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Tax carbon consumers to see real action on climate change

As delegates gather once again for climate talks in Bonn, the question has to be asked: after decades of conferences, committees, procedures and protocols, is the multilateral approach to tackling climate…

Multilateralism, so much hot air. Sebastian Kahnert

As delegates gather once again for climate talks in Bonn, the question has to be asked: after decades of conferences, committees, procedures and protocols, is the multilateral approach to tackling climate change working?

What alternative routes are there that would lead to more action with less discussion? Are unilateral measures – where states take steps to reduce greenhouse gas emissions without international agreements – so far-fetched?

One measure that could have an effect if enacted by economic superpowers such as the US or the European Union is a carbon consumption tax. This is one of several progressive ideas to be presented at the congress Global Challenges: Achieving Sustainability taking place in October in Copenhagen.

A carbon consumption tax, even if introduced by the EU and the US, would be a unilateral measure in the sense that it does not emerge from an organised collective international organisation such as the UNFCCC (the UN climate change body), but rather from the choices of individual states.

Unilateral measures are usually considered to be “politically correct” if building on existing efforts to curb greenhouse gas emissions. But the carbon consumption tax we propose would also reduce greenhouse gas emissions worldwide – action deemed less politically correct as it is deliberately aimed at affecting behaviour in other states. As a tax on products, it would be a trade measure and would consequently have to be designed to legally conform with World Trade Organisation rules in order to survive potential legal challenges. Some states might even reject such initiatives simply because they originate from the US or EU.

Leading from the front

Despite its own complications, unilateralism seems more appealing than multilateralism if the latter fails to deliver results on issues of great importance to future generations. While it may be seen as politically incorrect even to propose such an idea, it could be the only pragmatic and viable solution to today’s global challenges.

A carbon consumption tax would effectively curb greenhouse gas emissions in all countries that want to export their goods to countries that impose it. For a long time such proposals have been seen as some type of “eco-imperialism”, or economic protectionism designed to keep developing countries from access to markets for their products. But the harsh reality of today’s climate challenges may be sufficient to change that view.

First, exporting is entirely voluntary – if countries can find other trading partners with less stringent requirements they are welcome to take their products elsewhere. Second, developing countries – such as China – are themselves beginning to take their own steps to curb pollution because their environmental problems are becoming too large. So a consumption tax may prompt investment in modernised production lines and manufacturing processes, with the subsequent effect of also improving working conditions, which in many developing countries is a cause for concern.

But a consumption tax implemented by the EU and US would go further, effectively assigning responsibility for climate change. Under the UNFCCC and the Kyoto Protocol, developing countries were not subject to any restrictions on greenhouse gas emissions. The language of the agreements refer to “common but differentiated responsibilities”, without further explanation. This leads to a situation where developed countries are faced with environmental measures that are too costly to implement if competing economies in the developing world are not required to do the same.

Changing the focus of regulation

A carbon consumption tax, however, would change the locus of regulation from production to end consumption or use. For example, about a third of China’s greenhouse gas emissions are accounted for by goods exported for use or consumption elsewhere. Shifting the burden from production to consumption would completely reconfigure the current impact on climate change action (or inaction), and if there is still any hope for a legally binding post-Kyoto Protocol with hard targets for at least some countries, this may be as good a time as any to do so.

When analysing the responsibility for climate change, it’s important to note that it is inherently a global problem and part of mankind’s common concern. Emissions from a country such as Denmark affects all other countries just as much as those from China or Britain or the US, and so are of equal interest to all people from all nations.

Why not adopt a legislative framework that puts the burden on the consumer, rather than require nations to enforce against the producer? Decades of enforcing the “polluter pays principle” on a global scale has led to inefficient rules that have produced little, if any, reductions in greenhouse gas emissions, as few countries are willing to shoulder the additional costs.

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44 Comments sorted by

  1. Steven Crook

    Programmer and software designer at Currently resting

    "Decades of enforcing the “polluter pays principle” on a global scale has led to inefficient rules that have produced little, if any, reductions in greenhouse gas emissions, as few countries are willing to shoulder the additional costs."

