| Title | Carbon Taxes Do Work, and Don't Hurt. | |
| Date | Monday September 22 2014, @02:21AM | |
| Author | janrinok | |
| Topic | ||
| from the this-will-take-some-expaining dept. | ||
Many have argued that Carbon taxes are ineffective, and cause economic disruption resulting in unemployment and flight of manufacturing to less regulated jurisdictions, or that it allows carbon emitters to continue to emit merely by raising prices and paying additional taxes.
In 2001, the U.K. government introduced a new carbon tax amounting to 15 percent of a manufacturing plant’s energy bill. This was called the Climate Change Levy (CCL).
The legislation also, included a less onerous option under which plants in certain energy-intensive industries would have that carbon levy tax reduced by 80 percent (to 3%) in return for adopting quasi voluntary agreement to "specific targets" for energy consumption or carbon emissions. This was called a Climate Change Agreement. (CCA).
The CCA legislation was designed specifically to mitigate possible adverse effects of the CCL on the competitiveness of energy intensive industries.
A research team led by Ralf Martin of Imperial College London found far greater reductions in electricity use and carbon dioxide emissions among those that were taxed at the full CCL 15% rate than those to opted into the customized CCA agreement.
This came as something of a surprise because the Agreements were designed to make compliance easier, less arbitrary, and above all, cheaper. However, it appears that the 15% CCL energy bill price signal sent a far stronger message to industry than the more flexible 3% CCA agreement.
Further, when the economic results were tallied, there was no measurable effect in terms of production, industry exits, or employment impacts.
We find robust evidence that the price incentive provided by the CCL led to larger reductions in energy intensity and electricity use than the energy efficiency or consumption targets agreed under the CCA. The tax discount granted to CCA plants has been justified as a means of preventing energy intensive firms from losing competitiveness in international product markets due to the unilateral implementation of the tax and to the lack of international harmonization. Although this has been widely argued, we find no discernible impact on employment, gross output or productivity across groups, and we cannot reject the hypothesis that the CCL had no impact on plant exit.
The rather rigerous full study was published in the Journal of Public Economics, and the full text is available on ScienceDirect.com.
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