Green Taxes and Posturing Politicians

21st July, 2006

Financial Times, Comment

Ken Livingstone, London’s mayor, last week caused consternation among the Chelsea tractor set by appearing to threaten a punitive rate of congestion charge, Pounds 25 instead of the current Pounds 8. Cue cheers from the tree-hugging community and an equally passionate response from the 4×4 lobby. One columnist – and there are no prizes for guessing which newspaper she writes for – complained in all seriousness that she needed her 4×4 to attend shooting and fishing events at weekends, and if Red Ken had his way then she would have to leave London altogether.
That alone makes me want to tax the shirts off 4×4 drivers. I hate the things – I am a cyclist, I have a young child with a head at bull-bar height and I am as worried as anyone else about the planet. These are needlessly wasteful vehicles and there is a growing body of evidence that they make drivers feel so safe as to encourage more reckless driving. But Mr Livingstone’s proposal is idiotic.
We economists might seem to make unlikely environmentalists but most of us are passionate supporters of so-called green taxes. The idea of a green tax is simple: when the market does not reflect the true social costs of some activity, be it switching on the air conditioning or driving into London at rush hour, the government can make society better off by imposing a tax that reflects that social cost. The problem with the mayor’s new-look congestion charge is equally simple: it is not a green tax.
Real green taxes are not populist stunts. They are levied on activities that cause problems, and they reflect the size of those problems. Almost everyone recognises that whatever the benefits of driving around in a car, drivers also impose costs on each other and on the rest of us. Cars run people over, clog up the roads and spew pollution.
What is less widely recognised is that some of these antisocial costs are much bigger than others. Congestion and accidents, between them, generate almost all the costs of road transport. According to a report into “food miles” commissioned by the Department for Environment, Food and Rural Affairs, people who drive cars to pick up shopping inflict a cost of more than Pounds 3.6bn on society. Of this, 70 per cent is congestion and 26 per cent is attributable to accidents. Just 1 per cent is because of the contribution of cars to climate change – and that is a figure using a fairly high estimate of Pounds 70 for the cost of a tonne of carbon. European businesses pay one-quarter of that for carbon emissions permits under the Kyoto-inspired emissions trading scheme.
Climate change is a big problem but cars are only part of that problem. Accidents and congestion are serious too: cars kill more than 3,000 people a year, while climate change will have to get very bad indeed before it affects the life of a typical British citizen as much as do traffic jams. Local air pollution is also a minor problem in comparison, and it is chiefly caused by older vehicles not the brand-new urban tanks that so outrage the less thoughtful kind of environmentalist.
The brilliance of the current congestion charge, crude as it is, is its focus on congestion, by far the most serious problem caused by London’s drivers. The new proposal would tax disproportionately the heaviest emitters of carbon dioxide, but since the typical driver’s contribution to congestion is 50 times more serious than his or her contribution to climate change, the smug Prius driver – currently exempt – should pay almost as much as the sociopath in his BMW X5. The X5 driver already pays more fuel duty, while the Prius can run over your toddler or force you to measure out your life in traffic queues as much as any other car.
Officially, a BMW X5 emits 307g of CO per kilometre; a Prius, 104g. Drive 5km around London in the X5 under the proposed new congestion charge regime and you would pay an extra charge of Pounds 25 for just one additional kilogram of emissions – or Pounds 25,000 per tonne of CO. Buy a carbon permit for your cement- manufacturing business and it will cost you about Pounds 7 per tonne of carbon dioxide.
If we really cared about the planet we would recognise that CO is CO. It does not matter where it comes from: it is all harmful.
This is where economists seem to part company with knee-jerk environmentalists, including Mr Livingstone. For an economist, the whole point of a green tax is that while we know what we want – lower carbon emissions, fewer accidents, less congestion – we do not know the best way to get there. We cannot afford to stop all pollution: remember that we produce CO simply by breathing. The aim is to stop the low-priority activities and not the high-value ones. And the judge of what is really important should be each individual, not a posturing politician. The green tax should send the same signal to each individual. They can decide for themselves whether or not those shooting and fishing weekends are worth the price.

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