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.

Photo: Getty
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Mark Sampson's exit leaves the FA still trying to convince itself of its own infallibility

Football's governing body won't be able to repair the damage to its reputation in silence.

By the end, it appeared as if Mark Sampson was weathering the storm.

Despite personal reflections that the uproar and scandal that has surrounded his recent tenure as England women's football manger was taking a toll, he seemed, as of Tuesday night, firmly ensconced in the post he had held since 2013.

Player Eniola Aluko’s claims of bullying and racism against the coach – given little backing from teammates and, on balance, disregarded by consecutive enquiries – remained a persistent story, yet talk of a fresh investigation were trumped in importance by Sampson’s continued presence at training and in the dugout.

The BBC’s occasionally rabid attachment to proceedings gave the saga prolonged oxygen, but when Sampson seemed to retain the FA’s support – taking charge of the Lionesses’ 6-0 win over Russia on Tuesday night – the worst appeared to be over.

With hindsight, the vultures were simply sharpening their talons.

Sampson’s sacking – less than 24 hours after that Russia game – came after a report was unearthed detailing a historic complaint against him from his time coaching Bristol Academy – a job he left to take up the England post.

In what has long become customary, the FA received these claims nearly four years ago yet failed to act definitively – initially concluding that their new coach was “not a safeguarding risk”. However as the recent crisis depended, the full details of these initial accusations were allegedly not revealed to senior leadership.

Confirming Sampson's departure on Wednesday, FA chief executive Martin Glenn carried a pained expression reminiscent of former incumbent Mark Palios, who, in another entry in the annals of great FA crises, resigned in 2004 as a result of an affair with FA secretary Faria Alam.

Glenn will hope that his own head is not sought in the weeks ahead as his conduct throughout the Sampson saga is probed.

It also marks yet another turbulent 12 months for the beleaguered governing body, who almost exactly a year ago to the day, parted company with England men’s coach Sam Allardyce after just a single game in charge – the former Bolton and Sunderland coach getting the bullet as a result of transfer advice offered to undercover journalists.

The Allardyce departure was handled with uncharacteristic efficiency – a symptom, perhaps, of the initial scepticism behind his appointment rather than any particular reflection on his crimes.

With clear-eyed judgement, it is difficult not to have a portion of sympathy for Sampson – who, cleared by those investigations, maintained the very visible backing of his squad – right up until Wednesday’s bitter denouement.

That he’s been paid in full for the three-year contract signed last summer speaks for how soft a line the FA took on the events that forced the sacking – hoping, perhaps, for as quiet an ending as possible for both parties.

Regrettably, for the FA at least, considerable damage to their reputation will not be something they can repair in silence – not in an era where women’s football enjoys such a high profile in the national consciousness and the body continues to mark itself an easy target for criticism. 

The exact contents of those 2014 allegations and that report are sure to be known down the line – non-disclosure agreements willing – but are as of now only conjecture and innuendo.

Without details, it’s difficult to know how hard to judge Sampson. The facts of his performance on the pitch mark him out as having been an accomplished coach. That is no longer the exclusive measure of success.

Detractors will murmur darkly about there being no smoke without fire, while his supporters will point to the unique nature of the job and the often confrontational elements of its duties.

Sampson, at 34, is still a relatively young man and may be able to coach again once the rancour has subsided – although with a reputation severely bloodied, will look on the two-year salary windfall with some gratitude.

Despite Glenn’s insistence that his former manager is “clear to work” in the sport, it’s hard to envisage his career ever resuming in the women’s game.

The FA itself is again left rudderless as it tries to convince itself of its own infallibility. Flabby management structures and the perception of being an antiquated country club – valid or not – will be revisited with relish.

Perhaps positively, it could herald a more honest conversation behind what success looks like for the national game as a whole. Inclusiveness and development of a robust culture are often the first words to disappear from the vocabulary once on field results start to falter.  

For once, the identity of the next coach is not the urgent dilemma facing the FA.

You can follow Cameron on Twitter here.