December 06, 2006

The Prebudget report, fuel duty

As I've said before I like Pigrouvian Taxation and think that it is a good way of dealing with Climate Change. So obviously I am glad that Gordon Brown has taken them to his heart as also the best way of dealing with climate change. I am however a little unsure about his grasp of mathematics.

Petrol has a density of 737.22 Kilogram per Cubic Meter. There are 1000 litres to a Cubic Meter and 1000 kilograms per ton. So the density of Petrol is 0.00073722 Ton per litre.

Fuels like petrol are 85% carbon by weight so one litre of petrol will release about 0.000626637 tons of carbon. According to the (very high) estimates in Gordon Brown's own Stern Review 1 ton of carbon has a cost of $85. That means that 1 litre of petrol will have an environmental cost of $0.053264145 or 5.3264145c. Using the exchange rates according to Google that works out at £0.0269609967 or 2.69609967p at the time of writing.

To act as a Pigouvian Tax 2.7p per litre is what fuel duty should be, in order to exactly internalise the externality of it's Climate Change's effects. It is was 50.9p per litre in 2005, 18 times more expensive than it should be, and Mr Brown has just increased it. But you cannot really expect a socialist like Mr Brown to be able to add up correctly.


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