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A carbon tax is the answer

  • Published at 09:18 pm February 29th, 2020
Biz-OpEd
The solution to everything? Bigstock

How do we deal with climate change?

Just how do we all deal with climate change? We all do accept that it is happening, it’s a problem, a problem that needs to be dealt with, and we even all agree that it’s us humans, by our activities, causing the problem.

That’s the easy bit though -- for we then have to go on to observe that the dealing with it is complex.

As this newspaper points out : “Using a refrigerator/freezer for 24 hours can produce 116kg of carbon dioxide (CO2) a year, the microwave oven used 96 times a year will produce 39kg, 187 washes in the washing machine produces 51kg, and 148 uses of a dryer emits 159kg of CO2.”

So, we’ve got to look at the domestic appliances. But that’s not all. Growing rice emits methane, airplanes CO2, near any form of travel will have emissions. In fact, just living itself produces emissions. So, we’ve got to look at every aspect of life to deal with the problem.

Which brings us to that old thing about how we deal with everything. We can think of the 20th century as an experiment in that. The socialist economies tried to plan everything. Who made what, where, in what quantities and how. 

This was determined by government and the law, all of it. As looking east from the Brandenburg Gate in 1989 showed us, this produced grossly polluted societies where everyone was as poor as church mice. 

Perhaps planning everything, determining all through government isn’t the way to do it? 

The market-based economies did very much better, that’s exactly what produced that 1989 contrast. Even -- and this surprises many -- less pollution. 

We can also get to the same result through theory, not just observation. Hayek gained his Nobel -- his acceptance speech “The Pretence of Knowledge” is about the point -- for showing that the only method we’ve got for dealing with everything is everything.

It’s all so horrendously complex that any centre, any government, just never can have the information necessary to be able to plan everything. So, the only tool we’ve got for calculating the economy is that economy itself. More specifically, the price system is the only useful information source we’ve got.

When we come to climate change this then becomes, well, if we want to change everything then we’ve got to change the price system. Which is why near all economists are united in stating that the solution is a carbon tax. 

That is, not planning, rather just the one adjustment to the price system so that we can let the economy do all the hard work of calculating everything for us.

That’s why the Stern Review -- the first major government economic look at climate change -- recommended a carbon tax. That’s why James Hansen, ex-NASA, has done so. That’s why William Nordhaus got his Nobel, for working out exactly this solution.

The economy is simply too complex for anyone to be able to plan it, and yet we need to do something about climate change. Therefore our only useful option is to change the price system so that emissions are included in the decision-making about everything.

Take just the one problem: People commuting from home to work. We could say that we’re going to ban petrol cars, so everyone will use electric ones. But that just moves the problem to how electricity is generated. And batteries require emissions in their making: VW has pointed out that their electric version of the Golf produces more emissions than the diesel version if it does less than 120,000km in its lifetime.

But to concentrate just on the mode of transport is to ignore that there's much more out there. For example, perhaps people over time could be persuaded to move closer to work so their commute is shorter. Or more people work from home. Or only work in the office three days a week. Or, or ... which is the point being made.

Reducing transport emissions is not just about reducing the emissions from a particular amount of transport. It’s also to question the amount of transport we have. And the only way we’ve got when it comes to putting pressure upon everything at the same time, is to change that price structure so that the problem gets included in every decision about everything.

Dealing with climate change is indeed an important part of our current world. Which means that we need to be using the method of dealing with it that actually works. As the economists keep telling us, that’s a carbon tax.

So, we should be using a carbon tax shouldn’t we? And, given this near unanimity among the economists, anyone who isn’t recommending the carbon tax isn’t taking climate change seriously.


Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.

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