Why Carbon Taxes Don’t Work


As the effects of climate change speed up and the terrible catastrophe awaiting large swaths of humanity and the natural world becomes clear, demands for actions and solutions are growing.

While some campaigns target the corporations and activities that are the cause of rising Co2 emissions, others have turned again to “market mechanisms” to avert disaster. For almost 2 decades now, variations on market based solutions have been tried to resounding failure, open fraud and continued rising emissions.

Despite this, the latest market craze has got enthusiastic support from Green parties and mainstream environmental groups around the world. This time, we are assured it will be different.

Carbon taxes or carbon pricing is held up as the latest necessary step in combatting climate change.

Carbon taxes come from a school of classical economics that see “the market” as the answer to every problem facing the world…even ones clearly caused by the market itself. The only permitted interference by Governments in the market is to address “market failures”. In economic jargon these are often caused by “externalities”; these are effects of a firms actions which the firm doesn’t haveto factor into the costs of its production, and hence won’t interfere with its profits. Carbon tax is the magic bullet that will correct this failure and send the correct “price signal” to the magical market. In the case of carbon this should see firms that produce Co2 forced to reduce their emissions while renewable sources will flourish. It is an elegant theory undermined by an ugly fact: it doesn’t work, and no amount of tweaking will make it work. Such taxes do not target the profits of fossil fuel corporations and hence won,t discourage their continued production and sale of oil or gas.

Since the budget, many environmentalists have argued that we should support a “Carbon Tax”. They were outraged when the recent budget failed to increase the current level of the tax from 20 euros.

Eamon Ryan and Leo Varadkar agreed in the Dail that such a tax should increase over the coming years. Varadkar and co can endorse such measures while with a straight face also supporting continued fossil fuel exploration in Ireland and opposing the People Before Profit bill that would ban any more exploration.

This carbon tax applies to coal, oil and gas and increases the costs of petrol, diesel and energy bills. Carbon Taxes have support elsewhere. At the 2015 Paris climate conference, Exxon Mobile endorsed carbon taxes as “the best option to address climate change” Corporations can live with such measures as they understand something that advocates don’t: such taxes won’t stop them producing or selling oil or gas, and ultimately won’t reduce Co2 emissions or tackle climate change

The Green Party and Friends of the Earth claim that such a tax can be introduced in a way that would not impact poorer households. They point to Canada and Australia as examples of how such taxes can reduce Co2 levels.

We disagree, not because we are “populists” who are afraid of taking “tough decisions”, but because carbon taxes won’t stop catastrophic climate change. The emphasis on such taxes pretends the issue is people’s personal behaviour. Such taxes impact mostly on ordinary people who often have no option but to use the fuels concerned while leaving corporations and company’s free to continue polluting. Worse, the endorsement of such taxes by Green or left parties across the globe allows the right and big business to pretend it is on the side or ordinary workers hit by such taxes. It also feeds into climate sceptics claims that it’s all a giant hoax to hit poor people.

Most people can’t change their behaviour or switch to low carbon alternatives. To get a grant to retro fit your home in Ireland and reduce your energy needs you must be on very low social welfare incomes and even then the schemes are piecemeal and limited. Otherwise youmay face a bill of over 30 thousand euro to get the necessary work done, a figure well beyond most workers incomes. The same applies to car usage. Most workers use cars because the public transport system is not adequate and many towns and villages cannot even get a bus service into major cities. Since 2011 the average cash fare on Dublin’s buses has increased by 86% while the numbers of buses are only now reaching the levels they were at prior to the recession in 2009. Charging ordinary people more for fuel or energy  will not alter their behaviours, but giving them realistic alternatives in public transport and getting the State to pay for retro fitting of homes would reduce fossil fuel use dramatically.

The Canadian Example

Ironically, advocates look to Canada under Trudeau, whose carbon tax is seen as a great example. This is ironic considering Canada’s use of the Alberta Tar sands and Trudeau’s support of the infamous Keystone XL pipeline which is bringing huge reserves of Co2 across the States and North America.New pipelines from the Tar sands approved by Trudeau alone will, it is estimated add another 28 megatons of carbon to the atmosphere, the equivalent of another 58 million cars on the road. Despite this, Trudeau is somehow portrayed as an example to be followed by some climate campaigners.

I’ve said it before, there isn’t a country in the world that would find billions of barrels of oil and leave it in the ground when there is a market for it” Trudeau

British Columbia in Canada is revered for supposedly showing how successful taxes are at reducing Co2 emissions. Such accounts ignore that the reported reductions kicked in when the global economic recession did. Figures suggest that after the initial drop due to the recession, emissions from taxed sources continue to rise.  Ironically, non- taxed source shave fallen slightly although not on the scale needed to reach Canadas climate targets.

The industrial sector is responsible for the biggest chunk of Canadian carbon pollution (40%)The tax didn’t target industry , who were allowed continue with “cap and trade” mechanisms that effectively allow big polluters buy their way out of any reductions. Cap and trade, carbon off sets and clean Development mechanism (CDM) are part of a array of previous market mechanisms that failed to halt rising Co2 levels.

In British Columbia the total levels  of emissions on taxed carbon between 2011 and 2015 rose by 5.3 %. The untaxed carbon emissions actually decreased by 2.5% in the same period . Overall emissions in the first full six years of the tax also rose by 2.25.Nor is there any evidence that the tax is changing people’s personal behaviour. Figures up to 2015 show car sales are higher than the pre- recession peak

More recent claims to support the tax rely on a decrease in per capita emission; i.e. in the levels per person. As the population grows, advocates argue that the levels of emission per person is not as high, or that  per capita car usage is lower than  it would be without a carbon tax. Per capita emissions can fall for a range of reasons unconnected to a carbon tax such as fuel efficiency or a switch from coal to gas. These claims are a desperate attempt to make the stats fit the ideology. Classical economics says carbon taxes work in theory, so statistical studies are made to fit the theory. The trick seems to fool some environmentalists. What can’t be fooled is the atmosphere or physics. Canada is nowhere near reaching any of its targets for decarbonising and the use of the Tar sands represents an act of global environmental vandalism. The Carbon tax allows Trudeau to spin his environmental credentials even while the planet hurtles towards disaster.

The Irish Green party have enthusiastically endorsed the Canadian model, saying that they support a similar “Revenue Neutral” tax. This is where all revenue amassed from the tax can be redistributed to lower income households and small business. One study claims that many lower income families can be marginally better off with a rebate system. There are good reasons to be sceptical that any such tax would benefit poorer families or indeed most ordinary workers. Again the experience in British Columbia is instructive. While initially similar claims were made that lower  income families would benefit, one study has found that “the majority of the benefits of the rebate program has been shifted to business not individuals[1]In 2015, business got 70% of all rebates. 

The chief purpose of such taxes is to divert attention away from the economic system and the corporations that are driving climate change and pretend that such measures can work while they continue using gas, coal or oil.

[1]“ The British Columbia Carbon Tax; A failed experiment in market based solutions to climate change” by Food and Water Watch 2016 at foodandwaterwatch.org