Wednesday, July 05, 2006

Tradeoffs: The Euorpean Parliament's green tax

Here is another example of the failure to think properly about tradeoffs, this time by the European Parliament and the Greens.

According to the Times On Line in the UK:

AIR passengers will be charged up to £40 extra for a return ticket within Europe to pay for the environmental impact of their journeys . . .

MEPs voted in favour of the “immediate introduction” of a tax on jet fuel for flights within the 25 member states of the EU. The charge would double the cost of millions of budget airline flights.

They also accepted a recommendation for a special emissions trading scheme for the aviation industry, which would see airlines buying permits to cover their output of carbon dioxide.

Let’s presume that the airlines’ carbon dioxide emissions create costs for others (externalities). Then one could argue that the airlines should pay those costs. One problem in figuring out what to charge the airlines is that the costs, or damages, to others cannot be measured accurately. Who is damaged and by how much? It is not likely that Government will come up with the right number.

The main proposal was for airlines to be forced to buy emissions permits within a separate trading scheme dedicated to aviation, with a specific cap on the amount of CO2.”

Since nobody knows the actual damages, it is unlikely that the chosen “specific cap on the amount of CO2” is right. Since the scheme is dedicated to aviation, the charge per unit of CO2 emissions varies from one CO2 source to another. Since the cap applies to aviation and the problem is in the aggregate, the cap is almost certainly wrong.

Parliament’s approach guarantees an inefficient equilibrium for the economy. It could well be that the inefficiency creates more damage than the CO2 emissions.

BA had wanted to be allowed virtually unlimited growth by being able to buy cheap surplus permits from other industries.”

BA’s position is partly right. If there is going to be a permit scheme, the permits should be tradable. If they are not, it distorts economic equilibrium. The decision to charge non-airline industries less for their permits is ludicrous.

The GreenSkies Alliance, a coalition of environmental groups that opposes the growth of aviation, said ‘The huge European Parliament majority shows that MEPs overwhelmingly recognise that air transport’s greenhouse gas emissions are out of control and urgent action to control them is long overdue.’

The focus on one source of CO2 emissions is nonsensical and reflects an agenda that is not helpful. This is all too common with activists. They go after people they don’t like rather than try to ameliorate the problem, assuming it exists, in a helpful way.

Andrew Sentance, BA’s head of environmental affairs, admitted that aviation could account for almost half of Britain’s total CO2 emissions by 2050, compared with 6 per cent today.”

Of course, since the predicted growth is pure extrapolation, it may not happen.

The predicted growth sounds really bad, but can happen only if the airlines are performing an extremely valuable service. In this case, the scheme focuses on reducing valuable services when it might be better to reduce other services. All this would be taken care of automatically if permits were priced the same to everyone and tradable.

He said that imposing a cap on aviation emissions would “deny society the right to make choices” about how to tackle climate change. He said society might prefer to continue to allow flights to grow but to reduce emissions elsewhere to compensate, such as in power generation or road transport.”

Score one for BA. It is right and Parliament and the Greens are wrong.

Somehow, Governments and activists always manage to screw up.


Anonymous said...

It's all about trading schemes. The world is gaining wealth so fast that most people are not needed for food, clothing, shelter, etc.
At least two main factions are working on "make work" to keep people distracted. One of these factions is trading schemes like this and Koyoto treaty.

TOG said...

What about the immediate interests of politicians that motivate satifying the unproductive demands of organized groups that will vote for them at the expense of the unorganized rest of us?