Competitive Enterprise Institute | 1899 L ST NW Floor 12, Washington, DC 20036 | Phone: 202-331-1010 | Fax: 202-331-0640
Sir, There are several problems with George Osborne's call for higher green taxes ("A strong case for switching to green taxation", September 13).
First, he supports raising taxes to reduce greenhouse gases in addition to the European Union's emissions trading system. This is redundant and creates complications. If he thinks a carbon tax is a more efficient wayof achieving the goal, then there isno need for a cap-and-trade schemeas well.
Second, he argues that the purpose of green taxes is to account for negative environmental externalities. But the taxes that the UK already levies on petrol in particular far exceed the costs of the externalities. A review of more than 100 peer-reviewed economic studies by Richard Tol, a leading resources economist, concluded that the externality cost of burning hydrocarbon fuels is no higher than $14 per metric ton of carbon dioxide emissions. That translates into roughly 2p per litre of petrol. Thus if the tax should equal the externality, then Mr Osborne should favour swingeing cuts in petrol taxes. The unfortunate fact he does not mention is that reducing greenhouse gas emissions costs far more than the benefits.
Third, he argues that raising green taxes should be accompanied by lowering taxes on income and profits by an equal amount. He makes strong arguments for this trade-off, but ignores one huge drawback. Poor people pay a much higher proportion of their incomes for energy than do the better-off. But poor people pay much less in income taxes than the better-off. Thus the effect of Mr Osborne's tax switch would be to increase significantly the tax burden on the poor to the benefit of the middle and upper classes.