The 'green' car tax grabs that don't add up

By the Stern count, prices should fall 12p per litre

Budget Comment Alistair Darling has missed his big chance to show that he's both serious about climate change and that he understands the arguments. He's delayed the previously announced 2p per litre rise in fuel duty and then added that it will rise 0.5 p per litre each year thereafter. This simply isn't acceptable, it's putting us all at risk, for what he should have done is cut fuel duty by 12p per litre.

No, I'm being serious, not some fruticake or swivel eyed loonie (although I can be both of those at times). The outcome of the Stern Review (ie, the advice the Government commissioned to tell them what to do about climate change) was that there is a correct level of taxation upon carbon emissions: the slightly alarming thing being that this correct level is lower than the price we already pay.

Start from the point that Stern, the IPCC, the "scientific consensus", are all correct. No, we're not claiming that it's all sunspots, that climate change isn't happening and we're not to blame. Yes, it is, we're causing it and it's going to impose some pretty big costs in the future. At this point what we really want to know is how big are those costs going to be?

So let's throw in the value of Bangladesh before it sinks below the waves, the polar bears, Tuvalu too. The change in weather patterns, the moving northwards of the malaria belt, let's tot it all up and we'll get to some gargantuan number. Let us also look at how many tonnes of carbon dioxide (strictly speaking, carbon dioxide equivalent, CO2-e, to convert methane, NOx and so on to one unit) emitted will lead us to that cost. Divide one by the other and we have the damage that one tonne of CO2 will do.

That's really at the heart of what the Stern Review did (and there are others who have done similar exercises, William Nordhaus amongst them). Stern even went so far as to consider the possibility that we'll all be wiped out by an asteroid strike before Greenland melts in 2500 AD or so. Now there are concerns with the exact numbers, for Stern got to $85 per tonne CO2-e, while Nordhaus has at times said $2.50.

But Stern is supposedly the guy the UK government is listening to, so we'll use his numbers. Stern also said that this number leads us to a simple solution, the employment of Pigou (or Pigouvian) taxation and on this point, despite concerns about the $ number, economists from Greg Mankiw through Nordhaus to Richard Tol (that last actually part of the IPCC process) are agreed: damn good idea. Stick $85 per tonne on each and every emission of CO2-e and you've solved the problem.

No, we don't know how many emissions that will stop, no, we don't know what the cumulative effect will be in terms of temperature, Tuvalu, polar bears or Bangladesh. However, we do know that we've got the right balance: for, you see, we don't actually want to stop climate change, we just want the right amount of climate change.

Yes, the likely changes will impose costs. But so will trying to stop those changes impose costs. We could, for example, shoot anyone who uses fossil fuels after 4pm next Tuesday. Millions would die imposing such a regime and billions shortly thereafter if it were successful. We tend to think that this is too high a price to stop Weymouth becoming waterlogged in a few centuries' time.

So what is the correct price that we should be willing to spend to reduce the future damages? Well, obviously, the cost of those very damages. We don't want to spend more to solve the problem than the problem will cost, after all: no one pays £100 to insure a £90 problem, do they (with the possible exception of extended warranties on electrical items)? And spending less would mean that we are imposing our costs upon those to come in the future, something really not very nice to do.

So, we have our number for the costs, $85 per tonne CO2-e. As long as everyone pays this on their emissions, as long as this externality is incorporated into market prices, we've solved our problem. We now will get the correct amount of climate change, the socially optimal amount, as people will only emit if the benefits of doing so are greater than the costs.

No, it doesn't matter what the taxes are spent on either: that the polluter is paying the costs of her actions in using the Chelsea Tractor to drop diddikins off is sufficient. And do remember that this is all very much mainstream in the economics of climate change. This is exactly the advice that the Government has received.

So if we have our emissions price, and all we need to do is add it to the things that emit, what does this mean for the price of petrol? It's trivial to calculate that $85/tonne CO2-e gets you into the 10-12p (depends upon your exchange rate) region per litre. In order for drivers to pay the costs of their driving they should pay that sum per litre on their petrol: no higher bands for higher emitting cars are needed, no £25 a day rate in London's congestion zone, just that 11p (ish) on a litre.

However, this doesn't mean that it should be 11p higher than now: we've already had the (intermittent) fuel duty escalator for 15 years now. This was introduced in 1993, just after the Earth Summit, the UNFCCC and all that which led to the Kyoto Protocol.

Quite specifically, fuel duty was raised so as to make drivers carry the costs of their CO2 emissions. By 1997, it had added 11p: so, job done, problem solved. However, between then and now, another 12p has been added. (For those who are going to bring up the inflation objection, Stern's calculations were in a later year than these tax rises. Thus that 1997 11p is higher than Stern's required 11p in real terms.)

So in order to have the correct amount of taxation, the correct internalisation of externalities and thus the right amount of climate change in the future, fuel duty should be cut by 12 pence on the litre: further, all other taxes on higher emitting cars should be abolished. For at the moment, we're paying more in tax than the problem itself will cost in the future and that just isn't sensible, nor is it in agreement with all of the advice that the Government has been receiving, even the advice that it itself commissioned.