    The polluter pays principle hasn't been enforced on a global scale, neither has a working price on carbon. Where such attempts have been made they've been gamed by countries keen to protect their home grown industries. Hence the fiasco of the EU ETS.

    Often, the…

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    1. David Arthur

      resistance gnome

      In reply to Steven Crook

      "Often, the problem with ineffective rules is a lack of enforcement rather than the rules or penalties if those rules are broken. I see nothing in these proposals that's likely to change the situation. "

      In the case of carbon emission trading, I fear that lack of enforcement is not the problem - emission permits are derivatives, which are traded in derivative markets by people very much smarter than you or I, people whose raison d'être is to make their fortune by gaming the system.

      Economist Clive…

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  2. Chris O'Neill

    Retired Way Before 70

    "Tax carbon consumers"

    This will be of only academic interest in Australia soon. Australia won't have a Carbon price for much longer.

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    1. Michael Parker

      Environment and Energy Editor at The Conversation

      In reply to Chris O'Neill

      Australia's carbon price is a tax on producers, not a tax attached to their products paid for by the consumer.

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    2. Geoff Henley

      Research Associate in Health Statistics at Flinders University

      In reply to Michael Parker

      "carbon price is a tax on producers"

      Which in many cases is passed on to the consumers in the form of higher electricity prices and higher prices for other goods.

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    3. Michael Shand

      Software Tester

      In reply to Michael Parker

      Yes but the critique of the carbon price is that it hits consumers

      that's been the argument against it, how does proposing to hit consumers directly get around that argument?

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    4. Jeremy Culberg

      Electrical Asset Manager at Power Generation

      In reply to Michael Shand

      Michael, the theory is fairly simple - adjust other taxes for those who can least afford it, so that the hit from the carbon price is neutral (that's been done with the still existing ETS). Where change is driven is through that glorious mechanism known as market forces.
      Take two countries, such as France (80% nuclear), and Australia (almost entirely powered by coal). For a product which is power intensive (aluminium for example), France will be able to produce the same product, paying its employees…

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    5. Michael Shand

      Software Tester

      In reply to Jeremy Culberg

      Thats the Australian scheme

      My only issue with this is that they suggest they get around the "Hitting consumers" line of attack but they don't, if they stopped claiming this, I would be okay.

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    6. David Arthur

      resistance gnome

      In reply to Geoff Henley

      Mr Henley quotes "carbon price is a tax on producers", to which he adds "Which in many cases is passed on to the consumers in the form of higher electricity prices and higher prices for other goods."

      Well, perhaps, Mr Henley - but suppose some manufacturer who consumes electricity in order to manufacture goods for retail consumption chooses to source his factory's power from solar or wind? Once the carbon consumption tax is high enough, he's saving money by using renewable energy, which gives his…

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  3. Ian Bryan

    logged in via Facebook

    Lots of good perspectives here. And a timely article, since the 1st-ever economic impact study for a carbon tax was just released in the USA. The report was created by simulating a tax on the carbon-dioxide content of fossil fuels. The tax would start at $10 per ton, increasing at $10 per ton each year. Then by redistributing the revenue from the tax would be returned to households in equal shares as direct payments, they claim it will somehow would add 2.1 million jobs over ten years. They also project that improvements in air quality would save 13,000 lives a year, though that number is more guess than evidence-based. Emissions would decline by 33 percent, they estimate.

    Just google "REMI Carbon Tax Study" (I'd post a link but I don't want anyone to delete the comment :) )

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  4. Brad Farrant

    logged in via email @hotmail.com

    Thanks Laura and Henrik. Given the excruciatingly and devastating slow progress of international negotiations to achieve the emission reductions that are required to prevent dangerous global warming I think it is very wise and important to explore all other options. It would be great to see a nation seriously consider what you suggest. Even just having the conversation would surely be a good thing. Unfortunately I don't think the Abbott government will be leading the way on this or any other serious policy option.

