In a tale of neoclassical economics, it is being argued that policymakers must be prepared to trade off positive environmental outcomes and GDP growth.
As now, in places such as the European Union at least, this myth has been overcome with policymakers now referring to green taxes as “growt!h-friendly” and are supportive of a European green deal. In combating climate change, a dangerous front has been dealing with not the information but its the misinformation part of it hence myth-busting has been relatively successful – and for good reason.
None of the huge body of scientific research conducted to examine the impacts of carbon taxation have produced any evidence that it has a negative impact on GDP growth. Instead, research has indicated that a carbon price is the most efficient and effective instrument to reduce GHG emissions, whether implemented by means of taxes or trading.
When it comes to carbon taxation and social equity, however, many myths persist. It is received wisdom that carbon taxes are unfair and inequitable and have a disproportionately negative impact on lower income groups. The reality is more complex.
In a recently published study by the Tax Justice Network Africa on Myth-busting and Mainstreaming Carbon Taxes, it noted that without additional welfare spending, carbon taxes may lead to price increases that have negative impacts on lower-income households. On the other hand, carbon taxes can raise really substantial amounts of revenue.
A tax of US$70/ tCO2 has the potential to raise revenues worth 1-3% of GDP in most countries, or 2-4% of GDP in major developing economies such as China or India. This implies that in low- and middle-income economies, with an average tax-to-GDP ratio of just 12%, carbon taxes can raise 25% more revenue. In most of low and middle-income countries, the revenues a carbon tax of US$70/ tCO2 could raise dwarf current spending on health, education or welfare. Carbon taxes have the potential to act as a hugely powerful engine for change, reducing inequality and establishing targeted welfare programmes and free health and education systems, as well as funding the transformative changes required to tackle and adapt to the climate emergency.
According to TJNA, the bottom 50 percent of emitters, almost exclusively from developing countries, are responsible for just 13 percent of global emissions hence if there would not be an implementation of a carbon tax for social equity reasons, then the 10 percent of polluters get away without paying for the impact of their excesses on the global climate. Seen in these terms, and assuming that appropriate redistributive mechanisms are in place – free installation of small-scale renewable energy such as rooftop solar, solar water heating or biogas, distribution of clean energy-efficient stoves, cash transfers, or a carbon dividend of which 45 percent is paid by the top 10 percent of polluters, has an air of “Robin Hood” about it. The final dimension of inequity relates to climate change outcomes: the devastating impact of the crisis will be most felt by the poor and vulnerable groups, as they will be least able to adapt or respond.
In contrast to big business, which spends billions lobbying governments every year, civil society is underfunded and poorly organised in comparison, and up until now, has tended not to focus on tax policy.
Some citizens are passionately interested in taxes and recognise their potential to shape our societies, looking to Scandinavian countries as an example. All Scandinavian countries have a carbon tax: Sweden has the mother of all carbon taxes, at a rate of US£127/tCO2. Nevertheless, life in Sweden is relatively normal: there are no blackouts, people still drive Volvos, dance to Abba and shop at IKEA, while Sweden leads the way in decarbonising electricity, heating and transport.
All over the world, street protests are putting climate action centre stage: schoolchildren and students are participating in “Fridays for Future” strikes, while citizens old and young are joining the Extinction Rebellion’s calls for decarbonisation. In October 2019, 400 scientists joined protests on the streets of London, several of them contributors to IPCC reports on climate change. Yet to go further and achieve decarbonisation, these movements need to identify and articulate specific policy demands. Policy wonks contend that the best carbon tax would be a global one – to prevent distortions between countries and keep decarbonisation as efficient as possible.
The question is: How might a global carbon tax be achieved? The Extinction Rebellion in the UK is calling for a citizen’s assembly. Taking a global approach and creating a number of citizen’s assemblies, one for each continent, or part of a continent, would take the instrument debate out of clandestine meetings between big business and policymakers and move it into the public domain, to a place where evidence is public and subject to scrutiny. Citizen’s assemblies would put the evidence in favour of carbon taxation, alongside other instruments, before a wide audience. It would give experts the opportunity to explain why carbon taxes are a good thing, that they can be effective, fair and equitable, and that their revenues can be used to reshape the societies and economies we live in. I believe that under such circumstances, the case for a carbon tax would win out.
“Alternatively, we can pass the problem on to future generations and leave them to look on, powerless, as the climate emergency transforms our societies and economies in ways that we cannot imagine. Putting this choice in the hands of global citizens now is the only equitable way forward”, said Jacqueline Cottrell, environmental fiscal policy consultant
Mainstreaming climate policy discussions through citizen’s assemblies would create a platform for the planet’s inhabitants all to be vocal in our support of ambitious climate policy in general and carbon taxes in particular. The results could be fed into UNFCCC negotiations and drive the step change in climate policy which is both urgently necessary and sadly lacking.