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Cost cutting: the case for a carbon tax

  • Written by  Marco Magrini
  • Published in Energy
Could a carbon tax reduce society's demands for fossil fuels? Could a carbon tax reduce society's demands for fossil fuels? Peter Gudella
17 Mar
For Marco Magrini, a tax on fossil fuels would be a no-brainer in order to get a supply-and-demand market place working fairly

If people do not consume a product or service, then there will not be anybody to supply that product or service for the sake of price,’ reads a passage from the Kural, written in Tamil language more than 2,000 years ago. Clearly the basic economic market forces of supply and demand have been known for a very long time.

Those forces though, can be interfered with at will. Take the widely dispensed subsidies to fossil fuels. The International Energy Agency estimates they were at around $260billion in 2016 (15 per cent down over the previous year), when taking into account state-funded incentives to end-user consumption of gasoline or electricity, often for demagogic reasons. Yet, according to the International Monetary Fund, when the costs of climate change, local air pollution, accidents and road damage are included, the global cost to society is more likely to be close to $5.3trillion.

For sure, the costs of climate change are mounting by the year. Storms in 2017 cost American taxpayers over $300billion, more than any year on record. Some scientists estimated that global warming made hurricane Harvey’s downpour 38 per cent worse than it should have been. While it would be foolish to suggest that fossil fuel companies should refund 38 per cent of the $125billion damage Harvey caused, why should all these disbursements not be taken into the fossil fuel economy’s account?

Plenty of economists maintain that a carbon tax, a direct levy on oil, gas and coal consumption, would be the easiest step towards a global decarbonisation purely driven by market forces. It would finally create a level playing field for clean energy to take off and exert its role as a climate-saving solution. In its absence though, fossil fuel subsidies are just the wrong way to go.

A paper recently published in Nature Energy argues that at $50 a barrel, nearly half of the American oil production would be unprofitable without federal subsidies. The White House has just repealed disclosure requirements for coal and oil companies to succour an ageing fossil industry, and has imposed a 30 per cent duty on Chinese panels, thus restraining a burgeoning solar industry.

The ancient laws of supply and demand could indeed promote a vital reversal of the world’s energetic course. Provided the competition is fair.

This was published in the March 2018 edition of Geographical magazine

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