Carbon Tax: a net benefit to the UK economy

By Adrian Wrigley

Full Document on a Carbon Tax: Submission to the Treasury committee on the Stern Review (pdf)

It is claimed here that the benefits to the general economy of an aggressive Carbon Tax regime (over £200/tonne CO2) outweigh the costs by a substantial margin. This is because the revenue generated for The Treasury can completely displace the least efficient taxes and welfare benefits, cutting deadweight costs enormously. The economic benefit of this tax reform will exceed the net mitigation costs incurred, even at very high levels of carbon tax. This argument is an extension of the “double dividend” hypothesis, which seems to be rejected by the Review without detailed consideration.

There is no need for international cooperation to put into effect a substantial carbon tax for revenue raising purposes. The policy would enhance overall economic efficiency compared with the status quo, and would be sensible even without the consequent carbon reductions. Leadership by example in this way would produce much earlier cuts in carbon emissions and motivate other nations to follow suit. This would produce multinational action without needing international action.