Tax Writer Taxwriter Ltd
Share this content

How tax can tackle the climate emergency

George Bull, senior tax partner at RSM, believes the tax system can be used to change the behaviour of individuals and businesses in ways that would help preserve this planet instead of destroying it.

27th Sep 2019
Tax Writer Taxwriter Ltd
Share this content

George Bull spoke to AccountingWEB’s consulting tax editor Rebecca Cave about his climate change concerns and how tweaking existing tax rules could make a real difference.

Rebecca Cave (RC): Why are you so passionate about the issue of climate change?

George Bull (GB): I have always been interested in how our planet was formed and how it continues to change. I studied geology at university, but somehow my career diverted into the intellectually challenging world of finance and tax.

Now my two interests are coming together. In April 2019, bank CEOs were questioned at the House Financial Services Committee in Washington DC. They were asked whether they believed climate change is a serious risk to the financial system, not only the planet. I whole-heartedly agree with James Gorman, CEO of Morgan Stanley, who replied: “if we don’t have a planet, we are not going to have a very good financial system”.

RC: So how should governments go about changing the tax system to help tackle climate change?

GB: There needs to be a shift in the basis of some taxes, from taxing money to taxing carbon. This is was highlighted in the OECD report published for the UN Climate Summit, which said too many energy users do not pay the energy and carbon taxes needed to curb dangerous climate change. The evidence shows that tax structures are poorly aligned with the pollution profile of energy sources.

The OECD also notes that well-designed systems of energy taxation do encourage citizens and investors to favour clean over polluting energy sources. Fuel duties and carbon taxes are simple and cost-effective tools to limit climate change, but the politics of carbon-pricing often prove challenging. Taxes on energy use can also contribute to reducing health damage from pollution.

RC: Fine words, but what can actually be done in the UK?

GB: We need to start with taxes on-road fuel. The government has frozen fuel duty since March 2011, when it could have been using the potential of this duty to reduce CO2 emissions and harmful NOx emissions.

If the Chancellor of the Exchequer reduces fuel duty in his forthcoming Budget this would be a dire warning that the UK government is not serious about the climate emergency. It would also willfully disregard the fact that using taxes for climate action does raise revenues – unlike most other climate policy decisions.

RC: Road-fuel taxes are very politically sensitive, are there other things the government could do without upsetting voters?

GB: Yes, only 15% of energy-related CO2 emissions in the world are from road traffic. Emissions from international aviation and maritime transport are not taxed at all. The UK could act in these areas, but it would be more effective if there was an international approach. While the UK is a member of the EU it participates in the EU Emissions Trading System, but much more could be done.

RC: Electric cars are often held up as a way in which individuals can do their bit to help reduce emissions, but is that really true if most electricity they use is generated by burning coal?

GB: The key tax tool here is VAT. Currently, two different rates of VAT are charged on the consumption of electricity: 5% for domestic and charity use, and 20% for business use. The VAT charge applies whether the electricity is generated by the burning of fossil fuels, by hydro, wind, solar or nuclear.

If lower rates of VAT are applied to electricity generated from renewable sources, this would effectively put a surcharge on the use of fossil fuels and would help direct private and public resources towards the development of new clean technologies.

RC: I love that idea but hasn’t there recently been a change in the VAT law which actively discourages the installation of solar panels and wind turbines?

GB: You are correct. For years, the UK has applied VAT at the reduced rate of 5% on the installation of domestic energy-saving materials including solar panels and wind turbines. However, from 1 October 2019, the VAT rate on the installation of wind turbines and water turbines for domestic use is to be increased from 5% to 20% as a result of a European court decision. The VAT rate chargeable on the installation of solar panels will also rise to 20% in most cases.

Once the UK has left the EU the Treasury will be free to reduce the applicable VAT rate to 5% or less as the EU legislation limiting the VAT rate will no longer apply in the UK.

RC: What are the chances of such tax changes being made?

GB: It is totally possible for the government to use the tax system as one of the most powerful tools at its disposal to change behaviours, and thereby reducing greenhouse gas emissions as part of its commitment to address the climate emergency. It is also not possible for the Treasury to argue that it will all cost too much.

