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B441 - Carbon Tax Bill 2012 (Third Reading)

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    B441 - Carbon Tax Bill 2012, Rt. Hon. JPKC


    Carbon Tax Act 2012


    An Act to institute a tax on carbon dioxide emissions so that the market cost of causing such pollution reflects the social cost of the damage it incurs globally.

    BE IT ENACTED by The Queen's most Excellent Majesty, by and with the advice and consent of the Commons in this present Parliament assembled, in accordance with the provisions of the Parliament Acts 1911 and 1949, and by the authority of the same, as follows:-

    Part I: Carbon Tax
    1 The Office for Carbon Taxation
    (1) The OCT is founded as part of the Energy Department.
    (2) It is responsible for estimating the average amount of equivalent carbon dioxide (CO2e) in the average metric ton of any greenhouse gas emitted (into the atmosphere) by each company in the United Kingdom.

    2 Taxation
    (1) The rate of taxation is to be £30.00 per metric ton of CO2e emitted into the atmosphere.
    (a) This figure should then be raised by £1 each subsequent year.
    (b) In addition, both amounts shall be linked to the rate of inflation (CPI).
    (2) This tax shall be applied to the operations of all liable companies in the UK.
    (3) The tax shall be collected quarterly, based on the estimations of the Office for Carbon Tax for each liable company.

    3 Hydrocarbon Oil Duty
    (1) Hydrocarbon oil duty rates are to be set as outlined in Appendix I.

    Part II: Appropriations
    4 Value Added Tax
    (1) In section 2(1) of VATA 1994 (rate of VAT), for "5 per cent" substitute "4 per cent".

    5 Research and Development
    (1) A sum of £2bn will be added to the annual research and development budget.
    (a) This additional expenditure shall exclusively fund research into types of energy that could foreseeably reduce systemic reliance on fossil fuels.

    6 Disaster Relief Fund
    (1) The Disaster Relief Fund (DRF) is hereby established as a public resource.
    (2) A sum of £1bn will be contributed annually to the DRF.
    (3) The DRF is to be accessed and distributed at the discretion of the Government.
    (4) It is used to provide pecuniary assistance in the event of any social or environmental hazard.

    Part III: Abrogations
    7 Climate Change Levy
    (1) The CCL is hereby abolished.
    (a) As is the Carbon Price Floor.

    8 Emissions Trading Schemes
    (1) The Carbon Reduction Commitment Energy Efficiency Scheme is hereby abolished.
    (2) The UK is no longer subject to the Emissions Trading Scheme.

    Part IV: Miscellaneous
    9 Short Title
    (1) This Act may be cited as the Carbon Tax Act 2012.

    10 Commencement
    (1) This Act comes into law on the 1st January 2013, following Royal Assent.

    Appendix IPetrol: £0.7011 per litre
    Diesel: £0.7011 per litre
    Biodiesel: £0.7011 per litre
    Bioethanol: £0.7011 per litre
    Aviation gasoline: £0.4560
    Light oil: £0.8129
    Road fuel gas other than natural gas: £0.4294 per kg
    Natural gas used as road fuel: £0.3343 per kg

    Notes
    Why tax CO2?
    Spoiler:
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    The above graph, produced by the IPCC, shows a number of scenarios for global temperature increases - read the link provided for a more detailed explanation of why that's a bad thing, and how human activity has caused it. If we can all agree that global warming is the result of a massive spike in carbon dioxide, which is the general consensus of the scientific community, then we can see that any social cost occurs as a result of us. This tax is Pigovian in that it tackles a 'negative externality', it is intended to correct the market outcome - the social cost of pollution is not covered by the private cost of polluting while a carbon tax is not in place.


