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Carbon taxes and floors

While Brian Cowen and Brian Lenihan continue to insist that there will be no new budget for 2009, Eamon Ryan announced that a carbon tax may well be introduced this year. It was on Morning Ireland, so he may have misspoken and meant that it will be announced this year for introduction in 2010.

Another remark is deeply worrying. Ryan mentions a “floor price”. The only price around in this context is the carbon price at the Emissions Trading Scheme. This is an EU wide market. If the Irish government is to guarantee a minimum price, it would have to buy up permits from all over Europe. That would blow another big hole in the budget.

A floor price in Ireland can also be guaranteed by a domestic carbon tax. This is double regulation: a price instrument (tax) on top of a quantity instrument (permit trade). Such a tax would bring in revenue. It would not reduce emissions, however, as any tonne avoided in Ireland would be emitted elsewhere in the EU. The tax is purely redistributive, from the private to the public sector. This would of course raise the cost of energy in Ireland, and thus hurt our competitive position. See Tol (2007) for more detail.

2 replies on “Carbon taxes and floors”

personally I would like to see some common sense innovation

1. electric cars don’t pay for parking in the city, or for toll bridges, and they can use bus lanes – for c. the next 5 yrs and 30% discount on road tax, equally, parking prices in the city should go up, take the rent where you can.

2. cordon the city for congestion the same way they did in london, infrastructure? some car parks around the perimeter and a double decker feederbus doing laps in and out of the city centre.

3. no planning permission required for wind turbines/sustainable energy works under a certain size (but bigger than the current)

4. better focus on making things like turbines.

we have lots of wind here, (and rain!) and plenty of tidal and hydro potential, why not put it to work? Perhaps one thing we could start to export is our carbon certs!

There are many sensible ways to redure greenhous gas emissions, prime among them a carbon tax that would unleash the creativity of the market.

In other cases, including transport, the starting point is so distorted that one can think of other measures that would do a lot of good, such as breaking the monopoly of Dublin Bus.

Doing away with sensible regulation like planning permission may do more harm than good. Wind turbines have local externalities that need to be regulated.

Ireland may have natural advantage in some renewables, but it does not have a comparative advantage in the complementary technologies needed to make this a commercial success. The Danes are better at wind, the Portuguese at waves.

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