Energy Tax

... replacing taxes on employment, incomes and profits ... with taxes on energy use ... can yield a threefold dividend: better overall national economic performance; higher levels of employment; and a cleaner environment. -- James Robertson, New Economics Foundation

Energy use per se is not bad, what is bad is inappropriate use of energy, misuse of energy, the damage caused and the pollution generated. Energy taxation policy should be designed to force appropriate energy use, follow a soft energy path, reduce pollution, whilst at the same time minimising the impact on inflation, labour costs and the poor. Simply hiking the cost of energy does not work, industry and commerce pass the costs on, poor consumers are doubly hit. The revenue raised should be used in part to encourage energy conservation.

Small rises on fuel prices for transport have minimal effect, the same consumption patterns persist and the costs are passed on. Any price rise has to be large, to maximise the effect, to reduce private transport use and to encourage industry to change its transport policies.

In the UK all vehicles carry an annual tax. This should be abolished and put on fuel prices. Several years ago, the tax on new cars was substantially reduced to boost the sale of new cars. This was absolute madness in a country on the verge of gridlock. The tax should be put back, at double its previous level. Lean-burn, low consumption vehicles should attract minimum tax, dirty guzzlers the highest rate.

Personal taxation should be changed to encourage a shift to public transport. The present anomaly of free parking being tax free, whereas a transport pass for the use of pubic transport being taxed should be reversed. Company cars should attract at least double the present rate of personal taxation.

The present public transport system is a mess. Outside of London the trains are very infrequent. London and the surrounding areas generally have a 1/2 hour service but even here the service is poor - overcrowded, dirty trains, surly staff. Late at night a train runs from London to Basingstoke. It is always grossly overcrowded. It consists of four carriages, and has amalgamated another service, over a decade ago it consisted of 12 carriages. A late train to Salisbury used to be a long train, locomotive hauled, it is now three multiple diesel units. The public transport within London, whilst good compared with the rest of the country is poor compared with Stockholm.

A move to public transport will only occur if the service dramatically improves and the cost drops.

The whole transport issue needs to be looked at from a more fundamental level. Why people need to travel - zoning, out-of-town shopping etc. Out-of-town shopping should attract high tax, the revenue used to revitalise town centres. Planning regulations would have a presumption against out-of-town green-field development.

A study by the Swedish Institute for Transport and Communications Analysis (SIKA) has suggested that the failure to implement road pricing in Stockholm is losing the city between half and a billion kronor per year. The higher figure takes into account external costs. Proposals include charges for entering the city and an increase in the costs of season tickets (the frequency of service would be improved). The latter seems to go against the grain when the main thrust is usually to encourage greater use of public transport, though would encourage other forms of environmentally friendly transport eg walking and cycling. The argument for this anomaly is that cars are not paying their true environmental cost and as a consequence public transport has to be over-subsidised to compensate, it also recognises that even public transport has an environmental cost (as anyone stuck behind a smelly diesel bus will be only too well aware). A better approach would be to increase public transport subsidies in the short term, but in the long term follow the Swedish proposal together with addressing the underlying reasons for the need for mobility.

Movement of goods and air travel are two other transport areas that require close scrutiny. English fruit growers have suggested that air-freighted fruit and vegetables be labelled with a factor that reflects the air pollution and helps consumers make a more informed choice, though recent experience with energy labelling of refrigerators does not give confidence that this would be a huge success. Two recent studies on air travel have suggested a change from the current tax-free regime (the only taxes are usually airport taxes) to a taxation scheme that reflects the environmentally impact. One study has estimated that a tax of 0.15 ecu per litre of fuel would half the projected growth in emissions. Other possibilities could be passenger/tonnage tax.

With the rapid growth in air travel and the failure to implement any curbs due to its international nature, emissions from aircraft are rapidly becoming one of the major pollution problems. The situation is exacerbated by the fact that aircraft emissions are discharged at high altitudes where they can do the maximum damage.

Agriculture, traditionally labour intensive is now both capital and energy intensive. For far too long, farmers have been feather-bedded at the expense of the taxpayer and the environment. The tax free fuel available to farmers (open to abuse) should cease. Agrochemicals should be highly taxed to minimise their use. As compensation farmers should receive grant aid for environmental schemes and for conversion to organic farming (phased over 10-15 years).

The thrust of energy taxation should be aimed at inefficiency. The electric supply industry does not supply energy, it converts it from other forms at very low rates of efficiency. A typical coal-fired power station throws away 2/3 of its energy input as low grade heat, the end use is generally low grade heat. This wastage should attract punitive taxation. On the other hand a combined heat and power station delivering low grade heat at point of usage and generating electricity with an overall efficiency of 80% if not better, would attract low taxation.

New buildings would attract a tax based on their energy use. Passive solar heated building with no net external consumption of energy would attract zero tax. The worst type of buildings would be prohibited by planning and building regulations.

Appliances would attract a tax based upon their energy efficiency. We see this differentiation already with the labelling of refrigerators. There can be a marked difference between the worst and best in terms of energy consumption. There is also often a marked difference in price. The consumer tends to focus on the purchase price, not realising that the difference can be recovered in the first year of use, the in-store advice is usually non-existent. Taxation would force the decision in favour of both the consumer and the environment.

Different types of fuel would attract different levels of tax depending upon their environmental impact. This would be levelled at the primary consumer of the fuel forcing them to switch fuels, not at the end user where it is either ignored or passed on as extra costs. The tax would not just be based on fuel content (ie carbon tax), but also the environmental impact of extraction and shipping.

The Swedish Society for Nature Conservation (SNF) has proposed the following energy taxes: carbon dioxide, nuclear power (prohibitively high to force the pace of decommissioning), electricity, diesel fuel, petrol, nitrogen oxides, sulphur. The electricity tax recognises electricity's position as a premium energy and attempts to price it accordingly, a better way of achieving the same end and forcing a change to more appropriate energy supply is a tax on inefficiency at the supply side. In addition the Society proposes aircraft landing fees, taxes on waste, agrochemicals, tap-water, plus taxes on phosphate and gravel (non-renewable resources).

A study by the OECD has shown that environmental taxes generally have the desired effect, ie habit changing, even if the original intent was revenue raising.

• Sweden - tax on sulphur emissions has reduced the level to 40% below the legal limit
• Europe - differential taxes on leaded/unleaded petrol has led to a sharp reduction in leaded leading to its eventual market withdrawal

A criticism levelled by the OECD is that little study has taken place of the effects of these taxes and that detailed evaluation could lead to fine tuning and a greater impact.

The net result of an energy tax would be fiscally neutral, that is the tax levied would be compensated by tax exemptions and grant aid elsewhere. The energy tax, part of an overall environmental taxation policy to force a change in bad habits, should also move tax away from labour.

John Whitelegg, Road Traffic EXPANSION Bill, Green World, Winter 1988/9