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    1. David Arthur

      resistance gnome

      In reply to Brad Farrant

      Gday Brad, I'd go so far as to argue that what Laura and Henrik propose isn't a "fall-back" option is we can't get emission trading up, but is far and away preferable and superior to emission trading.

      I suggest you have a look at Ian Bryan's comment to this page (reference to "REMI Carbon Tax Study" - http://www.remi.com/carbon-tax-study), and my reference to Clive Spash's "Brave New World of Carbon Trading" (http://www.clivespash.org/MPRA_paper_19114.pdf) - the paper which got Spash sacked from CSIRO when KRudd was trying to paper over the flaws in his CPRS.

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  5. Laura Nielsen

    Associate Professor of WTO Law at University of Copenhagen

    Dear All,

    Thank you for all your comments and reactions. It usually sparks conversation when suggesting a) unilateralism and b) climate change.

    With all the depressing facts in mind, I want to add just one good thing to the conversation: when I suggested this to the Danish Minister of Foreign Affairs, Martin Lidegaard, who is the former Minister of Climate Change - at an open meeting at the University of Copenhagen some months ago, he found the suggestion to be a good one!

    We will try to sophisticate…

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  6. Casey Jones

    Diving Board Of Directors

    Interesting article. In principle I would tend to agree but in practicality the overhead of measuring (and keeping the measurements up-to-date/accurate) of the amount of Co2 produced for every single good and service would hand the anti-red-tape people (you know who) a significant political advantage.

    I think that every country in the world should have a carbon tax similar to Australia's, and a RET, but with the income from the carbon tax going into consolidated revenue. Let the RET help renewable…

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    1. Steve Hindle

      logged in via email @bigpond.com

      In reply to Casey Jones

      I agree. I am keeping an open mind to the authors suggestion, but it sounds like a lot more complexity and red tape taxing carbon at the consumption end rather than at the production end where it is concentrated and more easily measured. Any system that requires a large department of public servants to administer will have an easily exploited target placed over it.
      We were on the right track when we nearly had an agreement between Rudd and Turnbull a few years ago, but sadly the politics got in the way.

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    2. Laura Nielsen

      Associate Professor of WTO Law at University of Copenhagen

      In reply to Casey Jones

      Hi, I think our point is much the same: it would be great if all countries did something, but they don't. And therefore we suggest something the EU and the US can do that will affect everybody, but as Steve notes below, it will of course be difficult to ´design a system that will not ultimately be so complicated to calculate so that it works as a trade barrier. With the development of an international standard to calculate the carbon footprint, that is however possible to avoid. And the international standard could also be developed by other great economic powers and in that way lead to other countries adopting the same system. Best, Laura

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    3. Casey Jones

      Diving Board Of Directors

      In reply to Laura Nielsen

      I think there is a huge amount of suspicion about monies which are collected via carbon taxes and ETS systems crossing over borders. Politically speaking it would be much better to keep these monies 'in country', and better yet to put these monies to use in the most identifiable pressing need of the country in which they are collected.

      I think it would be far easier to get countries on board to take climate change action if the pitch was to collect a carbon tax but do what you will with the revenue. As long as there is a price signal on carbon it matters not what they then do with the revenue. They could hand it straight back to the people who paid it and it would still be effective as a mechanism.

      Here I am speaking about developed countries not developing countries.

      Actually with the news that Palmer is going to support Abbott in abolishing the carbon tax I now wonder if Australia is actually a 'developed country'.

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  8. MItchell Lennard

    Researcher - Distributed Energy Systems

    Thanks Luara and Henrik,

    I think we are likely to see a whole range of unilateral actions of the type you are suggesting. While we confront a global issue it is unlikely that Multi-lateral action alone will ever get the outcome we need.

