Thursday, 3 February 2011

Pigovian taxes and TEQs

This has been edited in response to a pertinent comment about my earlier non-discussion of TEQs

There has been much in the news about peak oil and other high commodity prices, often accompanied by calls to reduce fuel duty and/or VAT on fuel. This is probably as stupid as one can get, given all the evidence suggesting we are now in peak oil. According to David Strahan, Jeff Rubins and others, oil price spikes cause recessions, followed by a collapse, leading to reduced demand, cancelled exploration and renewables, then increased demand, then another spike upon recovery...

Besides, fuel duty is a Pigovian tax. They are taxes that affect behaviour and/or raise revenue, and internalise externalities. For example, increasing fuel duty would either cause demand for fuel to drop (good-less pollution), or raise revenue (also good-invest in better public transport, walking, cycling and anti-pollution measures). That is how to sell them. No need for 'one or the other'-a good outcome will come about. That would have been the best way to sell London's congestion charge, especially the £25 gas-guzzler charged proposed by Ken Livingstone and supported by Sian Berry. Either reducing congestion and pollution, or raising revenue to invest, are good outcomes. Let's take on the tabloids ladies and gentlemen. Follow me...

I would also class Alistair Darling's bonus tax as a Pigovian tax for the above reasons, along with other windfall taxes like inheritance tax. However, do let me know if you disagree with my thinking, and share more ideas but keep it civil.

Smarter than just using Pigovian taxes is Tradable Energy Quotas or TEQs, invented by David Fleming. The idea is that a carbon budget is set by an Energy Policy Committee of scientists, and each individual has a personal, tradable budget. If they use more than their budget, they buy extra units from a central account; those who use fewer units than their allowances can sell them. It would work by using smart card, chip or bar-code technology as we use already, or extra quotas could be bought or sold when we pay our energy bills by direct debit. The beauty of the scheme, unlike energy taxes, is that they would redistribute wealth from rich to poor as wealthier  persons tend to consume more energy, while poorer persons consume less. It could be a great way to reduce fuel poverty, and kick start renewable as they would compare better than carbon generation on cost grounds and be pushed down the learning curve. Green collar jobs would come about with more emphasis on skills, reuse, repair and practicality but we could have fun on the way too. Enjoy the ride; I intend to.

None of us are perfect, but Roosevelt once said: "Better the occasional faults of a government that lives in a spirit of charity than the constant omission of a government frozen in the ice of its own indifference".


  1. Ok, but you don't say much about TEQs. Read all about David Fleming's brilliant invention at
    Biff Vernon

  2. @biffvernon I am about to read the detail of how TEQs might be implemented in the APPGOPO. Fleming's book was very persuasive and I am now as sold on the scheme as I can be. Now to spread the word and persuade everyone of its merits...

    PS note I have taken on board your comment and updated the post, you spotted the deliberate mistake :-)