A tax to keep cool

HERE is a hunch. Within the next half-century the governments of many industrial countries will raise perhaps one-fifth of their revenues from taxes and charges on pollution. Largest of all will be a tax on the carbon dioxide emitted when fossil fuels—coal, gas and oil—are burnt. The effect of this tax may be roughly to double the price of high-carbon fuels. Why should this happen? Because the alternative will be further concentration of carbon in the earth's atmosphere, with unpredictable but almost certainly nasty effects.

Elected politicians do not much like inventing new taxes. So it has fallen to Mr Carlo Ripa di Meana, the EEC commissioner for the environment, to broach the idea of a carbon tax. He has been musing about a scheme that would tax carbon emitted by EEC countries, at a rate set by the European Commission, and use the revenue to pay third-world countries not to chop down their forests. Brave though he is to raise the idea, it has serious flaws.

He is right that people must start looking quickly for ways to reduce the carbon concentrated in the earth's atmosphere. Carbon dioxide accounts for roughly half of the warming of the earth by a number of gases which trap the sun's radiation on its return journey from earth. Scientists are still unsure what effect that warming will have. But they predict, with varying degrees of confidence, a rise in sea level, a change in the direction of ocean currents (diverting the warming Gulf Stream from Europe), shrivelled forests, fiercer hurricanes and drought-stricken crops. Few countries will gain from such meteorological horrors: most will lose.

The carbon dioxide that helps to cause this unwanted global warming is given off mainly by the energy-guzzling industrial countries. North America and Eastern Europe each spews out roughly a quarter of the total; a further 15% or so comes from Western Europe. Most is a by-product of burning coal; some comes from oil and natural gas. To stop the rise in carbon concentration, industrial countries need to use energy more efficiently, and to switch to non-fossil fuels (mainly nuclear power). Some of the world's carbon also comes from the destruction of forests in the third world. Deforestation makes things worse in two ways. Growing trees lock up carbon; burning or rotting trees release it.

Only recently have most governments begun to worry about the consequences of global warming. They have responded mainly by asking scientists for more proof. This is understandable: it is hard to ask voters to make large changes in their behaviour on the basis of uncertain horrors that may afflict their children's children. But the risk is that, by the time scientists can produce evidence that satisfies politicians, the costs of stopping global warming will have become unmanageable. More sensible has been the discussion of international machinery, for no country will agree to limit its emissions of greenhouse gases if it thinks that others are increasing theirs. But one danger with these discussions is that they will lead to time-wasting efforts to set up new institutions, instead of adapting what already exists.

What will voters say?

So far governments have been reluctant to talk much about the need to change domestic policies. True, the EEC has agreed to stop producing another kind of greenhouse gas, chlorofluorocarbons, by the end of the century. But that will be easy, compared with cutting carbon-dioxide emissions by 20% by 2025, a target set at a meeting in Toronto last year.

A tax on carbon offers the most efficient way to reach that goal. Make energy more expensive, and people will use it more frugally. That was the clear lesson of the 1970s, when two huge jumps in the oil price (and higher energy taxes) led to a big cut in the amount of energy used for each dollar of output. Since then, the price of oil has fallen steeply in real terms, and the gains in energy efficiency have begun to unravel.

A carbon tax is also the best way to make nuclear power look a better buy. And it offers a direct cash reward to those who devise other kinds of carbon-free power. If a tax is such a good idea, why will Mr Ripa di Meana's proposal be unpopular? It has two serious flaws. First, it is silly to link a carbon tax in the EEC to a fund for saving the rain forests. Each issue is tricky enough in its own right: besides, the proper level of a carbon tax ought no more to be deter-mined by the amount of cash needed to bribe Brazil to keep its trees than the size of the rain-forest fund should be determined by the rate of carbon tax. It would be wiser to tell member governments to keep the proceeds of the tax to use as they think best—perhaps to cut other indirect taxes and to help industry and consumers pay for energy-saving investments.

The scheme also offers no answer to those who worry that it might drive carbon-belching industries out of the Community, and give dirtier countries an advantage. It might be possible, sceptics say, to persuade America or Japan to impose a comparable burden on industry—but what of developing countries, which may have neither the will nor the administrative means to impose such a levy?

As the Dutch government has found, taxing pollution is a dangerous game. Tax brings into the open the costs of adjusting to a cleaner economy. Politicians prefer regulations: they impose greater costs and distortions on the economy, but these are better hidden. Regulations may be needed as well as taxes, but they will not be enough on their own. The sooner voters are willing to face the true costs of cutting carbon, the sooner will the world stop warming.