Monday
Sep122011
by 
Bishop Hill
Bishop Hill Why energy taxes will fail
Sep 12, 2011 Tim Worstall writes at the Adam Smith Insitute blog:
What the DEC is really saying is that energy demand is highly elastic to price: change the price and you'll get quite large changes in behaviour and demand. What Moxham is really saying is that this is tosh, energy has a low elasticity. We don't change our behaviour much when energy prices change. So, who is right?
Reader Comments (41)
The Greek Cabinet yesterday voted to cut one month’s wages from all elected officials, and impose an annual charge on all property for two years, to be levied through electricity bills to ensure rapid collection.
CRASH 2: LEAKED IMF MEMO SHOWS 300 BILLION EUROBANK SHORTFALL
http://hat4uk.wordpress.com/2011/09/12/crash-2-leaked-imf-memo-shows-300-billion-eurobank-shortfall/
wrong link Bish?
If demand were elastic then the price of energy would tend to be fairly stable. Have these nutters now come and stated publicly that they think energy prices aren't volatile? If so, why is MIFID being amended to include measures to curb, er, energy price volatility?
Hi Bish, link goes to "Who pays the piper?", which is a very direct piece about "CLOUD" and well worth the read.
Tim Worstall piece is "Civil servant is righter than government minister shocker!" at:-
http://www.adamsmith.org/blog/environment/civil-servant-is-righter-than-government-minister-shocker!/
@everyone
The Tim Worstall piece is here.
http://www.adamsmith.org/blog/environment/civil-servant-is-righter-than-government-minister-shocker!/
Bish says: "Why energy taxes will fail"
I would surmise the exact opposite: That this is the reason they work!
The difference is what their (real) purpose is, and I'd say it's 'Revenue' (for which they work very well).
The idea that the environment (or even the 'climate') can be controlled towards a desired outcome through tax rates is just absurd. And only the really deluded (utopic) politicians believe that.
Back in the early 70s I recall everyone being in a state of shocked disbelief at the forecast that perol could reach the dizzy level of £1 per gallon (22p per litre). Now it is c£6 per gallon, there are more cars on the road and more miles being driven.
Of course, when the government hands out generous subsidies that is proven to change behaviour - witness the rewards from wind farm boom and the archimedes screw so clearly set out by James Delingpole here:
http://blogs.telegraph.co.uk/news/jamesdelingpole/100104109/how-the-green-queen-will-screw-her-subjects/
The do work. They make people poorer, as do all taxes.
Then people have to decide. Do I feed myself, or do I keep myself warm?
It's all about feeding the beast. The government has run up huge unfunded debts, and its going to tax and tax and tax as a consequence.
ie. More tax - less services - inflation in the price of those services provided.
Watch for when the middle class get to pay taxes, but get denied those services. It's already happening.
People being forced to pay taxes for people on benefits, who end up with more money than those paying the tax in the first place.
its' going to go wrong, badly.
Link fixed! Thanks
Off the top of my head, I use various forms of energy for:
1 - Heating, hot water and cooking. All essential, and I'm unlikely to make substantial changes in my behaviour as long as gas and electricity are available 24/7
2 - To power various electrical appliances at home and work. Only thing you can do (and which we all should do simply to be efficient) is to make sure things are turned off when not in use. Once you've done that, there's not much elasticity left.
3 - Transport. I drive to work (30 miles each way, because that was the closest we could afford to buy a house). Other than a bit of working at home, there's not much I can do about that cost (too far to cycle, no suitable public transport options). The only fuel costs that could be reduced are driving during leisure time e.g. travelling to see family. There is a little elasticity here (i.e. end of the month - I'm skint and can't afford the extra £60 for a tank of petrol), but it's not a big proportion of my expenditure.
So, even with a few moments thought, it is obvious that unless energy prices go through the roof, price changes will have little effect on most people's behaviour, and those it will affect are likely to get very cold this winter...
Energy taxes will fail for a very simple reason:
Government's tax
Government's spend what they tax
Almost everything you spend increases energy consumption
QED government taxing will result in just as much energy being "spent" by government as was originally saved by individuals cutting back.
Bish says: "Why energy taxes will fail"
I would surmise the exact opposite: That this is the reason they work!
...
Sep 12, 2011 at 10:51 AM | Jonas N
Absolutely. It was revealing, a month or two ago, that government ministers were planning to revisit air passenger duty because it wasn't bringing in as much dosh as intended i.e. fewer people were flying. If greenery were the true intention, said ministers would have regarded fewer people flying as 'a good thing'. But no, their real concern is maximising government revenue.