Not that this is an entirely unusual state of affairs you understand. This is the pesky little problem with any logical argument which leads to the identification of an optimal or perfect level of tax. Such rationality all too often leads to the answer, that perfect rate, being lower than the one necessary to feed the politicians' appetites to waste our money. ®

Tim Worstall knows more about rare metals than most might think wise, and writes for himself at, and for The Business, among others. He is a Fellow of the Adam Smith Institute.

Other stories you might like

  • Lonestar plans to put datacenters in the Moon's lava tubes
    How? Founder tells The Register 'Robots… lots of robots'

    Imagine a future where racks of computer servers hum quietly in darkness below the surface of the Moon.

    Here is where some of the most important data is stored, to be left untouched for as long as can be. The idea sounds like something from science-fiction, but one startup that recently emerged from stealth is trying to turn it into a reality. Lonestar Data Holdings has a unique mission unlike any other cloud provider: to build datacenters on the Moon backing up the world's data.

    "It's inconceivable to me that we are keeping our most precious assets, our knowledge and our data, on Earth, where we're setting off bombs and burning things," Christopher Stott, founder and CEO of Lonestar, told The Register. "We need to put our assets in place off our planet, where we can keep it safe."

    Continue reading
  • Conti: Russian-backed rulers of Costa Rican hacktocracy?
    Also, Chinese IT admin jailed for deleting database, and the NSA promises no more backdoors

    In brief The notorious Russian-aligned Conti ransomware gang has upped the ante in its attack against Costa Rica, threatening to overthrow the government if it doesn't pay a $20 million ransom. 

    Costa Rican president Rodrigo Chaves said that the country is effectively at war with the gang, who in April infiltrated the government's computer systems, gaining a foothold in 27 agencies at various government levels. The US State Department has offered a $15 million reward leading to the capture of Conti's leaders, who it said have made more than $150 million from 1,000+ victims.

    Conti claimed this week that it has insiders in the Costa Rican government, the AP reported, warning that "We are determined to overthrow the government by means of a cyber attack, we have already shown you all the strength and power, you have introduced an emergency." 

    Continue reading
  • China-linked Twisted Panda caught spying on Russian defense R&D
    Because Beijing isn't above covert ops to accomplish its five-year goals

    Chinese cyberspies targeted two Russian defense institutes and possibly another research facility in Belarus, according to Check Point Research.

    The new campaign, dubbed Twisted Panda, is part of a larger, state-sponsored espionage operation that has been ongoing for several months, if not nearly a year, according to the security shop.

    In a technical analysis, the researchers detail the various malicious stages and payloads of the campaign that used sanctions-related phishing emails to attack Russian entities, which are part of the state-owned defense conglomerate Rostec Corporation.

    Continue reading
  • FTC signals crackdown on ed-tech harvesting kid's data
    Trade watchdog, and President, reminds that COPPA can ban ya

    The US Federal Trade Commission on Thursday said it intends to take action against educational technology companies that unlawfully collect data from children using online educational services.

    In a policy statement, the agency said, "Children should not have to needlessly hand over their data and forfeit their privacy in order to do their schoolwork or participate in remote learning, especially given the wide and increasing adoption of ed tech tools."

    The agency says it will scrutinize educational service providers to ensure that they are meeting their legal obligations under COPPA, the Children's Online Privacy Protection Act.

    Continue reading
  • Mysterious firm seeks to buy majority stake in Arm China
    Chinese joint venture's ousted CEO tries to hang on - who will get control?

    The saga surrounding Arm's joint venture in China just took another intriguing turn: a mysterious firm named Lotcap Group claims it has signed a letter of intent to buy a 51 percent stake in Arm China from existing investors in the country.

    In a Chinese-language press release posted Wednesday, Lotcap said it has formed a subsidiary, Lotcap Fund, to buy a majority stake in the joint venture. However, reporting by one newspaper suggested that the investment firm still needs the approval of one significant investor to gain 51 percent control of Arm China.

    The development comes a couple of weeks after Arm China said that its former CEO, Allen Wu, was refusing once again to step down from his position, despite the company's board voting in late April to replace Wu with two co-chief executives. SoftBank Group, which owns 49 percent of the Chinese venture, has been trying to unentangle Arm China from Wu as the Japanese tech investment giant plans for an initial public offering of the British parent company.

    Continue reading
  • SmartNICs power the cloud, are enterprise datacenters next?
    High pricing, lack of software make smartNICs a tough sell, despite offload potential

    SmartNICs have the potential to accelerate enterprise workloads, but don't expect to see them bring hyperscale-class efficiency to most datacenters anytime soon, ZK Research's Zeus Kerravala told The Register.

    SmartNICs are widely deployed in cloud and hyperscale datacenters as a means to offload input/output (I/O) intensive network, security, and storage operations from the CPU, freeing it up to run revenue generating tenant workloads. Some more advanced chips even offload the hypervisor to further separate the infrastructure management layer from the rest of the server.

    Despite relative success in the cloud and a flurry of innovation from the still-limited vendor SmartNIC ecosystem, including Mellanox (Nvidia), Intel, Marvell, and Xilinx (AMD), Kerravala argues that the use cases for enterprise datacenters are unlikely to resemble those of the major hyperscalers, at least in the near term.

    Continue reading

Biting the hand that feeds IT © 1998–2022