The inability to implement fair, effective and far-reaching taxes on carbon emissions is the biggest obstacle facing governments in industrialised countries in achieving low-carbon transition. This lack of progress on using financial penalties to reduce carbon emissions is due to concerted opposition to carbon taxes in two forms; firstly from voters opposed to more ‘unfair’ taxes, and secondly from carbon intensive industries which form the backbone of many economies, with corresponding political influence. The current economic crisis is both an obstacle and an opportunity for transition to a low-carbon economy. Voters and industry must be persuaded of the necessity of using government money to redirect the course of economic development towards a more sustainable model.
Electorates in industrialised countries are generally suspicious of new taxes, many see the imposition of taxes on carbon or other pollutants as an excuse to increase the overall tax burden, often because the carbon-reduction logic behind such increases is hidden or absent entirely. Without a joined-up programme of tax increases on carbon emissions and corresponding tax reductions on income and carbon-friendly activities, voters are unlikely to give their approval. Tax reductions on income must be heavily progressive, since increases in carbon taxation are likely to hit the poorest members of society hardest, and taxes that inhibit economic growth must be used to stimulate activity elsewhere in low-carbon industries. The public in industrialised countries must be convinced that countries such as China and India are also carrying out effective carbon reduction programmes. It has been claimed that one quarter of China’s emissions stem from exports, and any taxation policy aimed at carbon reduction in industrialised countries should take this into account.
Carbon taxation aimed at transition away from a heavily carbon emitting economy is difficult to implement because carbon-intensive industries supply governments with support and tax revenue, and provide voters with jobs and desirable consumer products and services: they are the heart of industrialised economies. To overcome objections to reducing the size of carbon intensive industry the transition to a low-carbon economy must be presented as an engine of growth, a process that will provide jobs and tax revenue from a rapidly growing sector that relies on industrialised countries’ strengths: technology and innovation. A low carbon economy has the added benefit of also mitigating the consequences of future high energy prices. The current economic climate makes gaining support for tax increases even more difficult, unless the transition to a cleaner economy is seen as an opportunity for prosperity and security.
Governments should not only tax carbon-emitting activities heavily, but the money that comes from carbon taxes must be clearly hypothecated so that electorates and companies recognise which subsidies and incentives for low-carbon or carbon-reducing activities are implemented as a result, with economic benefits clearly stated. Overcoming the forces opposing carbon taxation can be done, but without financial incentives to reduce carbon emissions, transition to a low-carbon economy is a remote prospect.
Tristan Edmondson, Founding partner of Mint Research, a Beijing-based consulting firm