Climate change is a global issue that disproportionately affects younger generations, although awareness across all generations is higher than ever. With this in mind, the London Tax Society invited Paul Howard, a self-proclaimed tax expert and environmental warrior, to discuss climate change in the context of taxation and create a discussion on how we can use our tax system to achieve net zero. This article is based on Paul’s speech.
The definition of climate change is not just about temperature, although this is where we feel the most severe effects. For example, a heatwave in mid-July across Europe saw temperatures in the UK topped 40°C for the first time ever.
Climate change means an increase in carbon dioxide emissions to the point that the Earth begins to warm. As a result of rising temperatures, the ice is melting causing sea level to rise and this threatens coastal cities and towns. This problem is not limited to developing countries, as Cardiff will be mainly submerged in water for the next 30 years.
The sea becomes acidic due to the amount of carbon dioxide absorbed by the oceans and converted into carbonic acid, endangering marine life. Sea levels also threaten coastal wetlands as they become salty and acidic.
Aside from temperatures that are unsustainable for humans and the land threatened by the sea, the increase in atmospheric pollution is another danger to health, our health and the health of other wild species, and there is a loss of biodiversity. Both terrestrial and marine species are part of finely balanced food chains. A small change in this balance can have huge effects. A number of animal species have died out and at some point. This may be us in the future.
Most people understand that fixing climate change will require a significant reduction in consumption, especially plastics. Aside from the obvious, plastic is made from oil and turned into a usable material that releases a massive amount of carbon dioxide into the atmosphere, the end product having a huge animal impact on our planet as well.
Plastic is a problem in the oceans where creatures eat it and most animals including humans have microplastic particles circulating in their bodies. So far, the level of danger that microplastics can cause in our bodies is still being researched. Swallowing such synthetic products is unlikely to provide any benefit.
If we stop buying plastic bottles or using carry-on bags, demand will fall and products will be less likely to be produced. After the introduction of plastic bag fees in October 2015, demand had dropped significantly by July 2016.
The plastic bag fee was not a tax and the proceeds from this fee did not go to the government. As such, we have seen increased contributions by supermarkets to environmental campaigns, and thus, shoppers have been made aware of good deeds.
Unfortunately, questions about tax policy and climate change are not always so simple. One of the biggest questions about climate change and taxes is who should bear the cost of implementing the changes and for governments, how can they put in place policies to protect the environment while keeping this party in power?
Those who have no interest in the future of the planet may not want to change comfortable lifestyles “only” to help the younger generations. Those who will have a stake in the future, may not be old enough to vote or apply for changes, instigate changes, or (younger) to understand that there is a problem.
Likewise, those in the developing world are disproportionately affected by climate change, which is caused by consumers, mostly in the West. To solve the climate crisis, we depend on most people’s willingness to make sacrifices for others. When it comes to taxes, this isn’t always a vote-winner.
And then we have the government – bearing in mind that distorting the use of fossil fuels versus renewables, they may lose not only voters, but also financial support. What the government needs to look at then are three aspects: 1) how to reduce consumption, and 2) encourage the use of renewable resources, while 3) retain voting and financing power.
Ten point plan
The ten point plan was developed by the UK government in 2020 to help the UK reach net zero by 2050. The ideas in the ten point plan are sound, but the plan does not discuss how each step might be funded. There was a lawsuit in July by Client Earth, Friends of the Earth and the Good Law Project that determined the government’s plan was not in compliance with climate change law.
Furthermore, there appears to be little understanding of the effects of all these steps. For example, the fourth step proposes switching to electric cars, without discussing how to offset the carbon emissions from their manufacture.
On the other hand, there may not be enough lithium to build the required number of batteries, so the answer may lie in moving away from private vehicles and having a proper and efficient public transportation infrastructure.
The government is focusing on using the R&D tax credit as an engine to encourage research and development of greener products and fuels. This should, in our view, be coupled with a tax on fossil fuel power generation, ensuring that the cost is not passed on to the consumer or retailer. The windfall profit tax (energy dividend tax) would have been ideal if it hadn’t provided a discount for research into finding more gas or oil reserves.
Other than the R&D tax credit and ensuring that engine-related tax changes stay up-to-date due to the transition to electric vehicles, there is little mention of how taxes could be used to help implement the Ten Points Plan or whether grants would be better to use rather than taxes to encourage a change in behavior.