Since retirement I have had the time, motivation and the energy (pun intended) to try & cut my utility bills. They are now almost at the minimum commensurate with the technology used to build my house.
To cut my gas bill I have insulated windows, walls, ceilings and floors. Cut out draughts etc. The only big investment I have left is to put in a condensing GAS boiler.
I have installed Compact Fluorescent and advanced LED lights to cut my electricity bill and we have bought new fridge/freezers and retired a galaxy of older ones (saved us a fortune). We have modified our use of the washing and washing up machines and when they are replaced we will buy more efficient ones.
I have looked at investment in the various "green" technologies - none of them work without subsidies - and I am not prepared to invest on the basis of trusting the government to continue paying me the current feed-in-tariff. The sole exception might be solar heating panels (without subsidy) - but with only two of us left at home from a family of 8 the need for power showers has reduced somewhat.
The only energy conservation strategic option left open to me now is using PassivHaus technology. This would reduce my energy use by some 90% but isn't really a valid proposition on a fifty year old house. I don't intend to build a new house using this technology and move into it.
We have also bought a new car which uses less fuel than its predecessor and we travel by car much much less than we used to (5 or 6 times).
We also have reduced our air travel to one trip every two years to see one of the brood in NZ.
There are no further changes in behaviour I am prepared to take - pneumonia is a very nasty illness.
My energy usage is therefore highly in-elastic. My own personal energy will now go into voting out ANY party that tries to tax me and my family into so-called fuel-poverty. If the main parties won't relent then I suspect we will have to create a single-issue party. There will be lots of takers.
JoE,
Could you share your fuel cost reduction with us, perhaps as a percentage - corrected, of course, for the departure of the offspring? It might also be interesting for you to share, if you be willing, the pay-off period for all this investment.
JoE,
Ah, er..... Make that share the "amount" of the reduction?
JoE - there is a very sensitive trade-off in replacing incandescent bulbs because they are also a good form of heating. You might find yourself using more gas to heat your house now...however, unless we have a stash of such bulbs, we will all be forced to go down that route soon.
Energy prices are highly inelastic for all those of us who've done what they could afford to do in the past few years, in regard to energy savings.
I have no intention to moan about the situation we OAPs find ourselves in - but would suggest that it is disgraceful to put us in a situation familiar from days gone by where one huddles next to a one-bar electric fire, clad in several layers of woolies, mittens, scarves and (thanks, Edwina Curry for that hint!) bobble hat, wrapped up in blankets - indoors.
This is ageism at work, perpetrated by the green zealots who care more for an 'ideal' planet than for people and for a number of animals they profess to 'protect' ..
My energy use isn't elastic. It's mainly heating. I already use a blanket in the winter to keep warm on the settee. With better insulation (eg double glazing) I could probably lower it. (though I would be tempted to use same heat and just be less cold.) but not much I suspect most people are the same.
Viv Evans- It's the freeze the peasants to save the pheasants ethos. Do they not remember that people die from cold in Britain? Blighty is cold and damp, a lethal combination.
Shona wrote at 2.15:
"It's the freeze the peasants to save the pheasants ethos. Do they not remember that people die from cold in Britain? Blighty is cold and damp, a lethal combination."
Indeed so - and they also forget that it is pretty dark in winter! So if some elderly peasants fall because the energy-saving bulbs don't light up instantly due to the cold in the house - cold because high energy prices enforce minimal heating - , then that's fine. It'll save money for the DWP, the NHS ...
It is unlikely that without improvements in technology any substantial savings can be made around the home. A certain amount of gas/electricty is required to heat and to cook. Ditto, with fridge/freezer. Applaince use such as washing machine, dish washer and TV are unlikely to be influenced much by the cost of electricity. At most people are likely to tinker around the margins, eg., turning of lights and not leaving items on standby. However, that will not result in a substantial reduction in enery usage. Thus one needs to see technology boosting the effectiveness of appliances with low running costs (eg., detergents being effective at say 20 degC and smaller quantities of water used in wash cycles etc).
The government is deluding itself that homes will become more energy efficient. The housing in the UK is generally old and of poor stock. Much has single wall construction and therefore not suitable for cavity wall insulation, and I suspect that lofts are, for the main part, at least partly insulated and/or have considerable amounty of junk (such as old rugs, clothes, boxes of this and that) that results in some partial insultion. Costs of double glazing is prohibitive for many so without grants there will be no upgrading and in any event, unless chimneys are properly blocked, heat simply escapes up the chimney. many houses have suspended floors with cold air running beneath the floors, and considerable redesign is required to overcome these limitations. Further, double glazing can often leads to other problems such as damp since old houses are designed to be drafty and air vents have to be fitted which to some extent nullifies the effectiveness of double glazing.
