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November 16, 2006
Airline CO2 Charges
There's good news and bad news here:
AIRLINE passengers would pay up to £27 extra for a return ticket to cover the environmental damage caused by their flights, under European Commission proposals to address climate change.
Draft legislation to be published next month would require all flights arriving or departing from European Union airports to buy permits to cover their carbon dioxide emissions.
The report estimates that passengers on flights within Europe would pay an extra €9 (£6) for a ticket, with the actual sum depending on the price of the permits. Those flying long haul would pay up to €39.60 (£27).
The good news is that those amounts look about right. OK, perhaps they're actually a little high (depends upon whether you take the Stern Review's estimate of CO2 emissions costs or one of the other, much lower, ones, ior here, the prices from the EUTS) but they're around and about my own back of the envelope calculations.
The bad news is that of course such taxation should, over the whole system, be revenue neutral. So, which taxes are going to fall as a result of this extra revenue? Correct, none.
Further bad news is that as flights originating or arriving in the UK already pay tax (Air Passenger Duty) of about this amount such flights will in effect be double taxed. No, I don't think El Gordo is going to lower that to account for it.
But the bestest most wonderful news? With such taxation the arguments about flights and aviation will be over....or they should be. With the imposition of Pigouvian taxation, tax which is exactly equal to the costs of the external effects, we have reached our economic and environmental nirvana. Now that everything is correctly priced (I am paying for the damage my flight does) we will have the social optimum of air travel, as that market, corrected as it is, includes all of the relevant price signals.
Which leads to us being able to say to all the campaigners against air travel, the enviro-whiners, bugger off. Problem's over, shave, have a wash and go get a job will you?
November 16, 2006 in Climate Change | Permalink
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Comments
This is not a Pigou tax, surely? It's the cost of buying enough carbon dioxide credits to be allowed to emit it. That cost will vary with the price of carbon credits. I'm not sure about the revenue neutral aspect of it either, as the government won't be receiving the money, will it?
Posted by: Matthew | Nov 16, 2006 9:03:34 AM
Surely they should be taxing the flight, not the passengers?
That should encourage more efficient use of flights as well.
And of course they won't drop other taxes, they're politicians they want more power, so more taxation...
Posted by: Tristan | Nov 16, 2006 10:03:48 AM
Tristan - it's not a tax. It's a charge, which will be levied per flight if the Airlines are part of the emmissions trading scheme, the airlines must of course be allowed to charge how they want.
Posted by: Matthew | Nov 16, 2006 10:54:05 AM
Yay Pigovian taxes! Not only is the environment being treated properly now, but the resulting greater emphasis on fuel efficiency will push airlines towards cool aircraft like the 777. How do I go about buying Boeing stock?
Posted by: Josh | Nov 16, 2006 5:43:03 PM
Err... possibly dense, non-economist type question, but shouldn't we be insisting that the revenue raised by a Pigovian tax actually goes to alleviating the effects of the externality, and not on skoolzanospitalz election-bribes? Shouldn't it be put aside to pay for water-wings for Maldivians or whatever, in the future? If it isn't then we're going to have to cough up all over again 50 years down the track, when the Maldivians really need those water wings.
Doesn't seem right. Somebody clue me in.
Tim adds: Pigouvian taxation is purely to make sure that the social costs are included in the price paid. What it is spent on matters not: it is assumed of course, that governments need to get their money from somewhere and that the spending of this is beneficial.
If you're going to insist that the money raised is spent on compensating the losers then you're getting closer to a (government adminstered) Coasean solution.
Posted by: Thon Brocket | Nov 16, 2006 6:56:38 PM
Tim, I thought you were lost. Is it a Pigou tax?
Tim adds: I was lost indeed. I obviously didn't read through teh original properly. If it is buying permits via the ETS then no, it's not a Pigou tax as it isn't a tax. However, if those permits were auctioned in hte first place (rather then given away) then there would be revenue raised I guess.
Posted by: Matthew | Nov 17, 2006 12:20:50 AM