In October 2021, the Chartered Institute of Taxation responded to the Ten Points Scheme and developed a tax policy roadmap. Overall, the roadmap highlighted that the government’s 10-point plan did not specify how taxes would be used to fund the recommended changes. Some of the main points to look at regarding climate change and tax policy are:
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Are changes to prevailing taxes appropriate? This goes back to the economics of climate change – who should pay for it?
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It must balance simplicity and efficacy. As we’ve seen in the past, overly complex tax laws make it more tempting and make it easier for taxpayers to find loopholes. If the intent here is to change behaviour, then the rules should be as clear and explicit as possible.
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Balance sticks with carrots. As mentioned above, the ideal is to encourage the use/development of renewable energy, for example, while penalizing the use of fossil fuels.
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The need to clarify carbon prices and environmental taxes. The more transparency, the better. For example, if food packaging clearly states that a particular item costs a greater tax to offset the carbon emissions from its production. Then be sure to use the money in a way that benefits the environment, such as planting additional trees or protecting natural habitats.
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Transboundary issues – carbon leakage and alignment. Global warming is, as the name indicates, a global issue. Moving production out of the UK to reduce UK CO2 emissions to net zero will not benefit the planet at the end of the day. By moving production to meet our climate goals, we have taken the problem to other countries that are unlikely to give up their newfound ability to make money.
Current climate change taxes in the UK
In the UK, we have a range of taxes related to the environment. These include the Climate Change Tax (CCL), which industrial, commercial, agricultural and utility companies pay on electricity, gas and solid fuels. We also have landfill tax, collector tax, plastic packaging tax, and air passenger duty to name a few.
On the other side of the coin, we also have a number of mitigations available to encourage companies to reduce emissions. This includes:
– CCL’s carbon price subsidy rates, which encourage the industry to use low-carbon technology (paid by power plant owners);
– Capital allocations on energy-saving items, i.e. 100% for electric vehicles.
– There are no vehicle tax charges for zero-emissions electric vehicles;
Low interest rates in kind for electric cars.
The problem with a lot of these policies, such as domestic carbon pricing and plastic packaging, is that they apply to UK resources, so companies can simply shift production to another jurisdiction with a cheaper carbon tariff or no plastic property tax to reduce the UK. responsible. This does not change consumer behavior so products are still being produced, and it does not encourage more sustainable forms of manufacturing.
Global warming is an international problem and governments must react to it in the same way they have dealt with terrorist threats. Almost overnight, we were limited to one plastic bag of liquids of 100ml each per plastic bottle or tube on flights.
In the same way, climate change is almost a direct threat, but one that is both foreseeable and manageable. This does not make it any less dangerous. If anything, the fact that it affects the entire world means that it must be seen as a threat and action must be taken coherently and immediately.
Governments need to consider whether it is time to introduce taxes on a global basis with international tax regimes. This requires consensus among governments, which is very difficult, though not impossible if every country has the same goal.
One country acting alone is limited in what it can achieve. For example, if the UK unilaterally imposes an emissions tax on imported goods, this will be seen as an illegal tariff under international law. If every country did this, the low carbon production would materially increase.
As tax systems have become more transparent and initiatives such as the global minimum corporate tax rate have been taken, the framework has been put in place to implement global fees. Perhaps a global minimum corporate carbon tax or a global minimum requirement to offset all carbon emissions.
And if it means consumers are consuming less overseas-manufactured products, that probably isn’t a bad thing. The government’s goal at this point is to ensure that the inequality between the rich and the poor does not grow as a result, but that’s a discussion for another time.
Capitalism vs. Climate
Climate change is an emotional issue and who should pay for it is a very difficult question. The answer will largely depend on who you ask and there is no really correct answer unless everyone has the same goals.
Industrialization has created such a disconnect between humanity and the environment that legislators and major corporations may not have seen a farm or understood the delicate balance of our ecosystems.
Education is critical, but change through education alone will not be fast enough. At the same time as education, governments can implement policies aimed at changing short-term behavior and long-term attitudes.
The good news is that reversing the effects of climate change can happen quickly if governments and people are united in achieving their goal. One of the biggest benefits of COVID-19 was the speed with which rivers began to flow cleaner and clear the skies around the most polluted cities when we (humans) stopped polluting our planet.
So it may not take long to fix climate change if there is a global shift in how we perceive our environment. However, it will require a globally coherent position from all governments. On this basis alone, it may take some time before we get started.
Originally published at San Jose News Bulletin
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