Reverse the decline in green taxes

The Green Fiscal Commission's report shows how the transition to a low-carbon economy can be helped by smart taxation
John Sauven
guardian.co.uk, Monday 26 October 2009 15.00 GMT
Talk is cheap, and valued accordingly. At some point ministers will need to translate their climate rhetoric into the language of real change – money. Since 1997 the proportion of government revenues derived from green taxes has actually fallen. The cost of motoring (despite the tabloid headlines) has fallen by 13% in real terms since 1997, while bus and coach fares have increased by 17% above inflation. For most of us, political speeches are a dull drone in the background while the message that always comes through loud and clear is spelt out in pounds and pence. If we're serious about confronting climate change – and everyone actively involved in the debate claims to be – then some taxes are going to have to rise.
That doesn't mean the total tax take, nor taxes on the poor and vulnerable – these complaints are distractions that can be easily dealt with in a variety of ways, most obviously by balancing increases in green taxes with reductions in other taxes, particularly those which impact most heavily on the least well off. This is about the change in approach that Labour promised back in the 90s, a reduction in taxing the positive products of our society, and an increase in taxes on the negatives – primarily pollution. What tax could be fairer than one where the polluter who damages the resources we hold in common – air, water, soil and a stable climate – pays for that damage?
But this is not just an issue of justice. The economic choices we make will determine whether we enter the low-carbon economy as world leaders, dominating export markets with clean technology made in Britain, or have to mortgage our economic recovery importing that technology while spending billions buying carbon credits from the nations who overtook us. Nations like Germany and Denmark, who remodelled their tax systems to encourage green innovation and are now the world leaders in those technologies.
The Stern review advocated three kinds of policy to reduce CO2 emissions: carbon pricing, technology stimulation and removal of the barriers to behaviour change. Green tax acts on all three. It prices carbon. It stimulates low carbon technology. And it incentivises behaviour change.
There's a rare confluence here of desperate need with competitive advantage. We don't have any choice over reducing our emissions if we want to retain any sort of economy at all, but we can use a gradual implementation of the sorts of measures proposed in the Green Fiscal Commission's report to make that transition in an advantageous way, giving us green jobs in new low-carbon industries, a better-trained construction industry expert in energy efficiency and low-carbon technologies; energy-efficient homes, with consumers keeping warm using less energy, and spending no more than before; and greater energy security with the UK being less vulnerable both to disruptions to supplies of fossil fuels and to energy price rises in oil and gas markets.
But all this comes at the cost of admitting that sometimes – perhaps rarely and in very specific circumstances, but sometimes – a tax rise can be a good thing.