Global warming and externalities

How a carbon tax can "solve" global warming

Tim Worstall (yes, when he's not trolling he's quite good) has a piece up at the Telegraph explaining how carbon taxes work, and why they could "solve" global warming:

In economic theory, the problem here is that my actions that create emissions also damage someone else. But I don't have to pay for the damage I've caused. This is called an externality and the economists' solution is something called a Pigou Tax. That is, we add a tax equal to the damage I'm doing, so that I do pay for that damage.

Worstall cites the Stern Review's figure of $80 per tonne of CO2 as a good starting ground for where to set a carbon tax, and explains why it's the most efficient way to deal with climate change:

As a made-up example: my car emits one tonne CO2 when I drive it to buy fresh bread for lunch. That's $80 of damage I cause in the future by doing so. But the benefit to me is trivial: if you paid me 50p (alright, £5 in the rain) I'd cycle instead and not emit the CO2. The value to me of driving is that 50p; the costs to someone else are the $80. Clearly, this is a bad deal for everyone else: they're bearing costs much greater than the benefit to anyone at all. An $80 a tonne tax would get me cycling and that would be a good thing: I've stopped doing something where the benefit is lower than the cost.

However, we've a pregnant woman in pre-eclampsia. She needs to go to hospital in an ambulance which is going to emit that tonne, that $80 worth of CO2. Without it she and the child will be dead; with it they'll be fine. We usually value a statistical life in the £2 – 3 million range. That's what the railways will spend on safety to save a life on average. Or we could use the £50,000 that NICE applies to one year of good-quality life. If your drug treatment costs more than this, then you won't get it on the NHS; less and you might. Different numbers but much the same outcome: burn that fuel and damn the $80 of future damages, because they're much lower than the benefits that are achieved right now from burning that fuel.

This efficiency is why a carbon tax – or the harder to impose, but fairer and economically identical "cap-and-trade" system – really is the best way to deal with global warming. By definition, it deals with "bad" emissions while allowing "good" ones, and it does so far better than a legislature could ever hope to with a sprawling network of tariffs and subsidies.

But Worstall does somewhat overstate the case in one area, when he writes:

The other part [of a reader's question] – what's the point if we're not going to spend the money on green projects? – misunderstands the purpose of the tax. We're not trying to raise money: we're trying to change prices.

Changing prices is only half the effect of a carbon tax – or any Pigou tax. The other half is compensating the "victim" for their loss.

Suppose we live in a little two person economy where every tonne of CO2 you produce causes $80 worth of flooding damage to me. Imposing a carbon tax solves half the problem, in that it stops you polluting if you only get $10 benefit from it. But it doesn't solve what happens if you can make $100 from polluting.

In that case, you pay $80, and make $20 profit. I'm still left with $80 of flooding damage. The proper use of the money raised is to compensate the me for that loss. Otherwise, a tax which merely sorts out externalities becomes a revenue-raising tool of Government. In practice, this means that money raised from a carbon tax should be used on "green projects".

Which would annoy Worstall's fellow Telegraph blogger James Delingpole.

Anti-carbon tax protestors in Australia. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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In the 1980s, I went to a rally where Labour Party speakers shared the stage with men in balaclavas

The links between the Labour left and Irish republicanism are worth investigating.

A spat between Jeremy Corbyn’s henchfolk and Conor McGinn, the MP for St Helens North, caught my ear the other evening. McGinn was a guest on BBC Radio 4’s Westminster Hour, and he obligingly revisited the brouhaha for the listeners at home. Apparently, following an interview in May, in which McGinn called for Corbyn to “reach out beyond his comfort zone”, he was first threatened obliquely with the sack, then asked for a retraction (which he refused to give) and finally learned – from someone in the whips’ office – that his party leader was considering phoning up McGinn’s father to whip the errant whipper-in into line. On the programme, McGinn said: “The modus operandi that he [Corbyn] and the people around him were trying to do [sic], involving my family, was to isolate and ostracise me from them and from the community I am very proud to come from – which is an Irish nationalist community in south Armagh.”

