Tuesday, October 31, 2006

Taxes don't clean the environment

If you simply watched BBC, ITV and Channel 4 news here in the UK you might be mistaken for thinking that the Stern report is a manifesto for the future. Most of the media have responded to the “jump” in the Stern report by asking “how high and when”. At best, the main questioning of the report’s conclusions has been whether it is wise for the UK to go first – given it is responsible for only 2% of greenhouse gases. Nevertheless, Blair and Cameron have both said that there needs to be action – who said that there isn’t choice is politics??!!
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PC has some excellent posts on this, one summarising some of the reactions and another being Tim Worstall’s fisking of the report, which is well worth a read. I doubt the journalists for the BBC or the Independent (Britain's leading doom and gloom rag as you can see) will read it.
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Fortunately there is some commonsense from the Daily Telegraph. In its editorial it makes an excellent point:
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“It is a pity that all three main parties have bought into the idea that state regulation is the answer. Market mechanisms have proved highly effective at delivering green goals. Extending property rights to cover air and water quality, and allowing citizens to sue polluters, is a surer way of securing a clean environment than relying on government inspectors. Privatising rainforests gives owners an immediate stake in their protection. Treating endangered species as the property of those on whose land they roam encourages locals to treat them as a renewable resource.”

Funnily enough this is exactly the sort of policies Libertarianz have been talking about for years.
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You see the problem with the Stern report is that its apocalyptic vision appeals to two political instincts.
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The left loves it because it “proves” how bad business is, how bad individualism is (reflected in the private car and tourism – ignoring that in London, for example, 70% of greenhouse gas emissions come from buildings). It means it can rally support around the need for “central action” by the state, and that the problem is because “nobody did anything” and that if people are left to their own devices the world will come to an end. Have no doubt about it – the central thesis behind this view is that individual choice is the problem. People make choices that are bad for other people, and they must be regulated, compelled, taxed or subsidised to make good choices. In short, the left thinks this proves that the free market doesn’t work.
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The element on the right which likes Armageddon comes from what can best be described as a protestant guilt ethic about “living” and how the government has a role in helping you be good. It is a similar moralistic bent as the left, but from a different angle. “You can’t possibly leave people to do as they wish, they don’t know what’s good for them”. It is the same ethic that likes restricting alcohol, drugs and censoring “naughty films”. It is almost a school prefect approach which says patronisingly that the masses don’t really know what is good for them, we do and why don’t we be good chaps and realise our businesses really need to go along with it – “take one for the team”.
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Both are insidious and wrong. The free market works but does not operate, in particular, to address pollution because property rights are limited. Assume for now that there is a climate change problem propagated by growth in greenhouse gas emissions (I’m sceptical but let’s err on the side of caution). The sectors which are the biggest contributors to this are energy, transport and agriculture. All of these are subject to enormous levels of government interference.
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The energy sector in most countries is government owned and/or regulated. On the one hand governments have assisted and subsidised the development and operation of electricity generation, oil exploration, coal mines, on the other government’s regulate energy prices so that power companies, oil companies and the like can’t charge too much. Yet, somehow, people are using too much energy!!! Take some measures that are no doubt economically efficient and environmentally positive (as a spinoff), like Thatcher closing the UK’s inefficient coal mines. The left opposed this vigorously, but subsidising a very dirty source of energy is hardly good for the environment is it? Another is subsidies for energy use by people on low incomes or capping electricity charges – this underprices energy use, and keeps consumption high, so why not get out of the way and let energy companies charge as they see fit. The price might go up (or down) and they would then have money they may invest in future technologies to produce energy more efficiently – and energy conservation would become more worthwhile as people seek ways to save on energy bills.
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That’s energy. Transport is worse, as roads are run with Soviet-style central planning with the idea of pricing road use being alien to all, except those wanting to do so to penalise driving. Governments subsidise some transport modes and tax others, with little regard for the effects. Agriculture is also particularly bad, partially because energy and transport to rural areas is subsidised, but mainly because the European Union, Japan and the USA prop up inefficient producers.
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Would removing government interference in those areas and instituting property rights in water and airspace be enough to "address the economic cost of climate change"? Maybe. Maybe not. However it is clear that such measures would help by removing enormous economic distortions that mean that economic choices are poor – and resources poorly allocated as a result. That is the main benefit, a secondary benefit is that by reducing waste, it reduces negative environmental impact.
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However, you wont hear that solution from Blair, Cameron, Clark, Al Gore or Nick Smith. You’ll hear about subsidies for “clean energy” and public transport, you’ll hear about taxes on driving, flying and “dirty energy”, in other words you’ll hear about the state taking more of your money and giving it to others. It wont be about you making better choices, it will be about central planners doing it. The image will be of a tax being a punishment for you being bad, and that you paying the tax “makes things all better”. It doesn’t – it just gives the government your money to play with – that tax doesn’t “plant a tree” or “suck up the pollution” you caused. It is money to pay a bureaucrat’s salary, to subsidise a business or individual.

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