Comment by robocat | Hacker News Reader

Comment by robocat | Hacker News Reader

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> If a good is taxed at its true, global, long-term rate of externality, then the externality, the damage being done, is precisely being paid for. There is now no longer a net externality.

Why is there no longer an externality?

Let’s pick a concrete example: taxation of petrol in the UK. The externality still exists (say people in Indonesia living on the coast[1]), and more than enough fuel duty is paid to the UK Exchequer to cover the externality (from article: “Britain has had one of the highest levels of fuel duty in the rich world in recent decades, note Mr Lonergan and Ms Sawers, but drivers’ take-up of electric vehicles has been unremarkable.”).

You could make a colour of money[2] argument that there is no explicit externality tax. Or perhaps the victims of sea rise need to tax British petrol users? And I have a feeling your argument somehow ignores surpluses or market inefficiencies?

[1] https://www.theguardian.com/environment/2021/jun/29/risk-fro...

[2] https://bam.kalzumeus.com/archive/accounting-for-saas-and-sw...

taxation of petrol in the UK.

As a counter example look at Norway. To a first approximation no one in Norway is buying a new petrol car. The taxes are simply too high compared to electric cars. So obviously there exists a level where people will switch out of their own short term financial self interest, without having to make an environmental argument.

Yep, this is basically my view: taxing the externality would absolutely work. But the taxation rate needs to be pretty high!

I think I'm misunderstanding you.

There are multiple externalities to consuming petrol/driving cars around the UK.

There's a local/national one. By consuming petrol you're generally inflicting wear and tear on existing roads and adding to the need for road-space - requiring the construction of new roads. This is the externality that UK petrol tax is supposed to pay for - road infrastructure maintenance and construction. Ok it gets all mixed up in the general UK budget but, in theory at least, the tax pays for this externality.

But the government doesn't collect petrol tax and hand the money over to distant foreign countries in order to pay for global environmental externalities. So this externality is not paid for by UK petrol consumers?

No, in theory it doesn't pay for the roads, and in practice it doesn't. That's just a lie put about by the anti-cyclist lobby.

Most roads are actually funded from local taxes - mainly council tax and business rates in any case, not even central funding.

There are all sorts of complex flows of money between local and central taxation and spending.

It's not really relevant to my point which is that taxes being collected by consumers of fossil fuels in the UK are certainly NOT being sent to foreign countries to pay for the externalities of pumping CO2 in the air.

As a consumer of petrol in the UK, it's a mistake to think "I'm paying loads of petrol tax, so I'm paying for the externalities" when the money is being spent, one way or another in the UK. While the externalities are global.

I think if we were looking at this from a "pure economics" point of view, we'd say that the theory of externalities isn't wrong. But that

1. The UK just hasn't priced it high enough.

2. If the UK does not spend the money raised on ameliorating the externality worldwide, then they have not cancelled out the externality as they might claim to have.

It’s not really that simple. Here’s a breakdown of central government road funding.

https://www.gov.uk/government/publications/roads-funding-inf...

So central government commits very heavy funding to road building and maintenance such as through the Major Road Fund, but also many maintenance schemes at different levels.

Some local governments choose to forego some of this funding in return for receiving retained business rates instead. However retained business rates is collected by central government and considered central funding.

Ultimately money is a fungible commodity. It is true there’s no direct relationship between road taxes and road maintenance, but whatever petrol taxes pay for would still need to be paid for somehow if they went away.

How do you know which money funds what?

The amount collected is less than the cost of building/maintaining roads, thus it must come from other sources.

Because council tax and business rates get paid to an entirely different entity than road tax (local government vs state government) and you can see your council's spending breakdown

sure. this only works if you spend that money to offset the consequence - i.e. direct carbon capture. then it really is no longer external.

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