TAX WHAT YOU DON'T WANT:

A new paper out from the Adam Smith Institute and the British Conservation Alliance, 'It's Easy Being Green', adopts an entirely different approach, promoting an environmentalism that embraces market mechanisms and nuclear energy.

Take carbon dioxide emissions. They are a 'negative externality' which harm others but are not considered a cost in private transactions. The obvious solution to a negative externality is to force producers to internalise the social costs of their actions. A carbon tax would ensure these costs are priced into businesses transactions and would reduce emissions by making it more expensive to pollute. It would also incentivise firms to develop low carbon technology, so they can reduce their tax burden.

This would be a far better approach than the Government's focus on picking winners through subsidies and regulations, pushing up the cost of addressing climate change with limited benefits. A carbon tax would make the profit motive part of the solution to the climate crisis, giving companies every incentive to reduce emissions and harnessing entrepreneurial innovation.

The tax would need to be border-adjusted and apply to imported products, so it would not end up with businesses outsourcing. This is not envisaged as a revenue-raising exercise and the tax should be set at an appropriate level to price in the externalities. Any additional revenue could be used to fund green initiatives or reduce taxes elsewhere.

We should also review the UK's fossil fuel subsidies, such as the reduced rate of VAT on domestic heating and fuel. Raising this to the standard rate of 20% and implementing a carbon tax would help adopt a consistent and rational approach towards tackling climate change.

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