Green economics

Oh please, not this stupidity again.

The Government provoked protests from campaign groups yesterday as it began Europe's first auction of carbon emissions permits but admitted that the proceeds would not necessarily be used to tackle climate change.

The Treasury said that it had raised £54 million through the sale of four million permits for £13.60 per tonne under the next stage of the European Union's Emissions Trading Scheme (ETS). Yesterday's auction marked a departure from the policy of handing out the permits to industry for free. By 2012, in the second phase of the scheme, 85 million permits will be auctioned, possibly raising more than £1 billion for the Treasury. From 2013, this figure is expected to rise to about £2.5 billion a year, according to WSP, the environmental consultancy.

Campaigners said that the Treasury's decision to put the proceeds into its coffers rather than ringfencing them for use in environmental projects plays into the hands of critics, who fear that the ETS will be treated as little more than a green tax.

Robin Oakley, the head of Greenpeace's climate change team, said: “Investing in new low-carbon technology while making our homes and businesses more efficient is good news for our country and for the wider fight against climate change, but by hoarding revenues from the emissions trading scheme this Government is eroding trust in the concept of green taxes.”

As you might have noticed, the government isn't hoarding tax revenues from anywhere....if only! They're spending everything they raise and then some.

But much more importantly, there's the economics of this cap and trade system, the permits themselves.

There is nothing, nothing at all, which says that the revenues raised from such "green taxes" should be spent on matters green. Indeed, the theory of Pigouvian taxes (which this is, in a manner of speaking) says that the revenues raised "should not" be spent on green issues. For by putting the tax on the externality and thus making it internal to market pricing, we have already solved the problem. We'll end up with the socially optimal level of the activity under discussion purely through the tax. No spending on the other side is required....indeed, to do the spending as well is to make us poorer.

The thing is, this is the very justification for the cap and trade system in the first place. So why don't people get it?

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