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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Calum Kerr on Governing the Digital Economy

With the publication of the UK Digital Strategy we’ve seen another instalment in the UK Government’s ongoing effort to emphasise its digital credentials.

As the SNP’s Digital Spokesperson, there are moves here that are clearly welcome, especially in the area of skills and a recognition of the need for large scale investment in fibre infrastructure.

But for a government that wants Britain to become the “leading country for people to use digital” it should be doing far more to lead on the field that underpins so much of a prosperous digital economy: personal data.

If you want a picture of how government should not approach personal data, just look at the Concentrix scandal.

Last year my constituency office, like countless others across the country, was inundated by cases from distressed Tax Credit claimants, who found their payments had been stopped for spurious reasons.

This scandal had its roots in the UK’s current patchwork approach to personal data. As a private contractor, Concentrix had bought data on a commercial basis and then used it to try and find undeclared partners living with claimants.

In one particularly absurd case, a woman who lived in housing provided by the Joseph Rowntree Foundation had to resort to using a foodbank during the appeals process in order to prove that she did not live with Joseph Rowntree: the Quaker philanthropist who died in 1925.

In total some 45,000 claimants were affected and 86 per cent of the resulting appeals saw the initial decision overturned.

This shows just how badly things can go wrong if the right regulatory regimes are not in place.

In part this problem is a structural one. Just as the corporate world has elevated IT to board level and is beginning to re-configure the interface between digital skills and the wider workforce, government needs to emulate practices that put technology and innovation right at the heart of the operation.

To fully leverage the benefits of tech in government and to get a world-class data regime in place, we need to establish a set of foundational values about data rights and citizenship.

Sitting on the committee of the Digital Economy Bill, I couldn’t help but notice how the elements relating to data sharing, including with private companies, were rushed through.

The lack of informed consent within the Bill will almost certainly have to be looked at again as the Government moves towards implementing the EU’s General Data Protection Regulation.

This is an example of why we need democratic oversight and an open conversation, starting from first principles, about how a citizen’s data can be accessed.

Personally, I’d like Scotland and the UK to follow the example of the Republic of Estonia, by placing transparency and the rights of the citizen at the heart of the matter, so that anyone can access the data the government holds on them with ease.

This contrasts with the mentality exposed by the Concentrix scandal: all too often people who come into contact with the state are treated as service users or customers, rather than as citizens.

This paternalistic approach needs to change.  As we begin to move towards the transformative implementation of the internet of things and 5G, trust will be paramount.

Once we have that foundation, we can start to grapple with some of the most pressing and fascinating questions that the information age presents.

We’ll need that trust if we want smart cities that make urban living sustainable using big data, if the potential of AI is to be truly tapped into and if the benefits of digital healthcare are really going to be maximised.

Clearly getting accepted ethical codes of practice in place is of immense significance, but there’s a whole lot more that government could be doing to be proactive in this space.

Last month Denmark appointed the world’s first Digital Ambassador and I think there is a compelling case for an independent Department of Technology working across all government departments.

This kind of levelling-up really needs to be seen as a necessity, because one thing that we can all agree on is that that we’ve only just scratched the surface when it comes to developing the link between government and the data driven digital economy. 

In January, Hewlett Packard Enterprise and the New Statesman convened a discussion on this topic with parliamentarians from each of the three main political parties and other experts.  This article is one of a series from three of the MPs who took part, with an  introduction from James Johns of HPE, Labour MP, Angela Eagle’s view and Conservative MP, Matt Warman’s view

Calum Kerr is SNP Westminster Spokesperson for Digital