COP27: The polluter must pay

18th November 2022

In the third and final blog in our COP27 series, our CEO, Steve Andrews, argues that there is only one way to curb pollution and achieve our climate goals: we must tax polluters.

If I drop some litter on the ground, I believe it is my responsibility to clean it up. Not the Council’s or another member of the public. Mine. I think pretty much everyone would agree with me.

Similarly, if I need to dispose of an old mattress and my local recycling centre charges for that, most of us would agree that that’s fair enough. I should pay. It’s going to cost money to appropriately dispose of that mattress. The alternatives are that the taxpayer pays (why on earth should they?) or I can dump it in a country lane (not just seen as unacceptable, but a crime for which I should be charged and fined).

So far, so uncontroversial.

But what about the most dangerous form of pollution, CO2?

Do I have a right to fly as much as I want and not pay for the consequences – the externalities as economists call them?
Do I have the right to eat whatever food I want, irrespective of the carbon impact?
Do I have the right to pump up the heating and walk around my house all winter in a T-shirt and budgie smugglers… and let someone else pick up half the bill?

Well, the answer in pretty much every country in the world is yes! For none of these consumer decisions am I asked to contribute towards the costs of cleaning up after me. I can consume with impunity and there’s no need for me to deal with the waste produced as a result.

Despite massive external costs resulting from all our CO2, such as, according to Reuters:

Over $148 billion as a result of just one wildfire in California
Over $125 billion as a result of just one hurricane in landing in Florida
ˆ40 billion as a result of floods in Germany and Belgium in 2021
$3 billion and rising as a result of the floods in Pakistan this year

Who pays for these pollution clean-ups? The vegan who has chosen not to fly pays as much as the carnivore who flies off on holiday twice a year. Or in the case of Pakistan, some of the poorest people in the world whose contribution to the total CO2 in the atmosphere is miniscule.

And who is going to pay for the extraordinary costs resulting from sea level rises and the storms of the future? Future generations, that is who.

This situation is crazy and yet there’s a simple solution: a meaningfully priced carbon tax. A carbon tax could help pay for the clean-up and will hasten the transition to a net zero world as we unleash the power of the market.

In 2018, Professor William Nordhaus of Yale University shared the Nobel Prize for economics for his work on carbon pricing. According to the Tax Policy Center in the USA, “His research shows that raising prices through, say, a carbon tax, is a far more effective and efficient way to lower carbon emissions than direct government controls… Higher prices will encourage firms and consumers to find alternatives to carbon-based products as well as encourage new technologies that will make those substitutes competitive. This has become the mainstream view among economists.”

‘Higher prices?’ I hear you shout. ‘You’ve got to be kidding’. Well, the genius of Nordhaus’s work was that he modelled the impact of redistributing the revenues from those taxes to the people who couldn’t afford the higher prices. And guess what? Even though they were being compensated for the higher prices, they still made much better decisions when it came to their carbon polluting choices.

So, congrats to Justin Trudeau and his government in Canada for introducing the first meaningful carbon tax for a major industrialised nation. In the words of Trudeau, “Pollution should not be free anywhere across this country.”

And ‘C’mon… let’s get it done’ to Rishi Sunak who is said to be considering it. The British people want it… and the change it will bring will be extraordinary. And ultimately, it’s the only fair thing to do. Why should the taxpayer, or a villager in Pakistan, or my children’s children pay for my polluting decisions today?