    Why £30?
    Spoiler:
    Show

    Page 40, 9.11, "Estimating the Social Cost of Carbon Emissions", Government Economic Service Working Paper 140 assessed various proposals for carbon taxes and found that the most sophisticated estimation came from the Eyre Paper, 1999. This proposal was based on 2000 money, and so I've increased it in line with the increase in relative value of the pound, and rounded to the nearest ten - this gave a figure of £90 per metric ton of carbon, this figure was then divided by 3.7 as the tax is collected based on MTs of carbon dioxide. This gave a figure of £24, which was then increased upwards to £30 to reflect the variety of views in the scientific community (as shown in the IPCC's summary of social cost evaluations).


    Why tax companies and not individuals?
    Spoiler:
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    We all contribute to pollution, most of us drive cars etc., however what we put in as individuals is completely dwarfed by what industry donates. It is also significant that a company's emissions are much easier for the Government to realise. So we shouldn't tax individuals for GHG because it wouldn't be worth it - besides, how many of us have directly caused over one metric ton of carbon dioxide? Very few.


    Why lower VAT/increase the R&D budget?
    Spoiler:
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    A tax on emissions will affect the consumer price of electricity in the UK, since 75.7% of the stuff we generate comes from fossil fuels (coal and natural gas). This will be regressive since an increase in the cost of energy impacts poorer households more - to counteract this, the Bill, using the additional revenue, lowers VAT (which is the biggest regressive tax left in the MHoC). The R&D increase simply will speed up the big transition to a clean energy economy - it's much more of an investment than an state expenditure, we can look forward to the Exchequer receiving the £2bn back easily.


    Why abolish those other schemes?
    Spoiler:
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    The carbon tax introduced here renders them moot. In addition to this, trading pollution allowances is nowhere near radical enough to effect the change needed to reduce greenhouse gas emissions, as science journalist Larry Lohmann explains here.


    Costings
    Spoiler:
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    Changes:
    1) Carbon Tax; 523m x £30: +£11.1bn
    2) Hydrocarbon Oil Duty (rate increase); +£4.7bn
    2) Value Added Tax; 5% --> 4%: -£5.4bn
    3) Climate Change Levy; --> nil: -£0.7bn
    4) R&D Budget Increase; -£2bn
    5) Disaster Relief Fund; -£1bn
    + £6.7bn

    Total revenue from affected taxes:
    1) Carbon Tax: £11.1bn
    2) Value Added Tax: £20.9bn
    3) Hydrocarbon Oil Duty: £36.2bn
    4) Climate Change Levy: £0


    Second Readingi. The estimations regarding the CT's tax base have been reduced (thanks to Stanlas for recognising the initial error), it is now c.370mt per year - despite this, it now includes GHGs other than carbon dioxide (such as methane and nitrous oxide).
    ii. Hydrocarbon oil duties have been increased by 15% each. Recent VAT reductions (including the measure in this Bill) mean that the cost of fuel has been slashed - the carbon tax alone, as several people pointed out, would not cover the CO2 emitted from transport, the 15% increase would mean that the social cost has been incorporated into fuel duty.
    iii. The proposed VAT reduction will now be 2% in light of alterations made in the Welfare Act.
    iv. The R&D budget increase (earmarked for green research) has been doubled.


    Third Readingi. Since the Welfare Act has reduced VAT to the preliminary target rate of this Bill's Second Reading (5%), the proposed reduction is now just 1%.
    ii. I've incorporated a disaster relief fund into the Bill. The main reason for taxing pollution is to retrieve the money that climate change costs, it's only prudent to have some of this money specifically earmarked for the natural problems that could (and have) affect(ed) the UK - problems that the government is expected to provide for. Floods, droughts, storms - any form of freak weather.
    iii. The surplus is now +£6.7bn. That comes off the £90bn budget deficit.
    iv. Small mistakes in the formatting, and the configuration of the carbon tax, have been ironed out.
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    Still a no from me i'm afraid. If we can't secure guaranteed international co-operation beforehand.

    For all the reasons given previously, nay.
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    The MRLP are in favour of keeping the pound, the ounce, the furlong and other imperial measures. So that's a £3 per gallon levy for most fuels I think.
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    Aye, as before!