In practice, for most people, the only item that can easily be controlled is travel. Exhorbitant price of car and air travel could restrict this usage. However, where is the moral justification in this? Why should people be unable to afford foreign travel? If the government goes down the avenue of increasing transport costs then almost everything that consumers buy will increase in costs and this will have a significant and advers effect on the cost of living eventually leading to a restriction in consumer spending and the loss of jobs thereby reducing the government tax take and increasing government welfare payments. Thus it could easily be counter productive to tax travel usage to onerously.
It is about time there was a referendum on green policies and to what extent the general population are willing to support green subsidies and pay green taxes.
I think there's a lot of education needed for our Generation-Y people who have perhaps been spoiled by mod cons like central heating. T-shirts have become year round clothing rather than the few weeks of summer. I was out earlier and overheard a couple of youngster (I feel soo old saying that) complaining they were freezing. It was raining, it was windy, they were wearing those fashionable skinny jeans. Legs, meet wicking, evaporative cooling and windchill. That can be a handy effect for improvised beer cooling but I was warm, unfashionable and smirking.
That generation might tend to turn up the thermostat rather than putting an extra layer on so might benefit from some positive incentives to use energy more sensibly. Or they may fit energy saving things around their first home then wonder why they have a damp and mould problem. The challenge is it penalises everyone who've already done the sensible things to reduce their own usage.
The biggest problem though is most of it is still simple rent-seeking, either from the government or from enterprises. Want to try selling expensive CFLs? Challenging in a competitive market, or less challenging if you simply lobby to get competing products made illegal
Anyone see Watch Dog on the good old B-BBC the other week moaning about energy bills, it was all about the energy companies making money but not once did they mention the Green half of your energy bill.
'What's that Spot the BBC is all for high energy bills to save the planet'
@ richard verney
The government is deluding itself that homes will become more energy efficient. The housing in the UK is generally old and of poor stock.
I suspect the HIP was always intended to be a Trojan Horse for the energy efficiency piece, which I think is still required. Once your energy efficiency is documented, they could tax you on it.
So a detached 1930s house could, for example, be taxed at £20,000 a year while a 2-bedroom flat could be taxed at £2,000. This would force a lot of people out of their houses and into flats. Cable's mansion tax would work the same way: every X years you'd have to buy your house all over again.
I think it reflects the fact that governments, increasingly, are not prepared to wait until you die to expropriate you.
Furthermore, if one looks at whence emissions are purported to arise, what scope is there for reductions?
http://www.climatechoices.org.uk/pages/cchange4.htm
55% of emissions are home heating and power generation. Only 21% is transport which includes planes, trains and cars.
Unless we're going to go 100% nuclear and replace all transport with electric vehicles powered by nuclear electricity, no significant change can be achieved unless we simply shut down the entire economy.
Oh.
I appear to have halved my gas consumption since last autumn when I bought a £22 electric blanket for my bed. In previous winters I would leave the heating on overnight (controlled by a thermostat), no need for that now even during the coldest parts of the winter.
Bish: Energy demand is fairly inelastic under pressure from modest energy taxes on short time scales and more elastic under pressure from substantial energy taxes on longer time scales. No sensible discussion judges the success or failure of tax strategies without mentioning the means (size and pervasiveness of the tax) and goal (target percent reduction). Nor can one be judged without considering how the new revenue is used (or rebated) and what is done to protect domestic industry from competitors with lower energy costs.
There is too little understanding given to real people's choices. I would recommend a little coaching Austrian School of economics has the method of Verstehen. Loosely translated it is thinking yourself in the typical economic actor's shoes. So this winter, if we have another cold snap of sub-zero temperatures and considering fuel prices have risen 15-20%, will a typical family with children,
1. Turn down the heating, have less baths, wash & iron clothes less and have more microwave or slo-cooker meals
OR
2. Spend less in the sales, save less (or increase credit card debt), delay large purchases, have a cheaper family holiday and eat out less?
Or consider an elderly person, who far from being a rational economic actor, is just frightened by the prospect of the enormous bills.
It seems that this winter people will be reducing consumption - the very reverse of what is needed for growth to reduce the deficit.
In the longer term people's larger purchases will be strongly biased towards energy saving rather than home-making. It goes without saying that this is highly regressive, targeting the poor, and the housebound.
Energy-use is more of a 'need' than a 'want', so its consumption-quantity is relatively unaffected by price.
