Monday, October 30, 2006

Nick Stern's review of the economic implications of enviromental change, published today, sounds a stark warning. Unless investment, amounting to 1% of the world's gross domestic product, is undertaken to stave off the detrimental effects of global warming, global gross domestic product will be between 5 and 20 per cent lower than it would otherwise be by 2050. At the more pessimistic end of that scale, that is tantamount to a catastrophic recession. At either end of the scale, it makes investment now seem a good option.

A large part of the policy debate on the environment takes the form of discussion on taxes. This has been dreadfully timid so far. New taxes are never the way to an electorate's heart. A braver approach would be to switch on a large scale between existing forms of taxation and environmental taxes. Seriously slash income tax and replace it with much higher taxes on petrol and air travel.

This would have a beneficial side-effect - it would make the payment of taxes more optional, in the sense that it would be largely the consumption of pollutants that determined one's tax bill. Of course, some income tax (and taxes on other things) would still be necessary, if only for redistributive purposes. But the brave course of action for any political party now would be a promise a full review and reform of the structure of our tax system in an eco-friendly way, keeping all options open.