    So is JPKC back?
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    No author at the top of the field, I think, but probably an aye.

    (Original post by stanlas)
    Aye, as before!

    So is JPKC back?
    Yep, he's back from his ban.
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    (Original post by Moleman1996)
    Still a no from me i'm afraid. If we can't secure guaranteed international co-operation beforehand.

    For all the reasons given previously, nay.
    (Original post by internetguru)
    Disagree with higher taxes on this that will make the economy worst.
    (Original post by Rakas21)
    Its looking like an abstain or no from me.

    I disagree with the removal of the trading scheme.
    (Original post by Birchington)
    Current economic conditions suggest that this is not the time to introduce further punitive taxes on businesses or individuals, so it's a No from me.
    (Original post by RoryS)
    It's a no from me. This is not the right time to introduce new taxes.
    Between the Welfare and Tax Reform Act 2012 and the Tax Act 2011, the following business-concerned taxes have either been drastically reduced or abolished:
    • National Insurance Contributions
    • VAT
    • Business Rates

    The MHoC's economy is not in the same place as the RL economy. We probably have low unemployment alongside decent growth.

    The essence of a carbon tax (the very essence!) is that it makes the economy better. It's not just another means to scrape revenue from businesses. I thought I'd explained this aspect in the Notes, but I may not have been clear enough.

    In the current economy there is a simple problem with emissions. When a business uses a fossil fuel, the market cost of doing so (£xx) does not equate to the environmental costs of what happens as a result (£yy). In effect, this £yy represents the damage done by an amount of green house gas emitted. So, for each 1 metric ton of carbon dioxide (or equivalent) released into the atmosphere, £30 worth of damage is done to the environment - who should pay for this cost incurred? Three options: the government, the people harmed, or those reponsible for it. By taxing GHG emissions, the Government is making those that owe pay - it's really that simple, the social cost (£yy) is added to the market cost (£xx) to alleviate the problem of a negative externality in the current economy. I hope this explains the tax without getting too economicsy.

    Birchington and RoryS, both of you are from parties that consider themselves to be environmentalist - I'd very much like for you to justify your positions specifically. What specific parts of the argument do you disagree with? I hope your objections are not a throwback to when I upset you both in April, I did apologise.

    Prime Minister
    and SoS for Transport, can I assure each of you that this Bill would not increase energy costs from current RL prices. The recent VAT reductions apply to the energy market, and so a real terms drop in costs for consumers and businesses won't be negated by this common-sense, fiscally sound Bill. As for emissions trading schemes, I would have expected a Conservative PM to be opposed to them - not only are they ineffectual, they also add an extra layer of constraint to business - they are pure red-tape. A carbon tax is a market-based alternative, an option that actually does the job.

    Spoiler:
    Show
    (Original post by davidmarsh01)
    QFA
    (Original post by TopHat)
    QFA
    (Original post by Morgsie)
    QFA


    Where do you guys stand?
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    I'll also add that a lot of effort has gone into this, so well done :yy:

    If this passes, I look forward to the possibility of this being raised at an MUN level.
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    (Original post by DebatingGreg)
    I'll also add that a lot of effort has gone into this, so well done :yy:

    If this passes, I look forward to the possibility of this being raised at an MUN level.
    I look forward to you raising at EU Level aswell if this passes.
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    NO! Taxes = Bad!
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    (Original post by tehFrance)
    NO! Taxes = Bad!
    Who should pay for the costs of climate-induced environmental problems?

    A. The businesses responsible.
    B. The people affected.

    The tax is the only reasonable market-based approach, please reconsider.
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    (Original post by tehFrance)
    NO! Taxes = Bad!
    Why not:

    'Pollution = bad?'

