Environment, Science

Green taxes: separating the wheat from the chaff

Energy prices are having a bit of a moment. Ed Miliband’s conference pledge to freeze bills for two years should Labour win the 2015 general election has injected an urgency and ferocity into a debate that often bubbles beneath the surface. But the Taxpayers’ Alliance, in dismissing the pledge as a “joke”, has said that the best way to bring down prices is to remove government subsidies to renewable energy projects, the costs of which are partly passed on to consumers.

gas-bill_2192876b

Photo: Telegraph

And now the energy companies have started announcing their annual price rises. SSE kicked the season off with a rise 8.2% price rise that it announced a couple of weeks ago – equivalent to £93 for the average family. They, along with the rest of the “Big Six” suppliers, have heavily hinted that green taxes are largely to blame. Ostensibly, the point seems to stand: costs imposed on providers are inevitably passed on to consumers. But is it really that simple?

Money raised by green levies on energy bills funds a diverse range of environmentally friendly projects, from subsidies for renewable electricity generation to providing insulation in pensioners’ homes. The government is said to be looking at cuts to such programmes as a way of reducing bills – and, presumably, so that it can present voters with its own plan for reducing the cost of living.

However, green taxes need not be as expensive and economically stifling as people think. Only a small proportion of SSE’s price rise can be directly attributed to green policies. Leaving aside SSE’s boast that “above-inflation increases” in dividend payments to shareholders are part of “what we do”, the Institute for Public Policy Research finds that only £15 of the planned rise is due to government programmes – that’s less than one sixth of the total. All in all, SSE admits that government levies account for only 10% of their charges to consumers.

Nevertheless, with average bills now well north of £1000, one could argue that £100 is still too much to demand. But that would be to look at only a small part of the bigger picture.

Late last year, the government’s Committee on Climate Change (CCC) reported that using funds from green taxes to develop Britain’s renewable capacity would, in the coming decades, raise bills by a further £100. But that compares very favourably with the £600 increase that the CCC predicted would result from continued reliance on gas: climbing international gas prices are responsible for some two-thirds of the price increases of the last ten years. Slightly higher bills today look likely to afford considerable savings in future, providing the necessary investments are made.

Green taxes can work more generally, too. In 2008, the Canadian province of British Columbia introduced levies on fossil fuels. All of the money raised pays directly for reductions in income tax. The programme has been a great success. Research published over the summer in the journal Canadian Public Policy finds that fuel consumption in the province has fallen by almost a fifth compared to the rest of Canada, and that there has been no noticeable impact on economic growth. What’s more, British Columbia has the lowest income tax rates in the country. Perhaps unsurprisingly, 64% of residents support the carbon tax.

The only caveat is that these taxes should not incentivise a switch to biomass growth: research has shown that this actually increases carbon emissions, contrary to such a scheme’s objectives. Economic theory suggests that all fuels should be taxed equally if there is to be a genuine reduction in emissions.

Green taxes need to be considered carefully. Get them wrong, and the political, economic and environmental consequences can be awkward. But taking energy companies’ words at face value may not lead to the best informed of debates.

25/10/2013

About Author

Peter Sheehan Still faffing around after three years at Concrete, Peter is back for a second year as deputy editor. Presumably that means that last year wasn’t a complete disaster, but you never can tell… Peter has pledged to spend this year delegating as much work as possible to his colleagues, thus leaving him free to further his long-standing efforts to become Concrete’s one-man answer to Peter Mandelson and Malcolm Tucker.



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