Green taxes are in the news. Richmond Council might tax people who own 4×4s, George Osborne says the Tories will raise revenue from green taxes, the LibDems are committed to them, and David Miliband has confirmed the government are in talks about them. Do green taxes work? Yes they can, if applied sensibly in well thought-out ways. Taxes do change behaviour, despite Treasury reluctance to factor this into their forecasts.
There are three ways to move a donkey: exhortations, sticks and carrots. Exhortations, no matter how earnest, often fall on deaf ears. Sticks work, but are resented, and electors tend to vote against them. Carrots not only work, but manage to be popular as well.
When leaded petrol was linked to unpleasant health effects, people showed little inclination to use unleaded until Chancellor Nigel Lawson introduced a tax differential between leaded petrol and its lead-free alternative. He allowed duty on the former to rise with inflation, but kept the latter down. The response was immediate, and within a couple of years the lead-free variety dominated the market. His differential was a well-judged carrot.
Punitive taxes or “sticks,” on the other hand, can lead to widespread evasion and can even make things worse. A landfill tax does not improve the environment if it results in a huge increase of illegal dumping. And what seems reasonable to a rule-minded civil servant or an ideologue can seem grossly unfair to members of the public now punished for doing what they have always done.
And people are not fools. They will regard fines for failure to recycle as unjust if there are no appreciable benefits from doing so. And if they read that those who collect recycling bins simply mix their contents together afterwards, they are unlikely to be motivated to comply. Similarly, if they read that the energy expended in recycling, much of it in transport, exceeds the savings made, they might fail to see the point of it. There is also the fact that ’sticks’ which take the form of higher taxes affect poor people most. This includes higher airfares and petrol costs.
Selective green taxes can direct people to make an environmentally more friendly choice; but there has to be a choice or they merely restrict people’s activity. When there are cleaner alternatives available, the use of tax carrots can direct and encourage people to use them. Lower taxes on less polluting vehicles might well work because there are less polluting alternatives available, including hybrid and bio-fuel engines. In the absence of such alternatives, though, higher taxes might be seen simply as an additional burden.
Will green taxes be applied sensibly in well thought-out ways? No, they will be used to raise revenue. They will not be applied on a rational basis, but in order to follow the latest whims and fancies of gesture politics which capture headlines but fail to make serious impact on the problem.
From Adam Smith Institute
Tags: Libertarian, Politics, Liberty, Freedom
