July 29, 2007


Heathrow wants to get a private injunction against groups that might protest against its planned new runway. I hope they don't get it as the right to peacefully protest in the public areas is important.

Not that they have much to protest about though. The main purpose of the Climate Change Camp, that is that the extension of the airport will be bad for the environment, has already been dealt with thanks to Gordon Browns increased taxes on air travel last year. These taxes add the external costs of climate change into the price of the ticket quite precisely and so all we have to do now is let the market work and the socially optimum level of air travel will result.


Blogger Matthew Cain said...

Have you seen BAA's response to the report? You can judge if it's convincing here: http://newscounter.com/fullStory.jsp?id=709585

5:02 pm  
Blogger chris said...

I heard BAA's response and did not find it convincing, a peaceful protest should not greatly trouble people and the right to protest is more important than than the trouble that a peaceful protest would cause. however if BAA would just explain Pigouvian Taxation to them this could all be avoided.

10:17 am  
Blogger bgprior said...

Chris, How much is the social cost of carbon? How do you establish its true value?

5:51 pm  
Blogger chris said...

Well we have the Stern review which came out with $85 per ton as the social cost. Or you can have a look at current market rates for how much offsetting costs.

£7.5 per ton or £9 per ton using the first two I found on google. Personally I would go with the Stern numbers of $85 per ton as a good guide for the upper bound because of how they where calculated.

8:41 pm  
Blogger bgprior said...

Why not quote the price of "carbon" in the European Union Emissions Trading Scheme? Current value for 2007 EUAs: 0.12 EUR/tonne of CO2 (tCO2), which is equivalent to about 0.44 EUR/tonne of carbon (tC). But better make it quick, because the price for 2008 EUAs is currently 20.25 EUR/tCO2 (74.25 EUR/tC), and forecast by Deutsche bank to rise to 35.00 EUR/tCO2 (128.33 EUR/tC).

Strange, all these different prices for a homogeneous product. A tonne of carbon is a tonne of carbon - the environment doesn't care where it is emitted or how it is saved. Why do you think it varies so much?

9:43 pm  
Blogger chris said...

The EU made a complete hash out of the Carbon Trading scheme which is why the price is low.

They where supposed to issue as many credits as where needed, unfortunately everybody (except the UK) put in a figure much higher than was needed in order to try and get an industrial subsidy off of their neighbors on the sly. The supply of credits outstripped demand and so the price fell. The price of EU carbon credits is more a measure of the level that the various members states thought they could con the system than the amount that carbon costs. The idea was fine in principal but it was implemented by the EU and therefore a complete cock up in practice.

You could use the Stern report's calculations of how much it will cost us should we do nothing. This has the advantage of being broadly acceptable to all but the nuttiest watermelons on the neo-luddite fringe. Likewise on the other side it would still mean a significant reduction in things like petrol duty so the 'bring on the heat' brigade would be plicated. It forms a politically practical level that can be backed up by the numbers. The various factors in the Stern Report (such as assuming that globalisation goes into reverse) do mean that it is more of an upper bound than a medium level, but it is still useful as such.

Personally I would go for the price it actually takes to offset a ton of carbon on the open market, rather than the EU's balls up of a rigged market, since this is the actual price of sorting out the mess right now.

9:43 pm  
Blogger bgprior said...

That is a good description of how the design of a "carbon" market may result in the price of "carbon" in that market not reflecting the true social costs of carbon. But what makes you so confident that the offsetting market is perfectly structured to give a realistic price for carbon?

For instance, a lot of the schemes revolve around planting trees and counting the full carbon benefit over 80 years (if the trees last that long) in Year 1. Can you think of any other market in which you could count your chickens like that - no allowing for risk, no discounting, no interest?

Here is a simple thought experiment for you, to demonstrate that these markets are not selling real carbon-savings. It is hypothetically conceivable that we could achieve a "zero-carbon" world, where our excess carbon-emissions (beyond the annual capacity of the earth to absorb) were balanced by "carbon-savings" from offsetting, CDM and JI projects, such as renewable-energy, tree-planting, destruction of HFCs from refrigeration plants, and flaring of methane from landfills, and yet our net emissions remained as high as before. All you need is for people to increase their consumption of energy and production of other greenhouse gases at a rate equal to the development of these projects. As it happens, in places like India, China and Eastern Europe, where a lot of these "savings" are being made, they are more than doing that, so their net emissions continue to increase, even as the volume of "carbon-savings" that they have available to sell to us increases.

Zero-carbon, and yet still increasing atmospheric concentrations as fast as ever? How can that be? Because what is counted as carbon-negative for the purposes of these markets is not really carbon-negative. It is either carbon-neutral (i.e. neither increases nor reduces carbon emissions), counting chickens, or even carbon-positive - but less than would otherwise have been the case. It is false carbon-accounting.

As for the Stern Review, I find it strange that people who believe in markets think that the way to put a price on carbon is to calculate it. That wouldn't be right for any product, but for something as uncertain as climate-change, it's absurd. If you talk to economists who are involved in this sort of calculation, they will have to admit (if they are being honest) that the range of possible prices to take account of the full range of possible scenarios runs from a few pounds per tonne to hundreds of pounds per tonne. It is exceptionally simplistic to pick a number somewhere in the middle (median, mean or whatever) and say "this is the price of carbon". It is the common modern economic fallacy of thinking that the truth can be revealed by calculating the average.

We need markets to discover the real cost of carbon. But those markets need to allow for uncertainty, risk and differences in perception, and aim to discover the appropriate balance between adaptation and mitigation. None of the existing markets even come close to those basic requirements.

Until we have such a market in place, it will not be safe to claim that "these taxes add the external costs of climate change into the price of the ticket quite precisely". We don't know precisely what the cost of carbon is, so we don't know that it's been added in precisely. We don't even know if it's been added in approximately.

Moreover, whatever the real social cost of carbon, you can say that the APD does not internalise it correctly. This will take up a fair bit more space in an already long post, but let me copy for you a summary I prepared on the proportionality of the APD to the environmental impact of aviation:

APD applies to each occupied seat on commercial flights, so flights with lower occupancy pay less tax even though their external impact is the same. It is applied at half-price to the lowest class of seat on the flight, or to all seats on flights with only one class, which encourages airlines to offer no choice, even low-cost, all-business-class flights (as are beginning to operate to America and Asia), regardless of external impact and people's preferences. It is applied at one-quarter of the rate for flights inside Europe that applies for other flights. Europe is defined as including Turkey and the Canary Islands, but not Russia, Ukraine or North Africa, so people will be encouraged to fly to Tenerife or Ankara rather than to St Petersburg, Kiev, Tunis, Algiers or Casablanca, even though the latter are closer. Conversely, it does not differentiate between travel to relatively close destinations like those above, Quebec or New York and flights to Honolulu or Sydney.

Private aircraft and aircraft with a take-off weight of less than ten tonnes or equipped to carry fewer than twenty passengers are exempt. Given the VAT zero-rating for aircraft with a take-off weight of more than eight tonnes, operators gain a double tax advantage if they operate planes with a take-off weight of more than eight tonnes but less than ten tonnes or fewer than twenty passengers. Why the Treasury would want to encourage a particular class of Executive Jet or small passenger flight is not immediately apparent, but if that is the intention, it is clearly working.

11:30 pm  

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