Taxing way'¨to tackle climate change

Two famed Scots have informed an economic solution to the problem of how to prevent catastrophic climate change. Research published today suggests that a decades-old tax system would permit a balance to be struck between the conflicting needs of limiting the impact of man-made greenhouse gas emissions and supporting the economy.

The idea re-emerges ahead of the COP22 climate change talks this week in Morocco, at which delegates will seek to enforce targets to limit global temperature rise to 2C. The study draws on the work of Scottish scientist James Croll and philosopher and economist Adam Smith. Croll was a 19th-century scientist from Perthshire and the first person to identify positive feedbacks in the earth system – explaining how “in regard to … climate, cause and effect mutually react so as to strengthen each other”. Fifer Adam Smith developed ideas on supply and demand and free trade.

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The research – incorporating Croll’s feedbacks and Smith’s economics – shows that without emphatic change to current climate-economic policies, temperatures are likely to continue to rise strongly this century.But an adjustment to the levy system, devised by English economist Arthur Pigou in the 1920s, offers a viable way forward. The key adjustment is for all revenues from a carbon tax to be recycled directly to households. Such a “feebate”has been successful in British Columbia. Sellers respond either by lowering costs, or striving to improve production methods, so creating novel, cleaner tech. Buyers respond by reducing carbon consumption. Householders create growth in nascent economic sectors when spending their new carbon allowance.

Society needs to counter climate change. Pigouvian economics would encourage change in behaviour of both people and companies.

Professor Roy Thompson FRSE, Professor Emeritus and Senior Honorary Professorial Fellow, School of GeoSciences, University of Edinburgh