Author: Richard Tol

Commission on Taxation: Water charges

Post author By Richard Tol
Post date September 8, 2009

The Commission on Taxation recommends that water charges be introduced. High time. Giving away a valuable resource has never been smart.

There are two additional recommendations by the CoT.

Water charges should come in two types: Flat rates for those without meters, and volume-based rates for those with meters. If the flat rate would be set at approximately the average volume-based rate, then a substantial fraction of the population would have a reason to install a meter. If the flat rate is then adjusted to the average volume-based rate OF THOSE WITHOUT METERS, meters will soon be installed everywhere. If not, there will be a subsidy flow from those who save water to those who do not.

It’s a pity that water data are so poor that we do not even know the average drinking water use per household with some degree of confidence.

The CoT also recommends that local authorities be local monopolies in supply, and that the price be regulated, presumably by a new Commission on Water Regulation. Old habits die hard.

Categories In Environment, Fiscal Policy
22 Comments on Commission on Taxation: Water charges

Commission on Taxation: Carbon tax

Post author By Richard Tol
Post date September 7, 2009

The report of the Commission on Taxation can be downloaded: http://www.commissionontaxation.ie/Report.html

This thread is on their proposals for a carbon tax. Others will open threads on other aspects of the Commission on Taxation.

The Commission on Taxation proposes a carbon tax. Here are some crucial elements:

Level: Roughly equal to the CO2 permit price in the EU Emissions Trading Scheme (€15.24/tCO2 today)

Scope: Non-ETS CO2 only

Revenue: Earmarked

On the level of the tax, with the carbon tax equal to the permit price, we reduce carbon dioxide emissions at the lowest possible cost. This is good. At the same time, the level of the tax is set by the market rather than by some politician. This is good too. There is the worrying suggestion of a floor to the tax, but this is fine as long as that floor is set low.

Scope: CO2 in the ETS is exempted as it should. Taxing CO2 in the ETS would be double regulation, and every tonne of CO2 reduced in Ireland would be emitted elsewhere in Europe. Non-CO2 greenhouse gas emissions are exempted too. This is the only pragmatic way forward at the moment, although economic theory strongly recommends that this exemption should be phased out at the earliest opportunity.

Revenue: The Commission on Taxation got it wrong here. They recommend that tax breaks for energy efficient capital be continued, and that companies in a voluntary agreement on energy efficiency. The tax break is double regulation. The Accelerated Capital Allowance on energy efficient equipment should be abolished. The voluntary agreements on energy efficiency should also be abandoned. Voluntary agreements are a weak policy instrument. The CoT essentially allows industry to choose between two regulatory regimes.

By the same token, the CoT does NOT recommend that other energy subsidies be abolished — particularly the Greener and Warmer Homes. Again, this is double regulation, unnecessarily increasing the cost of emission reduction and introducing distortions and opportunities for rent seeking. This is an opportunity missed.

The CoT does recommend that VAT on energy-efficient goods be lowered. This is triple regulation!

Categories In Environment, Fiscal Policy
34 Comments on Commission on Taxation: Carbon tax

Draft submission to Innovation Task Force

Post author By Richard Tol
Post date August 31, 2009

The Innovation Task Force was appointed to advise the government on how to turn Ireland into an international innovation hub and to support the development of a smart economy. It’s easy to be cynical but better to be constructive. The ITF has issued a call for submissions on its terms of references:

to examine options to increase levels of innovation and the rates of commercialisation of research and development on a national basis with a view to accelerating the growth and scale-up of indigenous enterprise and to attract new knowledge-intensive direct investment;
to bring forward proposals for enhancing the linkages between institutions, agencies and organisations in the public and private sectors to ensure a cohesive innovation and commercialisation ecosystem;
to identify any specific policy measures which might be necessary to support the concept of Ireland as an International Innovation Development Hub including in the areas of legislation, educational policy, intellectual property arrangements, venture capital and immigration policy.

Here is my draft submission. All comments welcome. I’ll acknowledge your input by something like “A draft of this submission was posted at www.irisheconomy.ie and substantially improved as a result of the discussion there. Comments by Malle Appie were particularly helpful.”

High wages require high labour productivity. High productivity requires excellent skills and creativity. Ireland can only maintain its position at the forefront of economic development if it fosters innovation and commercialization. Innovation is a creative process, however, and therefore cannot be mandated by government policy. The government can only create the conditions under which innovation and commercialization are likely.