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A policy of progressive carbon taxation, including aviation, reduces both CO2 and poverty

March 12, 2020 11:19 PM
By Stewart Reddaway

Not taxing carbon is a bit like trying to reduce smoking without taxing cigarettes.

A comprehensive carbon tax on all fossil fuels, collected at the point of production or
import, uses market forces to go to the root of the problem of CO2 emissions. Raising
the cost of carbon is very cost-effective at reducing CO2, encouraging both energy
efficiency and the use of low-CO2 energy. It applies to all sectors, including heating,
industry, electricity generation and transport. To keep this document relatively short,
some issues have been omitted.

The tax should not be allowed to make poverty worse, for example by increasing
home heating costs. This would be countered if the proceeds of the tax are used to
reduce poverty. One way of making the policy progressive, is by paying back the
money raised (net of partial rebates and costs) as a dividend to all UK residents on an
equal-per-head basis in the form of a monthly UBI (Universal Basic Income), with
children rated at half the adult rate. People with a below average total carbon
footprint (i.e. those for whom the dividend payments exceed the effect of price rises
due to the tax) are subsidised by those with above average footprints. Although poor
people may have high heating costs, their limited spending power means their total
carbon footprint is almost always below average, so they will be winners; as will
almost all people in fuel poverty.

As the tax is mostly collected from big companies on goods that are already
monitored, and the dividend rate is the same for everyone, administrative costs
should be low. Paying the dividend makes the policy tax-neutral overall, which helps
sell it politically. It is also technology-neutral, as it does not try to "pick winners".
The policy covers all CO2, and at a published price, whereas the current EU ETS
(Emissions Trading System) covers only about half of emissions, and at an unpredictable price.
The tax should rise progressively, perhaps to £200 per tonne of CO2 over about 10
years. Depending on total carbon emissions at that date, this might produce a UBI of
about £1300 per adult per year. Tax rates for several years ahead should be published,
so investors and others can plan with confidence.

To keep a level playing field, the policy would have to be negotiated internationally,
at least with the EU. (But as CO2 reduction is urgent, it could be started unilaterally.)
The tax should be refunded for CO2 saved by Carbon Capture and Storage. Some of
the money raised should be used to give help, for example by partial rebates, to
carbon-intensive industries to discourage them from migrating abroad.
Consideration should be given to the problem of goods imported with significant
carbon "embedded" during manufacture. Although not emitted in the UK, these
substantial emissions are our moral responsibility. Assessing goods individually for
embedded carbon is too difficult, but countries with a poor record on climate change,
such as not living up to their Paris commitments, might have higher tariffs imposed
on them. Wide international agreement would be highly desirable.
International aviation

1 million jobs (Campaign Against Climate Change)Currently there is an international agreement not to tax fuel for aviation. A flight tax
based on take-off weight and distance flown is a good proxy for a tax on CO2.
Taxing CO2 is more effective than some other aviation taxes. A frequent flyer tax (as
proposed in policy paper 139) ignores both distance flown and seat Class. Most UK
aviation emissions are from long haul, where a First or Business class seat displaces
respectively about 5 or 3 Economy seats, with correspondingly higher emissions. An
Economy seat to Los Angeles emits about 20 times more than a flight to, e.g.,
Amsterdam. With the above factor of 5, a First-class seat to LA emits about 100 times
more. For a rate of £100/tonne, tax on a first-class return to LA would be about
£1000, and Economy to Amsterdam about £10. A frequent flyer tax may be
reasonable for short European flights, but it grossly under-taxes long haul, and does
nothing to increase load factors. Air Passenger Duty takes some account of CO2
differences between long and short haul, and of seat class, but is very imprecise.
Aviation is not very price-sensitive, so other policies are also needed. One is public
education about the anti-social nature of unnecessary flying, and of flying First or
Business class, especially on long haul. Another is for government to set an example,
by banning public money being used for First Class long-haul, and by reducing its
total aviation carbon footprint (including non-scheduled flights) by at least 10% p.a..
The operation of Frequent Flyer Clubs should also be banned (with international
agreement) as they increase the amount of flying, including use of Premium seats.