Hitch climate tax to the actual climate, says top economist

The warmer the planet, the higher the green taxes get


Comment A Canadian economist has an idea to tackle global warming so simple, it’s stunning no one has thought of it before.

Ross McKitrick, Professor of Economics at the University of Guelph in Ontario, an IPCC expert reviewer and one of its leading critics, proposes a carbon tax with the rate tied to climate response. He explained the idea at the House of Lords yesterday before an audience that included the architect of the UK’s Climate Change Act.

The idea of an evidence-based tax alarmed some in the audience. And it was fascinating to see who was most alarmed by it.

McKitrick’s plan replaces the piecemeal regulation and taxes, which are arbitrary and random (ranging from patio heater bans to a “carbon floor price”) with a tax linked to the temperature of the troposphere. According to IPCC scientists this is the “fingerprint” of greenhouse gas-induced global warming and the most rapid indicator of climate change. If temperatures go up, then so does the tax.

With the introduction of tradeable emissions certifications alongside the new, evidence-based tax then powerful incentives are in place to be right. “Nobody will benefit from using false or exaggerated science,” McKitrick said.

“Sceptics who do not believe in global warming will not expect the tax to go up, and might even expect it to go down. Those convinced we are in for rapid warming will expect the tax to rise quickly in the years ahead,” McKitrick explains in a paper outlining the idea.

“Companies managing factories and power plants will have to figure out who is more likely to be right, because billions of dollars of potential tax liabilities will depend on what is going to happen.”

As he elaborated at Westminster yesterday:

Nobody has an incentive to ignore the forecasts – while everyone has an incentive to check them for accuracy… As a scientist, instead of complaining that nobody’s listening to you, you could put your pension in it. If a scientist can’t persuade himself to put his pension on his own science, he shouldn’t try to persuade other people to.

Sounds reasonable.

He also ran through some of the pitfalls and objections. Was it backward looking? No, he thought, since investors were placing big bets on future investment by factoring in the tax. A futures market in emissions certificates would allow traders to treat “climate lags” as an arbitrage opportunity.

So did he think markets are smarter than scientists, asked one questioner?

“Markets are just people, and they’re making use of the information,” he said. “Markets may be more objective than scientists - each scientist is going to have their own bias and their own agenda. But the market will not make correct predictions.”

But if scientists are mistaken then the public doesn’t pay for the wrong policy – since it won’t be paying to mitigate a climate “problem” that doesn’t exist.

Temperature time trends from Douglass et al. Only at the surface are the mean of the models and the mean of observations seen to agree, within the uncertainties.

Climate models have exaggerated the response of the troposphere: temperature time trends against pressure (degrees per decade) vs 22 averaged model predictions; Douglass et al (2007) (PDF, 9 pages)

Attending the talk, arranged by the Global Warming Policy Foundation, a think tank critical of climate mitigation policy, were Chris Rapley and Bryony (now Baroness) Worthington (BA, Eng.Lit.), the climate activist seconded to DEFRA from Greenpeace to write the UK’s Climate Change Act for Ed Miliband, then DEFRA minister. Both asked the same question of McKitrick: why not use a different measure of climate response? Worthington suggested using Arctic ice melt figures.

McKitrick responded that the Arctic was “a tiny geographical area” and less reliable as an indicator of climate change. It has an amplified response to changes in the Sun, he said, “which makes it noisy for our purposes”.

Much of the Arctic melt a few years ago can be attributed to circulation changes rather than a warmer Arctic. The troposphere, on the other hand, was half of the Earth’s free atmosphere.

“90 per cent of the energy inbalance goes into ocean so why not use that?” asked Chris Rapley, a former head of the Antarctic Survey. McKitrick said that it risked being too slow.

What about sea levels instead? Rapley said the rate of sea level rise had been constant for 2,000 years and suddenly shot up, while oceans provided a rapid indicator of global warming. (Which must be why that elusive ocean warming is so hard to find)

For McKitrick, a tax represents the least costly means of curbing emissions. However, for it to work it must displace other taxes, otherwise the deadweight costs make the exercise expensive and pointless. And there’s the rub. Politicians rarely repeal taxes, and love to pile them up.

Adding a footnote, Lord Lawson acknowledged the political challenge facing anyone introducing a carbon tax. Yet it wasn’t impossible to imagine politicians seizing on the idea as a face-saving ay out of suicidal green taxes and regulations, when the planet isn’t warming on the scale predicted.

McKitrick’s evidence-based proposal might prove too grounded in reality for others to stomach.

You can find a 16-page summary of his paper here. ®

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