Needless to say, the Labour leader’s office has continued to deny any such thing, but while we may nurture some suspicions about his behaviour, McGinn was also indulging in a little airbrushing when he described south Armagh as an “Irish ­nationalist community”. In the most recent elections, Newry and Armagh returned three Sinn Fein members to the Northern Ireland Assembly (as against one Social Democratic and Labour Party member) and one Sinn Fein MP to Westminster. When I last looked, Sinn Fein was still a republican, rather than a nationalist, party – something that McGinn should only be too well aware of, as the paternal hand that was putatively to have been lain on him belongs to Pat McGinn, the former Sinn Fein mayor of Newry and Armagh.

According to the Irish News, a “close friend” of the McGinns poured this cold water on the mini-conflagration: “Anybody who knows the McGinn family knows that Pat is very proud of Conor and that they remain very close.” The friend went on to opine: “He [Pat McGinn] found the whole notion of Corbyn phoning him totally ridiculous – as if Pat is going to criticise his son to save Jeremy Corbyn’s face. They would laugh about it were it not so sinister.”

“Sinister” does seem the mot juste. McGinn, Jr grew up in Bessbrook during the Troubles. I visited the village in the early 1990s on assignment. The skies were full of the chattering of British army Chinooks, and there were fake road signs in the hedgerows bearing pictograms of rifles and captioned: “Sniper at work”. South Armagh had been known for years as “bandit country”. There were army watchtowers standing sentinel in the dinky, green fields and checkpoints everywhere, manned by some of the thousands of the troops who had been deployed to fight what was, in effect, a low-level counter-insurgency war. Nationalist community, my foot.

What lies beneath the Corbyn-McGinn spat is the queered problematics of the ­relationship between the far left wing of the Labour Party and physical-force Irish republicanism. I also recall, during the hunger strikes of the early 1980s, going to a “Smash the H-Blocks” rally in Kilburn, north London, at which Labour Party speakers shared the stage with representatives from Sinn Fein, some of whom wore balaclavas and dark glasses to evade the telephoto lenses of the Met’s anti-terrorist squad.

The shape-shifting relationship between the “political wing” of the IRA and the men with sniper rifles in the south Armagh bocage was always of the essence of the conflict, allowing both sides a convenient fiction around which to posture publicly and privately negotiate. In choosing to appear on platforms with people who might or might not be terrorists, Labour leftists also sprinkled a little of their stardust on themselves: the “stardust” being the implication that they, too, under the right circumstances, might be capable of violence in pursuit of their political ends.

On the far right of British politics, Her Majesty’s Government and its apparatus are referred to derisively as “state”. There were various attempts in the 1970s and 1980s by far-right groupuscules to link up with the Ulster Freedom Fighters and other loyalist paramilitary organisations in their battle against “state”. All foundered on the obvious incompetence of the fascists. The situation on the far left was different. The socialist credentials of Sinn Fein/IRA were too threadbare for genuine expressions of solidarity, but there was a sort of tacit confidence-and-supply arrangement between these factions. The Labour far left provided the republicans with the confidence that, should an appropriately radical government be elected to Westminster, “state” would withdraw from Northern Ireland. What the republicans did for the mainland militants was to cloak them in their penumbra of darkness: without needing to call down on themselves the armed might of “state”, they could imply that they were willing to take it on, should the opportunity arise.

I don’t for a second believe that Corbyn was summoning up these ghosts of the insurrectionary dead when he either did or did not threaten to phone McGinn, Sr. But his supporters need to ask themselves what they’re getting into. Their leader, if he was to have remained true to the positions that he has espoused over many years, should have refused to sit as privy counsellor upon assuming his party office, and refused all the other mummery associated with the monarchical “state”. That he didn’t do so was surely a strategic decision. Such a position would make him utterly unelectable.

The snipers may not be at work in south Armagh just now – but there are rifles out there that could yet be dug up. I wouldn’t be surprised if some in Sinn Fein knew where they are, but one thing’s for certain: Corbyn hasn’t got a clue, bloody or otherwise. 

Will Self is an author and journalist. His books include Umbrella, Shark, The Book of Dave and The Butt. He writes the Madness of Crowds and Real Meals columns for the New Statesman.

This article first appeared in the 25 August 2016 issue of the New Statesman, Cameron: the legacy of a loser