February 21, 2016

Yes to a tax on carbon. But no to hidden subsidies or it going to tax revenues profiteers/distorters

I come from an oil extracting country, Venezuela, and so of course I should be horrified of a carbon tax that, one way or another, would affect the value we get from liquidating a barrel of non renewable oil forever.

But I am not, because in order to act responsibly towards the planet that our children will inherit, I accept the need to impose some restrictions on its use.

And I therefore entirely agree with Tim Harford in that “We can’t rely on high oil and coal prices to discourage consumption: the world needs — as it has needed for decades — a credible, internationally co-ordinated tax on carbon.” “Cheap oil and its consequences”, December 20.

But how the revenues produced from that tax should be handled, is an issue of utmost importance.

Let me start with the hardest concept to understand for all who do not posses oil on their own. The reason why you can charge a very high tax at the pump is the very high convenience value consumers give to petrol/gas. And so it is not really correct for a country that did not give up that non-renewable resource, to, by means of taxes, capture all that rent for its own benefit.

In some ways it would be like if oil extracting countries imposed a tax on the consumption on all foreign products that have especial attractiveness to their local consumers… a kind of luxury tax directed solely to the luxuries provided by others. What would for instance France say about a tax that in an oil extracting country they taxed French wines valued over a certain price range?

And we are not talking about peanuts. As I wrote in a letter published in FT in 2003 at that time, before the big increase in oil prices, for every $1 received by the one supplying the petrol, the European taxman got $4. And sometimes at that time, like in Germany and Spain, much of those tax revenues were even used to subsidize coal, like rubbing salt into the wound, and this even while the petrol tax was justified in environmental terms.

So how do I suggest the carbon tax revenues are applied? I have no defined idea about it, except wanting to avoid that some carbons get a better treatment than others, and that all those revenues fall into the hands of vulgar tax revenues profiteers or distorters.

What if all carbon taxes collected in the world were put in a big pot and thereafter just distributed in equal shares to all citizens of the world? That could both dent existing world inequalities (a stimulus for the economy), and increase the general interest in the fight for a better environment.

@PerKurowski ©