Budget 2010: carbon tax

Nat O'Connor: The Taoiseach goes to the UN climate change summit in Copenhagen flanked by two Green Party Ministers. Budget 2010 introduced Ireland's first carbon tax at €15. Ireland has never looked greener, but have we got carbon tax right?

The Economist magazine (5-11 Dec 2009) says that "Economists reckon a carbon price of around $40 is needed." (p. 12). That's around €27. Friends of the Earth present a more technical paper here.

I am not an expert in this area, but I have a few queries that I hope others can answer.

A carbon tax is meant to be a one-off pricing of carbon emissions and it is meant to be a sufficient disincentive so that the producers and consumers in the economy make a decisive shift away from oil and other carbon-heavy resources. We are setting our tax at just over half the recommended level, so it looks like we'll have to nudge it up incrementally over time. Yet, isn't incrementalism part of the problem, that we need to be decisive about this in order to create the disincentive effect?

We already disincentivise a number of carbon-heavy things in our economy, such as through the 'old reliable' excise on petrol and diesel. But we effectively have a situation where carbon price is mixed in with excise. Wouldn't it be more ecological to undertake a thorough set of tax changes and replace excise with carbon tax, plus ensure that carbon tax meets the full €27 in all cases?

To clarify the point, we are now going to have two situations in parallel:
1. Some fuels (like petrol, and coal since 2005) are affected by Mineral Oil Tax. I am going to assume that there is more than enough tax added to bring it over a carbon price of €27 or more. Hence, we could convert some of the excise to carbon tax.
2. Some fuels (like turf) are only affected by the new carbon tax, so the carbon price is effectively €15. We should really go the whole way and increase carbon tax here to €27.

A carbon tax in one country seems to depend on other countries also having a carbon tax, so that oil-based products are already carbon-taxed when they arrive in Ireland. In the absence of global agreement on this, should Ireland impose some or all of its own carbon tax on imported goods (like plastic) from countries that do not impose an equivalent tax?

In short, if we are taking global heating and climate change seriously, why shouldn't Ireland go all the whole way and introduce a carbon tax at €27 (or more)?


Of course, the disincentive to use carbon-heavy resources assumes that it is possible to move to alternatives. In this respect, governments must lead the way towards alternative energy sources, public transport, etc. But these too will either require governments to spend (and carbon tax provides revenue) or else they require private investment (which will be more incentivised by a strong carbon tax, not a weak one).

The Economist editorial (p. 11) provides a reality check about getting this right:
"Although the benefits of averting... catastrophe are incalculably large, the costs of doing so should not be enormous - as little as 1% of global output, if policy is well designed... This newspaper reckons that the world should fork out, rather as householders spend similar proportions of their income on insuring their homes against disaster."

Later in the same piece, they note: "A percentage of global economic output is affordable for a worthwhile project. Saving the banks has cost around 5% of global output."

Guest post: Towards a Green New Deal

John Barry: Last summer the influential think and do tank, the new economics foundation, published what turned out to be a prescient report. Called A Green New Deal: Joined-up policies to solve the triple crunch of the credit crisis, climate change and high oil prices, it analysed the interlocking crises of climate change, peak oil and the credit crisis. This report demonstrated that the urgency of making the transition towards a post-carbon economy, i.e. an energy economy not based on declining and volatile fossil fuels, could also promote secure jobs and investment, jobs that cannot be off-shored, but that managing our planned retreat from fossil fuels not only demands clear government leadership but also requires re-regulating and re-structuring the financial sector to ensure it does not undermine the ‘real’ economy. Its predictions have proved not only prescient but prophetic, in that it predicted the current credit and banking crisis and pointed out the reasons in the de-regulated, complex and high-risk strategies that the majority of banking and financial institutions were engaged with.

Then, in October, the United Nations Environment Program, together with the International Labor Organisation and the International Organisation of Employers, launched a major report: Green Jobs: Towards decent work in a sustainable, low-carbon world.

This report pointed out the millions of secure, well-paid jobs available across the world – but especially in the developing world – in the sustainable, green economy, especially renewable energy production and installation, waste management, water management, building construction, food, agriculture, forestry, transport and and other sectors. As the report states, “It now appears that a green economy can generate more and better jobs everywhere and that these can be decent jobs”.