    Some form of taxation is needed. If it helps deal with environmental damage and social costs of pollution at the same time, then so much the better.
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    (Original post by JPKC)
    Please reconsider.
    For you? no.
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    (Original post by JPKC)
    Between the Welfare and Tax Reform Act 2012 and the Tax Act 2011, the following business-concerned taxes have either been drastically reduced or abolished:
    • National Insurance Contributions
    • VAT
    • Business Rates

    The MHoC's economy is not in the same place as the RL economy. We probably have low unemployment alongside decent growth.

    The essence of a carbon tax (the very essence!) is that it makes the economy better. It's not just another means to scrape revenue from businesses. I thought I'd explained this aspect in the Notes, but I may not have been clear enough.

    In the current economy there is a simple problem with emissions. When a business uses a fossil fuel, the market cost of doing so (£xx) does not equate to the environmental costs of what happens as a result (£yy). In effect, this £yy represents the damage done by an amount of green house gas emitted. So, for each 1 metric ton of carbon dioxide (or equivalent) released into the atmosphere, £30 worth of damage is done to the environment - who should pay for this cost incurred? Three options: the government, the people harmed, or those reponsible for it. By taxing GHG emissions, the Government is making those that owe pay - it's really that simple, the social cost (£yy) is added to the market cost (£xx) to alleviate the problem of a negative externality in the current economy. I hope this explains the tax without getting too economicsy.

    Birchington and RoryS, both of you are from parties that consider themselves to be environmentalist - I'd very much like for you to justify your positions specifically. What specific parts of the argument do you disagree with? I hope your objections are not a throwback to when I upset you both in April, I did apologise.

    Prime Minister
    and SoS for Transport, can I assure each of you that this Bill would not increase energy costs from current RL prices. The recent VAT reductions apply to the energy market, and so a real terms drop in costs for consumers and businesses won't be negated by this common-sense, fiscally sound Bill. As for emissions trading schemes, I would have expected a Conservative PM to be opposed to them - not only are they ineffectual, they also add an extra layer of constraint to business - they are pure red-tape. A carbon tax is a market-based alternative, an option that actually does the job.

    Spoiler:
    Show



    Where do you guys stand?
    I hear your point about the economy, i've never really considered it but you're actually right! We do ahve to consider the effects of global recession though, which would probably have sent us into recession as well. However, with the little difference we make, this is a pointless tax if only Britain adopts it.
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    (Original post by JPKC)
    Between the Welfare and Tax Reform Act 2012 and the Tax Act 2011, the following business-concerned taxes have either been drastically reduced or abolished:
    • National Insurance Contributions
    • VAT
    • Business Rates

    The MHoC's economy is not in the same place as the RL economy. We probably have low unemployment alongside decent growth.

    The essence of a carbon tax (the very essence!) is that it makes the economy better. It's not just another means to scrape revenue from businesses. I thought I'd explained this aspect in the Notes, but I may not have been clear enough.

    In the current economy there is a simple problem with emissions. When a business uses a fossil fuel, the market cost of doing so (£xx) does not equate to the environmental costs of what happens as a result (£yy). In effect, this £yy represents the damage done by an amount of green house gas emitted. So, for each 1 metric ton of carbon dioxide (or equivalent) released into the atmosphere, £30 worth of damage is done to the environment - who should pay for this cost incurred? Three options: the government, the people harmed, or those reponsible for it. By taxing GHG emissions, the Government is making those that owe pay - it's really that simple, the social cost (£yy) is added to the market cost (£xx) to alleviate the problem of a negative externality in the current economy. I hope this explains the tax without getting too economicsy.

    Birchington and RoryS, both of you are from parties that consider themselves to be environmentalist - I'd very much like for you to justify your positions specifically. What specific parts of the argument do you disagree with? I hope your objections are not a throwback to when I upset you both in April, I did apologise.

    Prime Minister
    and SoS for Transport, can I assure each of you that this Bill would not increase energy costs from current RL prices. The recent VAT reductions apply to the energy market, and so a real terms drop in costs for consumers and businesses won't be negated by this common-sense, fiscally sound Bill. As for emissions trading schemes, I would have expected a Conservative PM to be opposed to them - not only are they ineffectual, they also add an extra layer of constraint to business - they are pure red-tape. A carbon tax is a market-based alternative, an option that actually does the job.

