. In Brazil, Flexi Fuel cars are taking off in a big way, or so my Sunday supplements tell me. What makes these cars special is that their engines are equiped to take ethanol or petrol. A God send one would think.

After all the big problem with alternative fuels is that you can't overnight build an infrastructure to compete with the one that already serves the combustion engine. But Flexi Fuel cars let the consumer choose the more environmentally friendly ethanol (by a factor of about two in carbon emissions) when it is available but can fall back up petrol when the alternative is not.

Meantime the ethanol infrastructure grows on the back on these new revenues.

Great one might think. Force Flexi Fuel cars to be the standard for new cars in the UK and then ensure through the tax system that the consumer is rewarded for going green when he or she can. Everybody wins, start handing out the medals now.

Yet there is trouble on the horizon... Consumers consume. Give someone a comodity for half the price, which they can happily use twice as much of, like transport, and no prices for what happens next.

If ethanol is really half as damaging to the environment than petrol, and you fix with the tax system for it to be half as expensive as petrol, over time people will use their cars twice as much. The overall impact on the environment will be the same.

Now this is not the fault of the Flexi Fuel car, which should indeed be made standard for all new cars in the UK if I had my way: but rather the principle of green taxation. Instead of trying to reward individuals for the ethical decisions they make, through the tax system, ensure that ethanol and petrol costs are commensurate, through subsidies to the ethanol trade if necessary, and let the consumer decide themselves.

What they are left with then is a choice between harming the environment or not- a choice for their conscience. Importantly though they are not offered incentives through "green" taxes to consume more and make a mockery of that choice.

Personal responsibility should, and ought, do the rest.