    I think you could look to the International Civil Aviation Organisation (ICAO) as a possible model. ICAO is a set of multi-lateral frameworks that underpins many more specific bilateral agreements between countries who gain mutually by having those Bi-Lateral agreements…

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  9. Les Johnston

    logged in via Twitter

    As a first step, we could introduce carbon labelling of products. This would at least provide a consumer with some basic idea of how much carbon has gone into the production and use of the product. For example: labelling of canned foods - reflect production, transport and end use carbon release. Hard concept to get across but it would provide consumers with some basis for choosing one product over another - or deciding not to consume at all.

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    1. Laura Nielsen

      Associate Professor of WTO Law at University of Copenhagen

      In reply to Les Johnston

      Hi Les, well the very first step is to start discussing internationally how we calculate the carbon footprint, if we got such a standard, all countries could use the same label. But in trade law we've long studied those labels where the consumers makes the ultimate choice and need I say more than we still sell quite a lot eggs from caged hens in Denmark! In other words, some of us spend a lot of money on buying the expensive versions with the right labels on, but some don't - and some even don't because they can't afford it. By adding a high tax to the polluting products, we therefore assist the consumers to purchase the more green versions which are not taxed as heavy as the more polluting products. The key is thus to find an economist who can calculate how much we need to tax the products before the green versions become more attractive. This would also - as we write - create a competition to produce the most green.

      Best, Laura

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  10. Michael Shand

    Software Tester

    It seems you have taken Abbott's lie about the carbon tax and proposed it as policy

    That is Abbott says the carbon tax impacts consumers and that this is the reason we can't have it

    Your solution is to have a carbon tax that impacts consumers.....do you realise what your suggesting?

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    1. Laura Nielsen

      Associate Professor of WTO Law at University of Copenhagen

      In reply to Michael Shand

      Dear Michael, as you can see from my comments above, we are avoiding hitting the consumers by this type of tax. As I have clarified elsewhere, our proposal is not to be confused with a "regular" type of carbon tax put on the production. Best, Laura

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    2. Michael Shand

      Software Tester

      In reply to Laura Nielsen

      Sorry, your not Australian, which explains why this doesn't make sense to an Australian

      The rhetoric down under is that a price on carbon is bad because it impacts consumers

      Even though our carbon price is a price on producers - hence the lie

      So the australian government are saying "Look at this price on carbon, it is impacting consumers but not the producers" and you propose to hit the consumers but not the producers

      So when you suggest that we put the price on consumers....from an Australian political view point, that is insane as it is suggesting the very thing the current government is attacking even though it currently doesn't exist

      From an Australian view, This idea isn't new, interesting or very original

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    3. Laura Nielsen

      Associate Professor of WTO Law at University of Copenhagen

      In reply to Michael Shand

      Hi, we are not talking about the same and as you can see from the remarks above, we are not "hitting the consumer" but outcompeting polluting products. Best, Laura

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    4. Michael Shand

      Software Tester

      In reply to Laura Nielsen

      Maybe your english is not very good but claiming that you are not hitting consumers is merely a political statement when the truth is that you are hitting consumers directly by adding a tax to products that result in CO2 emissions

      Here is the bottomline - it can't be zero sum, you can't on the one hand claim to put a price on carbon and then claim that consumers will not be paying more for prodcuts - petrol for instance is not going to be cheaper because of a carbon price so your claims not to be hitting consumers doesn't make any sense - if not consumers then who is paying the price of the carbon?

      The math doesn't work, your earlier comments do not demonstrate what they claim to demonstrate

      Maybe read up on the Australian Carbon Price

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    5. Michael Shand

      Software Tester

      In reply to Laura Nielsen

      Here is the simple Australian bogan math

      Will putting a price on carbon increase the price of petrol? - yes

      Do I have any other options other than petrol? - None that you can afford

      So I will be paying more as a consumer? - Yes

      Your claims about not hitting consumers do not make any sense - now I may not mind increasing prices but others will.

