Money To Burn

Jun 17, 2019

Sunday Business Post, 16 June 2019
“I mean the windmills, the turbines…, I mean the things that look like some hideous Venusian invasion marching over the moors and destroying the dales”. 

Not everyone apparently is comfortable with the infrastructure needed to protect the environment while at the same time providing the energy required for modern living.  If for no other reason, a quasi-Joycean description of wind turbines merits its inclusion in an article published on this Bloomsday.  Its author is one Boris Johnson, then Mayor of London when he made his observation back in 2013 about such infrastructure. 

It's almost hard to credit, but the green agenda has even muscled its way into the Tory leadership contest across the water.  Everyone knows that something needs to be done, and that includes our own Finance Minister whose department launched (yet another) public consultation on taxes this week. 

Unlike most tax consultations, this one has a slight wrinkle to it in that its focus is about how carbon tax revenues should be spent, rather than primarily about how they might be collected.  I've argued here before that carbon tax should be used as a prompt for choices to be taken.  However consumer choices are not available without prior investment to provide more carbon efficient options.

The Department of Finance now seems to want views on a wide range of carbon tax spending options.  Should the social welfare fuel allowance be increased to compensate poorer households as they meet their energy needs?  Or, at the other end of the commercial spectrum, should businesses be rewarded for moving away from the use of fossil fuels?

Hypothecated taxes, that is taxes which are earmarked for a particular purpose, leave themselves open to particular challenge.  These challenges might not be on the grounds of the fairness or otherwise of the tax itself, but could be based on the premise that people don't like the way the monies collected are being disbursed.  Countering such challenges may be part of the rationale behind having a consultation like this.  The Minister needs to be able to say that at least he asked, because concerns over how a carbon tax might be received by the general public are well founded. 

Over a decade ago the UK set up its own research resource specifically to examine policies in relation to climate change and the environment.  This facility, the Grantham Research Institute, published a report some 18 months ago which identified some of the reasons why individuals dislike carbon taxes.  They found that individuals don't believe that carbon taxes will be effective in reducing greenhouse gases.  Perhaps more significantly the researchers noted that individuals tend to distrust government, and thus tended to view carbon taxes as a backdoor way of raising government revenue rather than as an incentive to reduce emissions. 

These negative outcomes aren’t helped if the government communications about carbon tax are too statistical and data heavy.  People rarely change behaviour solely because of data from official sources.  Instead they need to be told about the personal and public wins because of the reduced use of fossil fuels following the imposition of additional taxation.  There is room for the persuasive explanation of associated benefits because of reduced air pollution and traffic congestion.

As with any tax, not all of the outcomes will be positive.  It needs be made clear how the production and delivery costs of goods will be affected by carbon taxes.  The Grantham Institute recommended that all communications be carried out on an ongoing systematic basis.  That has not been a feature of the Irish carbon tax regime to date, and communication of the issues doesn’t even feature as a potential spending item in the current public consultation.

Aside from the environmental objectives there is the pressing problem for government of fines being imposed for failure to meet EU 2020 climate targets.  The chair of the Public Accounts committee Sean Fleming is highlighting the tens of millions of Euro being spent on purchasing carbon credits from other, more carbon efficient countries, so that we can be seen to be meeting EU targets.  It doesn't seem sustainable that we can continue to buy our way out of the excess fossil fuel usage consequences indefinitely.

That’s particularly so when it’s pointed out how little carbon taxes currently cost us, relatively speaking.  Householders in a well-insulated small home pay a €20 per annum carbon tax premium on the kerosene they use to heat their homes.  That would equate to about 10% of the typical LPT bill.  It’s estimated that a motorist driving a petrol engine car pays a €55 per annum carbon tax premium.  That would equate to about 10% of the typical car insurance bill. 

Building the kind of windmills that Boris Johnson so disliked is not listed within the current consultation.  Nevertheless it’s that kind of highly visible environmental development that might persuade a sceptical public that the additional carbon tax being levied is being appropriately spent.  Just don’t charge us more tax on petrol or kerosene or coal when we still have no alternatives to their use.

Dr. Brian Keegan is Director of Public Policy and Taxation at Chartered Accountants Ireland.