Thursday, 17 March 2011

Are We Serious About Climate Change?

Every spring the UK Chancellor (Finance Minister) sets out his plans to match income to expenditure for the year ahead in the annual Budget. As the Budget is primarily about revenue raising (the expenditures are set out each autumn) all sorts of lobbying occurs prior to the Budget as various special interest groups vie to seek tax concessions. This year, the motoring lobbies have been some of the loudest in asking for special treatment.

The plight of the UK motorist has been hit hard in the past year. Oil prices have been rising and have been passed on to the motorist. The Pound remains relatively low against the US Dollar, making the cost in Sterling of a commodity priced in Dollars that much more expensive. VAT – an ad valorem expenditure tax imposed upon petrol – has risen from 17.5% to 20% in January. To top it all, the UK Fuel Price Escalator – a hydrocarbon tax  – is now set to increase by 1p per litre of fuel from 1st April 2011. No wonder that motorists are feeling the pinch!

And yet, this gives us an opportunity to pause and think about what is going on here. The complaint of many motorists is that they are being priced out of their cars. Whilst this has many implications in terms of equity, from the perspective of climate mitigation, this is exactly what is meant to happen. As a nation, we have rejected central planning as a way of allocating resources. We could easily devise schemes to ration petrol usage but we have foregone this approach for a market based solution. The way the market works is for those with the least income, and for those who have a lesser desire for a product, to become unable to afford that product or unwilling to buy it. These are the people for whom the Fuel Price Escalator was designed to price out of motoring.

If we are to achieve our Kyoto commitment of reducing our carbon emissions by 80% between 1990 and 2050, then there has to be much less petrol based motoring undertaken as we move into the Twenty First Century. Looking at it another way, only one in five motorists, on current consumption patterns, would retain their cars by 2050. This has to imply that four out of five motorists are forced off the road. They could be forced off the road by regulatory fiat, but this is not our way of doing things. Our way of doing things is to price them off the road.

And that is the central point. If we do care about passing on a sustainable world to our grandchildren, then we do need to tackle the issue of carbon emissions. If we want to address that issue, then we need to restrict private car usage, and an effective way of doing so is to raise the cost of motoring. If we are serious about addressing climate change, then we need to welcome the Fuel Price Escalator. Rather than face a rising cost of motoring in the long term, I sold my car two years ago. I suspect that many more will follow suit in the years to come, either by choice or by financial necessity.

© The European Futures Observatory 2011