      I am all for internalising the externality here but lets be honest while we do it

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    6. Trevor S

      Jack of all Trades

      In reply to Michael Shand

      "Will putting a price on carbon increase the price of petrol? - yes

      Do I have any other options other than petrol? - None that you can afford"

      While I am not arguing with your bogan critique, perhaps an answer to the former would be yes, the latter... reduce the expense by ensuring it doesn't happen to you, which is the entire idea of a carbon consumption tax, behaviour modification. It's not directly punitive unless you want it to be. I don't pay alcohol tax for example but I wear the on-costs from the consumption of others. Similarly, I wear the on-costs of the burning of petrol now. Sell the Car and buy a pushbike :) I did...

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    7. Michael Shand

      Software Tester

      In reply to Trevor S

      "It's not directly punitive unless you want it to be" - or you have no other options

      I remember scrapping $2,000 for my first car in Oz, that I desperately needed to prevent 1hr train journey to a 1 hr bus journey to work.

      The idea that I could of just prevented this, either loose 4 hours a day, in effect working 12 hour days 5 days a week or pay the extra gas money - those were my only 2 options and whilst I would of liked to continue the PT...it was not do-able, it was wearing me out and all for minimum wage.

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    8. David Arthur

      resistance gnome

      In reply to Michael Shand

      With respect, Mr Shand, the Professors are proposing exactly the Consumption Tax on Fossil Fuel (my acronym is FFCT) for which i've been arguing in these pages for some years.

      Elsewhere, Geoff Henley makes similar criticisms of such FFCT elsewhere on this page, to which I respond as follows:
      ...
      Mr Henley quotes "carbon price is a tax on producers", to which he adds "Which in many cases is passed on to the consumers in the form of higher electricity prices and higher prices for other goods."

      Well…

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  11. Graeme Thomas

    Accountant

    Surely, nobody would pollute if consumers didn't demand the products and energy that produces it. I appreciate the difficulties in taxing consumers, but the attempt to attribute the evil in pollution to production instead of consumption seems misguided.

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    1. Michael Shand

      Software Tester

      In reply to Graeme Thomas

      That's the opposite of what the article proposes

      I think you should stop blaming individuals as it is unhelpful and misses the point

      and no one is saying pollution is evil and that those who commit the sin of pollution require redemption, stop blaming individuals

      we just need to stop polluting, it's not a blame game - you personally can pollute as much as you want, I won't think any less of you because we recognise the system needs to change not individuals

      No amount of individual action can close down the coal mine - this requires coordinated action, this requires collective action, stop blaming individuals

      Stop blaming individuals

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    2. Michael Shand

      Software Tester

      In reply to ernest malley

      Thanks for asking, Why are you looking to blame someone?

      If your not interested in blame but rather solving the problem then you need to understand the problem.

      If you understood the problem you would not be looking to any one individual to solve it.

      So where would you like to start? I think we should start at understanding the problem - where do you think we should start?

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    3. ernest malley

      farmer

      In reply to Michael Shand

      Not "one individual" but 'individuals', aka mob, hoi polloi, tribe, cohort.
      Perhaps you meant not 'blame' but "responsibility" - as in, personal responsibility?
      Each day, in every way, every choice we make should be done with full onus of justification. A working definition of 'adult' might be someone who is consistent in what they think, believe, say & do.
      These daze that has mostly dwindled to junk food & junk thoughts to blot out a junk kultur.
      There used to be an anecdote (from the 70s so scuz the anachronisms) of the well made up & perfumed woman, with corsetry (?so old a concept it trips SpellCheck!) and soft leather gloves who drove her automatic car to the whale conservation rally...

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    4. Michael Shand

      Software Tester

      In reply to ernest malley

      So you don't want to start with understanding the issue, where do you want to start?

      PS> I'm not interested in you just trolling me, we are either going to have a structured and sensible discussion or I'm not going to engage

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    5. Michael Shand

      Software Tester

      In reply to ernest malley

      No, I'm ignoring it because you are ignoring me

      Tell me where do you want to start and we can go from there

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