That may sound like a stupid question, but when governments are failing to price carbon pollution at anywhere near the cost of the damage caused to society, it’s a question worth asking, though maybe it would be better to ask the reverse question: why aren’t we are pricing carbon? Why are we effectively subsidising fossil fuels?

If you’re a government and there’s something that is harmful to people or to society as a whole, what do you do? You either ban it or tax it. At just about every budget I can remember, the chancellor has increased duty on beer and fags. It’s hardly worth reporting. We expect it, and for at least the last couple of decades most smokers and drinkers have accepted these price increases as if they were an act of nature. A bit of under the breath grumbling maybe, but mostly, particularly when it comes to tobacco, an acceptance that their habit is harmful to themselves and those around them and an additional financial incentive to cut down or quit is to be welcomed.

I was sitting in a bar in Paris on 2nd of January 2008 the day the indoor smoking ban was introduced in France. A guy came in, went up to the bar, ordered something and then immediately lit a cigarette. The barman had a go at him, shoved him outside with a broom and then swept away the evidence at the foot of the bar, which a day before would have been a river of ash and butts. Though the guy protested as he was pushed outside, the vast majority of people accepted the new law and adjusted their lifestyles accordingly. Even in tobacco loving France, attitudes had changed.

That’s what happens to attitudes. They change, but they don’t just change of their own accord. Attitudes don’t exist independently of the people who hold them. Back in the 70s, my parents had to provide an ashtray for the babysitter, and people would have thought nothing of driving home from the pub after a few beers, and without wearing a seatbelt.

We often feel powerless, but, whatever you think of these social changes, they were driven by pretty ordinary people. When the government increased duty on alcohol or tobacco, when it brought in the smoking ban and more recently, the sugar tax, it was responding to changes in public opinion.

The reason why taxing these things reduces demand for them should be pretty obvious. It’s basic economics. That is why so many economists say a robust price on carbon is essential if we’re to stand any chance of tackling climate change. As ever though, things aren’t as simple as they might at first seem. As with alcohol and tobacco, if people can import these goods from other countries where the tax rate is lower than it is here, or where there’s no tax, that’s going to undermine any domestic tax and it’s going to harm domestic producers of those goods and benefit foreign competitors. Hence import duties.

Unless every country in the world decides to price carbon at the same rate, you’re going to need something similar for a carbon tax, and since fossil fuels largely power our economy, fuelling most of our electricity, heating and transportation, the price of just about everything we buy is going to be affected by the price we put on carbon.

This is why Macron has suggested the EU place carbon tariffs on imports from countries that don’t price on carbon. It would protect European businesses and European economies, plus it would encourage other countries to bring in their own carbon pricing systems and thereby avoid or reduce the tariffs. The EU is a major player. It has some clout.

But this is getting on to reasons why we have so far failed to adequately price carbon, which are probably best dealt with in another post. Here I want to look at that why we should, and why we need to, whether this “we” is the UK, the EU or the world.

Negative externalities

When a product or service has a never negative impact on wider society then it’s known to economists as a negative externality. There are many examples. A lorry delivering food to your local supermarket generates noise and pollution and risk to other users and today’s live in the areas through which it drives, as well as wear and tear on the road. The cost of this to society is hard to quantify, and is therefore up for debate, but the fact that there is such a cost and that it should be priced is widely accepted. We have a Vehicle Excise Duty, commonly known as road tax, that is based on the size and emissions of the vehicle, we have visual taxes did London and some other cities have congestion charging zones.

In some cases, the negative impacts of particular service to society for are considered so great that we’ve banned them. For example, drugs (except alcohol and tobacco), assault weapons, fly tipping.

Why not just ban fossil fuels?

What a society decides to ban is always going to be a matter for debate, but to ban something so deeply integrated into our society as fossil fuels are is not a viable option, and certainly not in a liberal democracy.

Some in the environmental movement do suggest that some of the most egregious uses of fossil fuels or the products that facilitate those uses should either be banned or rationed. SUVs for instance, or flying, or patio heaters (now more widespread since the smoking ban). Short of banning or rationing you can take a somewhat less authoritarian approach and bring in regulations, setting strict emissions standards for new cars, energy efficiency standards for new buildings etc.. However, you then need to enforce these standards and, as we saw with VW a few years ago, when the profit motive and the regulations are in conflict there is going to be a strong incentive to evade the regulations.

Greenwashing

Right now they are getting away with using the atmosphere as a free waste dump, where air pollution, water pollution, and climate change are not included in the price of fossil fuels… We have to make fossil fuel prices honest.

James Hansen

When prices are dishonest there is an incentive for businesses to behave dishonestly. They know there’s a public relations benefit in appearing to be green, but they also know there’s often a cost involved in actually being green.

Put a price on carbon pollution that matches the damage it causes and you give business a direct financial incentive to actually reduce its emissions since it is now having to pay for its pollution. No need for them to pretend any more. Being green now makes good business sense. 

No more guilt tripping

When the best choice for the environment is not also the best choice for your bank balance, you’re faced with a difficult decision. When deciding which energy tariff to go for, you might really like the idea of going onto a green tariff, but when it’s more expensive than the other options and you’re struggling to make ends meet, your employment situation is uncertain and your son has a birthday coming up, you end up going for the non-green cheaper option, but that leaves you feeling bad about yourself. Most of us want to do the right thing, but the right thing is so often the more expensive thing. This pushes people into a state of cognitive dissonance. We don’t like feeling bad about ourselves, but living a truly green life can feel like too great sacrifice, one we don’t feel able to make, for ourselves or for our families.

When those who do make those sacrifices talk what they’re doing, like if they’ve put solar panels on their roof, gone vegan or stopped flying, then this can come across as a greener than thou gloating and make those who don’t feel able to make those choices feel even more inadequate. That may not be the intention, but morality is a sensitive issue. These green sacrifices are not the same for everyone. Someone whose family and friends all live within a few hours on the train may feel able to renounce flying whereas someone with a sister in Barcelona or an elderly mother in Pakistan may not, and someone who lives in a flat may not have a roof on which to install solar panels and, if it’s a rented flat, may not even have a choice over which electricity tariff to go for.

A price on carbon that reflected the damage caused by burning fossil fuels would mean that the greenest choices would also be the cheapest. We wouldn’t need to stress out over how environmentally friendly the products we buy are, wouldn’t need to peer at the small print to figure out the embedded emissions, we could just allow ourselves to be guided by price and quality, which, let’s face it, is how most of us shop most of the time.

A price on carbon doesn’t require the public to become enlightened eco-warriors. It allows people to be who they are without them having to feel guilty about it.

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