    Spoiler:
    Show



    Where do you guys stand?
    My stance is that you have replaced a tax which i was opposed to and going to get rid of (climate change levy) with a tax on businesses, hence while it is superior in tackling the cause i am still undecided.

    As for the emission trading scheme, it was only ineffectual because it was not combined with other measures and limited to the EU, i am very much for renewable resources because i believe that the economic multiplier of a potential trade surplus (well down the line) would outweigh any cost because 70% of imports are fuel.

    Because tackling carbon emmisions could lead to a reduction of fuel imports i am considering this bill, on most issues the notion of taxation would yield a simple no.
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    (Original post by Rakas21)
    My stance is that you have replaced a tax which i was opposed to and going to get rid of (climate change levy) with a tax on businesses, hence while it is superior in tackling the cause i am still undecided.

    As for the emission trading scheme, it was only ineffectual because it was not combined with other measures and limited to the EU, i am very much for renewable resources because i believe that the economic multiplier of a potential trade surplus (well down the line) would outweigh any cost because 70% of imports are fuel.

    Because tackling carbon emmisions could lead to a reduction of fuel imports i am considering this bill, on most issues the notion of taxation would yield a simple no.
    Are you generally for or against pigovian taxation?
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    Just cought the disaster relief fund and i do not agree with it so take it out.

    Floods occur when people decide on flood plains and the drought in this country has already been solved by the desalinisation motion.
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    (Original post by Morgsie)
    I look forward to you raising at EU Level aswell if this passes.
    And even the Baltic Partnership :rolleyes: Anything for activity, I suppose.
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    (Original post by stanlas)
    Are you generally for or against pigovian taxation?
    As per the Liber motion not so long ago i am broadly pro but not as much as some members of the House.
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    (Original post by Rakas21)
    My stance is that you have replaced a tax which i was opposed to and going to get rid of (climate change levy) with a tax on businesses, hence while it is superior in tackling the cause i am still undecided.

    As for the emission trading scheme, it was only ineffectual because it was not combined with other measures and limited to the EU, i am very much for renewable resources because i believe that the economic multiplier of a potential trade surplus (well down the line) would outweigh any cost because 70% of imports are fuel.

    Because tackling carbon emmisions could lead to a reduction of fuel imports i am considering this bill, on most issues the notion of taxation would yield a simple no.
    The CCL was essentially a tax on businesses, albeit a bureaucratic and misguided one. My position on emissions trading is that it just makes life harder for businesses by twisting the market - this tax is much simpler and a much more valid alternative (it's Pigovian and actually serves a clearly defined, non-arbitrary, point). I hope you see the merit.

    (Original post by Moleman1996)
    I hear your point about the economy, i've never really considered it but you're actually right! We do ahve to consider the effects of global recession though, which would probably have sent us into recession as well. However, with the little difference we make, this is a pointless tax if only Britain adopts it.
    The tax wouldn't have any support among the Libers if they didn't see the reason to implement it! We're not in global recession, and the Eurozone is still on neutral growth, so I think we can assume that we are in the midst of a boom. (Rhyme-time!)

    (Original post by tehFrance)
    For you? no.
    Suit yourself, I can't say you're winning hearts and minds by ignoring the substance of the argument. Opposing for the sake of opposing, hmm?
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    (Original post by Rakas21)
    Just cought the disaster relief fund and i do not agree with it so take it out.

    Floods occur when people decide on flood plains and the drought in this country has already been solved by the desalinisation motion.
    With all due respect Mr Prime Minister, but this isn't your Bill and you can't just say 'I don't agree, therefore remove it.' Like every other member of this house, you should ask in a polite way, stating your arguments.

    Besides, what do you have against getting ready for emergencies? Emergencies can happen even in the UK, and we should always be ready for them.
Updated: May 19, 2012
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