The election of Barack Obama was based, in part, on his promise of a Roosevelt-style ‘new deal’ for America to help its ailing economy and prevent the haemorrhaging of jobs. The stimulus package just agreed by Congress is a ‘Green New Deal’ in that the infrastructural investment focus is on energy conservation, renewable energy projects, jobs and training. Across the media, economic commentators and political parties, there is a growing acceptance that a Green New Deal is what major economies in the world need: forms of Green Keynesianism and greater public investment and management of the economy. A Green New Deal tackles the issues that global and national economies face in relation to rising unemployment, reducing our addiction to and dependence upon fossil fuels, and also dealing with the threat of climate change. However, there are differences within this emerging agreement around a ‘Green New Deal’.

Those, like most governments including the UK, who see this as part of a temporary ‘blip’ in the global economy and believe that ‘normal service will be resumed’ in a couple of years; and those like the European Green Parties who are campaigning on a common platform in the upcoming European Parliamentary elections, based on viewing the current ‘triple crisis’ as an opportunity which should not be wated to re-design global and national economies in the transition to sustainable, green and less inequitable economies focused on quality of life and economic security – rather than orthodox economic growth.

Across the UK there have been meetings and conferences, as well as media and other commentary, on the outlines of a Green New Deal. In Wales, for example, there was a conference on the Green New Deal entitled ‘A Prosperous Way Down?: Exploring Green Economic Futures for Wales’, while in Northern Ireland, Friends of the Earth held a workshop on the Green Economy in late January, followed up with another in March with contributions from the Northern Ireland trades union movement and Northern Ireland employer representatives. An initial meeting around a Green New Deal for the Republic was held at the end of April.

The Green New Deal is, I strongly believe, one that the unions should get fully behind. I also believe that universities, in particular, should explore the possibilities of providing the space, time and support for workshops and think-ins etc about how to design policies and programmes for the inevitable greening of the economy. At the same time, universities have a unique role and opportunity in this time of crisis to provide expert knowledge and advice on a whole range of issues confronting politicians, policy-makers, businesses and communities. Academics (unionised or not) should be urging their universities to ‘do their bit’ in this time of crisis, and to offer their knowledge, expertise, space and support for genuine dialogue and innovative problem-solving to help our societies get out of this current economic and environmental mess.

Dr. John Barry is Policy Advisor to the Northern Ireland Region of the Green Party. He lectures in the School of Politics, International Studies and Philosophy at Queen’s University, Belfast, and is Assistant Director of the Institute for a Sustainable World, QUB

Prosperity without growth?

Ahead of the G20 summit in London, the UK's Sustainable Development Commission recently published Prosperity Without Growth? arguing that "the current global recession should be the occasion to forge a new economic system equipped to avoid the shocks and negative impacts associated with our reliance on growth".

Any comments?

Return to Growth Paradigm in Petrochemical Economy not an Option

Peadar Kirby: The focus of public attention and debate on recession and cutbacks at the moment indicates the extreme poverty of public discourse in this country. Essentially it confirms that at the heart of our current crisis is a crisis of ideas and imagination. Those academics contributing to the debate seem to be vying with one another in describing the cuts in living standards facing us all (though, of course, those whose actions created the bubble economy have so far not suffered in any direct way at all), but few are offering a way forward beyond the vacuous mantra of ‘competitiveness’.

A number of key debates are urgently needed:

1) What sort of state do we want? All attention so far has been focused on cutbacks to the current state apparatus – through the actions of the so-called An Bord Snip Nua, through public spending cuts and through cuts to the incomes of all public employees. But this begs the question of devising an agenda for reform of the state, fashioning a state that can effectively carry out the tasks that are required of it. Indeed, it needs to be acknowledged that the Irish state is constantly managing crises and has developed very little ability to plan proactively across the range of public policy areas.

2) Answering what sort of state we want requires us to debate how the state and the market should relate to one another: in other words what is the role of the state in configuring the market for social development and how should the state play that role? This raises another set of very important issues which most Irish economists seem completely unable to address because of their neo-classical training.

3) Setting the context for economic and social recovery: commentary on our current situation fails most of the time to take any account of the fact that decisions in Copenhagen in December will require us to reduce carbon emissions very substantially and very fast. The only way we are addressing this is through presenting the ‘green economy’ as a possible source of new jobs. Yet, while this is true, there is no chance whatsoever that we can achieve anything like the necessary cuts in carbon emissions by that means alone; huge changes in how we source our food and drink, in our patterns of mobility, in our sources and uses of energy will also be required.

If we could begin debating these wider issues, realising that some attempt to return to a growth paradigm within the petrochemical economy is simply not an option if we are going to survive as a species, we might free the imagination and generate some really creative thinking about what future we can build for ourselves.
Professor Peadar Kirby teaches at the University of Limerick