Carbon Conundrum: How to Save Climate Change Policy from Government Failure

by Philip Booth, Carlo Stagnaro

Overview

Politicians around the world have signed up to achieving carbon net zero by 2050. And several countries, including the UK and those in the EU, have struck a ‘new green deal’. This puts environmental taxes and subsidies at the heart of energy policy. But it’s created an immensely complex and costly merry-go-round in which even fossil fuels end up being subsidised. This chaotic system, say authors Philip Booth and Carlo Stagnaro, is wide open to regulatory capture – and to an ideologically motivated agenda. It is also less resilient to crises in energy supply, such as the one caused by Russia’s invasion of Ukraine in early 2022. In Carbon Conundrum they illustrate the incoherence, iniquities and inefficiency of this large-scale government intervention. And they warn that ‘climate change is too important a challenge to be approached in this way’. Instead, they argue for a rational ‘polluter pays’ system of taxing energy sources. This, they contend, would give individuals and businesses much more control over how they reduce carbon emissions. And it would stimulate greater levels of carbon reduction – at a much lower economic cost.

Product Details

ISBN-13:	9780255368124
Publisher:	London Publishing Partnership
Publication date:	08/15/2022
Pages:	136
Product dimensions:	5.20(w) x 7.92(h) x 0.43(d)

About the Author

Philip Booth is Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. Philip was also Director of the Vinson Centre for the Public Understanding of Economics and Professor of Economics at the University of Buckingham for 2021–22. From 2002 to 2022, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA and then Senior Academic Fellow. From 2002 to 2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. He is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. He has a BA in economics from the University of Durham and a PhD from City University.

Carlo Stagnaro is research and studies director of ­Istituto Bruno Leoni, a Milan-based think tank. Before that he was chief of the Minister’s Technical Staff at the Italian Ministry of Economic Development. He has an MSc in environmental engineering from the University of Genoa and a PhD in economics, markets, institutions from IMT Alti Studi – Lucca. Carlo is a member of the IEA’s Academic Advisory Council as well as a research fellow of Epicenter, a fellow of the Italian Observatory on Energy Poverty and a member of the editorial board of the magazines Energia and Aspenia. For the IEA he wrote Power Cut? How the EU Is Pulling the Plug on Electricity Markets (2015). His latest book is Molte Riforme per Nulla (Marsilio, 2022), written with Alberto Saravalle. He is an economic columnist for the Italian daily magazine Il Foglio. He is on Twitter @CarloStagnaro.

Table of Contents

About the authors vii

Summary ix

List of tables and figures xiii

1 Introduction 1

Climate change: the political context 1

Climate change: the economic context 7

Concluding comments 18

2 Problems of current policy, and alternative frameworks 19

Seeking winners and picking losers 19

Seeking to ban losers 22

Taxes and subsidies 24

Coase or Pigou? 26

Carbon trading, Coase or Pigou? 30

Concluding comments 33

3 Energy taxes and subsidies: why they exist in theory and in practice 35

The chaotic nature of energy taxes 35

The chaotic nature of energy subsidies 37

4 Energy taxes and subsidies in the UK and Europe 45

Energy taxes 45

Energy subsidies 51

Net energy subsidies 61

5 From government failure to a more rational climate change policy 67

Fuel subsidies and government failure 67

Carbon taxes and global warming 72

Practical applications of carbon pricing 83

An alternative framework for dealing with local externalities 89

Annex: The implicit cost of carbon from taxes and subsidies 91

6 Conclusion and policy implications 97

References 105

About the IEA 114