Put out that Candle

Jun 04, 2019

Sunday Business Post, 2 June 2019 
There’s a saying that it is better to light a candle than curse the darkness.  Judging from the outcome of the European and local elections where the relative success of Green party candidates is being taken as a strong hint to all of us to stop burning fossil fuels, is it now actually better to curse the candle than light the darkness?

There can be absolutely no doubt of the need to reduce the volumes of CO2 being released into the atmosphere because of how it disrupts climate.  However you don’t have to listen very carefully to hear the rattle of bandwagons being boarded as first the Taoiseach, followed by IBEC, leap on the notion of climate action.  As all too often happens, the nebulous sense of a need to take action of some description is crystallising around that most stable of all government policy weapons, a tax.

Some time ago, a developed Western economy put in place a relatively modest charge with the aim of better managing and supplying a limited natural resource which is used by everyone.  Expressions of public outrage at the charge went so far as to involve assaults on workers putting equipment in place to operate the levy.  After two years of unseemly political wrangling, the new charge was shamefacedly and quietly dropped.  Many people had ignored the charge; those more civic minded who had already paid it were refunded. 

This particular environmental tax was called “Water Charges” and of course they were introduced here.  Despite the utter rejection of that particular environmental charge, five years on there is almost a sense of eager anticipation surrounding carbon taxes.  So what has changed?

Maybe attitudes have changed because of our newly regained (relative) prosperity.  Last weekend the BBC published a striking map of Europe showing the countries where there had been a resurgence of support for Green politicians and where there had not.  The green tide only hit the shores of the north-western Europe, an area more prosperous than the south-east where the resurgence was not evident at all.

This suggests to me at least that environmental awareness is somewhere close to the top of the hierarchy of human needs, and only felt when more basic issues like job availability have been addressed.  If that is correct, this could be a better time to introduce carbon taxes towards moderating the impact of climate change, and that they might land better than the ill-fated water charges of five years ago. 

What is not clear though is what a carbon tax will be designed to achieve and if political thinking on the matter is aligned with the view of the ordinary taxpayer.  If a carbon tax is intended to change consumption patterns, alternatives to the use of high carbon taxed fuels must be provided.  There are already carbon taxes in place in Ireland, but how many of us choose our energy or transport needs by reference to the amount of carbon tax being levied?  How many of us actually know how much tax carbon tax is levied on petrol or diesel or home heating oil?  (It’s about 5 cents a litre and upwards depending on the fuel)

Even if we did, it wouldn't matter.  Many people don’t have access to a public transport infrastructure that offers a commuting choice.  Many householders will opt to buy expensive oil or gas rather than deal with the up-front cost of converting their home heating systems.  Nor can consumers decide not to heat their homes nor commute to work.  That would not be a change in consumption patterns; that would be just hardship.  Without choices, a “carbon tax” is simply a “tax”. 

There is little encouragement to be taken from recent carbon management initiatives at official level.  The 2017 National Mitigation Plan is anodyne recommending as it does a “targeted balance” (whatever that means) between Exchequer-supported expenditure and fiscal, taxation policies and regulation.  It is hard to extract any challenging proposal from it.  In March of this year the Oireachtas Joint Committee on Climate Action seems to have achieved consensus on the need for carbon taxes, but then spent its time wrangling over ensuring how few of us will end up paying them.  The Committee also managed to make tax recommendations while admitting that it did not have enough financial information to choose the best way to spend the extra tax.  That is not reassuring.

If setting a policy to raise additional carbon tax, government should remember the critical lesson of the water charges debacle.  Provide the environmentally sound alternatives first, and then charge for them later.  The Green tide could go out leaving the sharp edge of a carbon tax rock on which well-intentioned environmental policies will founder. 

Carbon taxes can either prompt changes to consumption patterns, or support more environmentally friendly options.  If they don’t, they will fail as a policy instrument.  Yet none of us can afford to keep the existing candles lit.  We need to fix our reliance on fossil fuels, but setting a tax to do so should be the last step in the process.  Decide on and carry out the infrastructure spending first.

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