Climate Policy - Europe at a Dead End
Gustav von Hertzen



The Kyoto process is fundamentally flawed. It is stalling and probably beyond rescue. The European Union must rethink its position. A global carbon tax, supervised by the World Trade Organization, should be the new strategic aim. Economists agree that a carbon tax is the most cost-effective way to rein in emissions of carbon dioxide. Climatologists too are showing increasing interest, even within the IPCC (International Panel for Climate Change).

Today the public is wallowing in a flood of well-meaning but largely irrelevant “saving-the-climate” initiatives. A carbon tax would, at one stroke, introduce the apposite price adjustment and investment incentives. And we could take the measure of the economic pain we have inflicted on ourselves in order to save the planet. The present self-delusion must come to an end.

Replacing the complex cap-and-trade system with a straightforward carbon tax is facing enormous political and institutional inertia within the EU. Nevertheless it could be a smart move by the Finnish government to speak up for a radically new approach. An enlightened grassroots movement could set the ball in motion. Join me in making the first moves!

The historic background

In the early 1990:s the European Community became concerned about the climate impact of burning fossil fuels. The commission presented a proposal for imposing a carbon tax, based on carbon dioxide emissions. The proposal was voted down. Community-wide taxation was repugnant to many member countries. Instead a system of capping carbon emissions was introduced to curb the emissions. It rivals the EU agricultural policy in complexity and susceptibility to political manipulation. And in the end the public pays much more.

In 1997 cap-an-and-trade became the cornerstone of the putatively worldwide Kyoto agreement. Enforcement started in 2005. Deforestation was drawn into the regulatory framework. Developed countries can earn carbon credits by paying the developing ones for forgoing the destruction of their forests.

The Kyoto process

The European Union has the laudable ambition to establish global leadership in environmental care, and the Kyoto agreement is seen as a symbol for responsible action. So far the project has gone nowhere. Developing countries are exempt from the key clauses. The United States has not signed up. Russia enjoys a free ride due to the precipitate drop in output after the breakdown of the Soviet Union. The EU is the only major signatory to take the pact seriously. The rest of the world remains on the sidelines.

The Kyoto agreement is a misguided departure as will be seen, at the very latest, when the developing countries ought to be part of the process. Every time when a change should be imposed – say stricter norms introduced or developing countries brought into the fold – a new hullabaloo will break out when countries and industries fight for their interests.

Apply the market mechanism

Taxation is the superior method when an indispensable but polluting activity must be regulated. For once economic experts are unanimous in their support for a carbon tax instead of cap-and-trade. A gradually increasing tax would bring the predictability investors and customers crave for. It is an equitable way of sharing the burden of carbon dioxide emissions. In effect a carbon tax is a consumption levy tightly focused on preventing global warming. It is simple and cost efficient, flexible and easy to administer. Other alternatives will be more expensive for the taxpayer, who always pays the bill in the end.

A global carbon tax could be introduced without much delay if the major industrial countries (G20, G8 or even G7) would agree. But it falls to the European Union to take the first step. The World Trade Organization (WTO) could supervise the international regulations required. In the first place, import from non-compliant countries should be burdened with appropriate levies. This would soon bring about 100% compliance. The deforestation issue should be shifted to another forum. By the way, recent research points at a net increase in global wood biomass. (Pekka Kauppi et al. PNAS 103 (2006) 17574-17579) Returning forests analyzed with the forest identity)

For a broader view see Energy and the Environment.