July 12th, 2019
A reformulated carbon tax that supports low-income households and helps fund the low carbon transition could be the “ideal robin hood tax”, an Irish climate expert has said.
Speaking at an Oireachtas briefing yesterday chaired by the Green Party’s Eamon Ryan, Dr Cara Augustenborg said that the appropriate redistribution of funds generated by a carbon tax can charge consumer behaviour and create leadership opportunities for Ireland in decarbonisation.
Currently, the state’s carbon tax is fixed at €20 per tonne and is set to gradually increase to €80 by 2030 according to the Government’s new climate plan. A recent study from the Economic and Social Research Institute (ESRI) found that emissions could drop by 10 per cent if the tax is set at this figure due to expected behavioural changes made by households in response to the tax.
The Government is currently considering the appropriate balance between a direct return to citizens as a carbon dividend and expanding funding to decarbonisation programs such as a retrofitting fund. A public consultation on the issue was recently held following a recommendation from the Joint Oireachtas Climate Action Committee in its recent landmark climate report.
A recent analysis carried out by UCD students into peer-reviewed literature on carbon tax revealed that Ireland is well behind other countries in terms of directly redistributing revenue from the carbon tax for either environmental or social projects, Dr Augustenborg said.
The research fellow said that just 13 per cent of revenue generated from the tax in Ireland has gone to environmental initiatives, with 88 per cent going directly to the exchequer. In comparison, she said, 15 per cent of the international carbon tax pot is spent on the environment, with an additional 44 per cent going toward tax cuts.
Robin Hood tax
She said that the carbon tax could be the “ideal robin hood tax” that offers a chance for wealth redistribution and public support if the right model is chosen.
She warned, however, that progress will not be achieved by a carbon tax alone and that complementary policy such as investment in public transport and retrofitting schemes will play an important role in further reducing emissions.
“We need to bear in mind that carbon tax cannot be seen as a way to fund the low carbon transition but rather as a way of creating a market signal to influence behavioural change,” added Dr Augustenborg, who is also a member of the President’s Council of State.
These complementary measures, she said, will also limit any regressive impacts of carbon tax on those likely to be most affected, namely low-income households who will be impacted by domestic fuel costs and rural and commuter belt communities who will be negatively impacted by fuel prices.
“The most important next step is to design a carbon tax mechanism that the public trust is in their best interest and supports our transition to a low carbon economy,” she said. “Most of us would probably agree that we don’t have political trust in Ireland and need to be careful of allowing future revenue from carbon tax to go directly to the exchequer.”
Also speaking at the event, Professor Kathryn Harrison from the University of British Columbia said that Ireland could learn from the example of British Colombia by getting out front and owning the “big communications challenge” about the tax and how the public will benefit from it.
A carbon tax was brought in over a decade ago in the province and is currently set at $30 per tonne that is returned to taxpayers. Around 80 per cent of families, she said, are getting more back than they are paying in carbon tax.
She said that the tax was “quite unpopular at the start” as there was no prior consultation with citizens before implementation, leading to strong local opposition from rural northern communities who felt a sense of regional alienation due to the lack of political transparency.
Public support for the tax grew over time, she said, reaching 50 per cent approval in 2011, with two-to-one support for the tax now. “If a carbon tax can survive the first year or the first election, they tend to be quite resilient,” she added.
Prof Harrison said that there is plenty of research available that shows how the tax has worked “and worked better than expected”, with big picture findings including reductions in petrol sales and less demand for both residential and commercial gas use.
Research by the University of British Columbia in 2016, for example, found that per capita gasoline demand decreased by almost 15 per cent between 2007 and 2014. In addition, a joint Duke University and University of Ottawa study also found a drop in emissions of between five and 15 per cent since the tax was implemented in 2008 up to 2015.
In addition, she said, there is a marked difference in the number of lower emission vehicles bought in the province compared to the rest of Canada as the clearly laid out schedule of carbon tax increases encourages households to make purchasing choices to lower their emissions.
Responding to criticism that net emissions in the province have not declined since the tax was brought in, Prof Harrison said that emissions would have been higher without the tax. Emissions, she said, have effectively leveled off since the tax was brought in despite a 13 per cent increase in population during the same period.
Time to act
Graham Caswell from the Irish branch of Citizen’s Climate Lobby – an international advocacy group on carbon pricing – said that it is better to act now to encourage the curbing of rising emissions or the price of carbon “is only going to go one way” in tandem with rising levels of greenhouse gases in the atmosphere.
Mr Caswell said that he favours the carbon fee and dividend approach as it would have the benefit of reducing emissions as well as reducing inequality and stimulating the economy by putting money back into the pockets of citizens.
In addition, he said, this model would be in line with the EU’s polluter pays principle, while also offering equality through universal payments, as well and transparency and stability through a clear and predictable price increase over time.
Barra Roantree of the ESRI said that the “overwhelming evidence” from other countries shows that a carbon tax works while also understanding the concern that it “may have disproportionate impact”. He said that lower income families do see a bigger hit in income if the tax is taken in isolation without any form of consumption as is currently the case in Ireland.
The current model is regressive, he said, as lower-earning households spend a greater proportion of their income on the tax. According to ESRI research, returning revenues to households in a manner that targets poorer households could reduce income inequality by up to 2.8 per cent.
The ESRI has developed four potential fee and dividend models that would alleviate against impacts on households, Mr Roantree said, namely a simple cheque in the post, an increase in income tax credits, an increase in rates of social welfare payments, or a combined increase in tax credits and welfare payments.
The key takeaway from the research, he said, is that all proposals except for an increase in income tax credits would leave lower income households better off. The most progressive option for lower income is to increase social welfare benefits, he said, but this may weakens work incentives, while it is unclear if a combined increase in tax credits and welfare payments would lead to a double dividend of economic growth.