Archive for Politics

Are long-life products too expensive, or do we just want new ones?

Posted in Other with tags , , , , on August 20, 2008 by Dan

I like the suggestion from the House of Lords Science and Technology Committee (Waste Reduction – pdf) that the government should cut VAT on products with long life-cycles and on repair services.

But why is it necessary at all? Given that sturdy products are generally cheaper in the long run, why don’t people just buy them?

Two reasons:

  1. People’s discount rate is sufficiently high (or their access to capital is sufficiently low) that they don’t want to pay higher upfront costs despite long term savings.
  2. In many sectors goods depreciate quickly because they go out of fashion or new, more attractive versions come onto the market.

The tax cut addresses the first reason. The Committee’s chair, Lord O’Neill says:

Currently a lot of people can not justify spending a huge amount on a product just because it lasts longer but if this recommendation is followed through, it should encourage modern electronics manufacturers to produce more sturdy products.

I wonder about the extent to which a tax cut would address the second reason. If it makes longer-life products affordable for more people, many of those people will not believe they save money if the products are not worth anything after a few years. Someone who wants a bigger TV or a faster laptop is unlikely to value several extra years of life in the old one.

Obviously, taxing or otherwise pricing the pollutants we ultimately care about would produce a similar impact to differential VAT with lower risk of unintended environmental consequences or errors in categorising products as ‘sustainable’.

As an aside, there are lots of other (non-tax) things in the report too.

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Feed-in tariffs defeated: not such a bad thing

Posted in Climate policy, Energy markets with tags , , , on May 2, 2008 by Dan

The government got a bit of kicking on Wednesday night when 33 Labour MPs voted for feed-in tariffs to be included in the Energy Bill. The government did not want the amendment, and in the end, it got its way and feed-in tariffs were left out.

The amendment would have required energy suppliers to buy renewable electricity from homeowners and businesses at fixed, long term premium prices. The UK’s level of renewable generation is miserably low and many think (e.g. FoE – pdf) that a FIT is essential if the UK is to stand any chance of meeting its EU target of 15% renewable energy generation by 2020 (the proposed directive is at this pdf and is supported by the UK).

There is not much doubt that a FIT would increase microgeneration. But is it a good way to reduce emissions? Questions that need answering include: how will the new capacity work with core electricity supply? What are the capital emissions associated with manufacture and installation? What is the likely cost to energy consumers per tonne of GHGs avoided?

Because FITs are an intervention based on a type of solution (small scale renewables) rather than outcomes (lower emissions), questions like this must be addressed.

A politically feasible carbon pricing scheme must take account of the social distribution of its costs

Posted in Carbon markets with tags , , , , on March 10, 2008 by Dan

There are a number of schemes that price greenhouse gas emissions. The EU ETS is the central one, and there are also further European and national schemes covering specific industries or geographical areas.

An intended outcome is that carbon intensive products increase in price more than low-carbon products. People should respond by reducing their consumption of carbon intensive products or switching to greener alternatives.

These costs are not necessarily borne fairly. The ‘fuel poverty’ issue, which the government is currently struggling with, shows that an increase in the price of energy affects poor people more than wealthy people (rising energy prices are not driven by carbon pricing alone, of course, but the principle remains the same). Or, as cars become more expensive to run, people living in rural areas may be more affected than those in cities.

Policy research has focused mainly on the overall efficiency of carbon management tools and not adequately investigated how carbon costs are distributed. This does not mean that we need to look for a combination of efficiency and equity in a tool, but we need to consider what structural funds, tax benefits or subsidised low-carbon alternatives should be bolted on to make the most efficient tool consistent with our understanding of an equitable society.

It works both ways, of course. Supporters of personal carbon trading – including David Miliband when he was a Defra – believe that it would have a progressive economic impact. As each person has the same cap, there would be a transfer of money from rich to poor as rich people with large carbon footprints buy spare credits from poor people with small footprints. This does sounds fair, but the scheme is primarily designed to achieve a reduction in emissions and its fairness is only loosely understood (although the RSA is looking into it now).

These issues should be taken seriously – otherwise people will feel they are getting a raw deal out of carbon pricing.