JohnOfEnfield - Changing an older boiler for a new, condensing boiler is uneconomic if the old boiler still works.
If the old boiler fails & has to be replaced, you're forced to have a condensing boiler.
Whether the new boiler ever condenses however, is dependent entirely upon your system - which by definition was NOT designed for the lower flow & return temperatures necessary to induce condensing.
Please ask the salesman two questions:- "What is the efficiency of the new boiler?" And when the salesperson replies "102% / 103% / 104%" or whatever, with a straight face then ask "Oh then, how much will the gas company pay me to use it?"
Be aware that although the new boiler will have a higher combustion efficiency than your existing boiler, its lifetime costs may in fact be greater! All that technology; all those electronics; lighter, less-durable heat-exchanger to gain those vital extra % points of efficiency. A pound to a penny, it wont last as long as an older boiler, so will have to be replaced 'more frequently', so creating significantly more CO2 in the process of manufacture & install.
"Why energy taxes will fail"
I suppose it depends on what you believe "energy taxes" are supposed to achieve.
Taxes : For HMG the taxes are doing just fine. Let's face it, under what conditions would they be reduced or abolished? Given that there are no conditions under which the population will not consume energy then don't we just have another income tax? The wars ended two hundred years ago but the "temporary measure" of income tax is now a fact of life.
Energy efficiency: Sure, the low hanging fruit is there to be taken but then it becomes exponentially more expensive too make further savings.
CO2 reduction : It is becoming painfully clear that wind and solar will never make any serious contribution.Even if they could, that would be confined to electricity production. There is no "sustainable" alternative to Gas.
Ironically, with the mess made of the electricity industry, is there any alternative for transport fuel? Increasing electricity prices to keep subsidy farming viable will do nothing toward increasing electric vehicle take up.
Strikes me that, short of some major breakthrough in energy production that makes the focus on energy irrelevant, the UK has become an international test bed for lunatic schemes. How not to do it.
@ Joe Public
That logic is why I have a 38-year-old car (and I'd say it has at least another 20 years in it).
I figure it is greener to keep an old one running for 60 years than to buy and scrap 6 replacements.
I dont have a boiler at all. My house is 444 years old, my Aga is 55 years old, my car is 42 years old and my wife's age is confidential.
How did the wind turbines in the U.K. do during the windy conditions yesterday?
I may have been slow to realise this, but having just entered a local debate about home installations of solar panels, I was astonished to learn that the FIT payback applies both to power exported AND to power consumed by the homeowner - in other words, everything they generate. There’s even an additional 3p/unit for the power that does get exported - trebles all round!
I’m keeping a close eye on the section of my electricity bill labelled ‘government obligation to help the environment’, currently 12% - I wonder what the threshold for a peasants’ revolt will be..?
Pharos
That's impressive. I hope St George of the Lesser Moonbat is reading - he needs some education about Agas.
BTW, my solar panel owning friends insist that the FIT is guaranteed for 25 years and will be index-linked. I rather doubt that the panels will last that long, but where is it written that the FIT’s are immutable?
JohnOfEnfield
“We have also bought a new car which uses less fuel than its predecessor”
It would have to use an awful lot less to offset the energy used in its manufacture, I’m afraid.
We had to go shopping for a new washing machine recently and these are now all graded according to energy consumption (as with government credit ratings, the scale is well beyond the single ‘A’ stage). Water usage features heavily, but the upshot is that several have an option for additional rinsing, which is necessary for those whose skins react to residual detergent, the standard program not being sufficient to remove all of it. There are times when I wonder if any modern ‘green’ device really merits the description at all...
What other raw material is taxed at 400%, like petrol and diesel?
The only effect of high taxes on fuel is to push people into a lower standard of living. My mother-in-law is on a basic pension. The effect on her of increasing energy prices is that she turns the heating off. She can't put on any more jumpers because there is a physical limit to how many you can wear before you would have to change all your doorways.
The effect on my spouse and myself is to simply to make us poorer as we have no choice but to drive to work becuase we live in a rural area. So instead we have to make sacrifices like cutting down on fillet steak and champagne to compensate. Lower standard of living all round.
During the fuel protests in 1999 (? or theareabouts) there was a comment by an economist that increasing the fuel price at the time would reduce economic growth for the country by 0.5 - 1.0%.
Can you imagine what would happen to our growth rate if tax and duty on energy was reduced to just VAT only?
George O? Are you listening?
Energy plays an important part in all individual life. People have to use some energy efficient resources for saving energy. I am totally agreed with the statement that energy demand depends on price. I like the various reviews of the people ion this matter. Good Share...!!!1