It all boils down to political willpower and courage. 

Replies (6)

Please login or register to join the discussion.

30th Sep 2019 10:43

The idea that using a tax base to address anthropogenic global warming ie climate change will not have any statistically significant affect. The article assumes that climate change ie AGW is a forgone conclusion. It is not, without going into the complexities, it would be far better to reafforest indigenous native trees areas of the UK which would act as natural carbon uptakes, tax credits for replantation could be given to growers this would not only benefit primary and secondary industries but would also have a benefit on our balance of payments reducing imports of hardwood from endangered raimforests. By the way co2 represents approximately 450 parts per million of our atmosphere, human co2 emissions per annum is estimated at 3% of the total amount of co2 produced per annum and based on ice core isotope sampling going back 100,000 years temperatures. Co2 lags changes in biosphere temperature ergo causality and affect States its not Co2 that drives climate change.

Thanks (1)
By AndyC555
30th Sep 2019 14:16

OK, I'm no expert but some of the cataclysmic doomsday predictions seem hard to believe, especially those screeched at me by hysterical teenagers.

"Ah, but...scientists!" I'm told. "you have to believe them" and yes, it does sound apocalyptic. Take this for example;

"A senior U.N. environmental official says entire nations could be wiped off the face of the Earth by rising sea levels if the global warming trend is not reversed.

Coastal flooding and crop failures would create an exodus of ″eco- refugees,′ ′ threatening political chaos, said Noel Brown, director of the New York office of the U.N. Environment Program, or UNEP.

He said governments have a 10-year window of opportunity to solve the greenhouse effect before it goes beyond human control.

As the warming melts polar icecaps, ocean levels will rise by up to three feet, enough to cover the Maldives and other flat island nations, Brown told The Associated Press in an interview on Wednesday.

Coastal regions will be inundated; one-sixth of Bangladesh could be flooded, displacing a fourth of its 90 million people. A fifth of Egypt’s arable land in the Nile Delta would be flooded, cutting off its food supply, according to a joint UNEP and U.S. Environmental Protection Agency study."

Who could not be convinced of the need for urgent action by that?

Only that report was issued by the UN in June 1989.

How about the Pentagon report that warned of a Siberian climate for the UK 'within 20 years'?
Along with major European cities sinking beneath the sea and millions dying. Pretty scary? That was in 2003. Only 4 years left then.

And that seems to be the pattern. Doom and disaster predicted within 10-20 years (certainly of late, the 'disaster' is more often predicted to be 20 years away). Doesn't happen. More doom and disaster predicted.

So excuse my scepticism.

Meanwhile, surely the most straightforward way of reducing long term pollution is reducing the number of us on the earth. Half the people, half the pollution. Limit the number of children we have. But where's that on the green eco-warrior agenda?

Thanks (2)
Replying to AndyC555:
By justsotax
01st Oct 2019 10:01

I guess there is reason to still take a sceptical view, but I will say this, when your bins get emptied into a bin lorry, that lorry dumps your rubbish will end up on/under ground, in the air or in the sea. It doesn't simply vanish....I am no expert but this is fact! So one way or another we are trashing the place we inhabit....

Thanks (0)
By Zarozinia
01st Oct 2019 08:21

When I was at school there were 288ppm CO2 in the atmosphere and the concept of greenhouse gases was already being taught and was of concern. Scientists calculated that 350ppm was the maximum long term survivable concentration. It varies throughout the year but the current level is 415ppm. IE it has increased by almost 50% in all the years of discussion.
The observed effects are increasing although underreported. More frequent and more extreme storms,droughts, heatwaves and melting events.
This year's glacial and polar melting is happening 70 years faster than the models predicted. This melting is releasing pockets of methane which is a more potent greenhouse gas than CO2 and so we are getting into feedback loops.
Serious changes need to happen and the tax suggestions above would certainly be a step in the right direction.
In response to the reply about population size- there are a growing number of young people signing up to the birth strike movement. They are actively choosing not to have children because of the climate impacts.
There are responses elsewhere comparing CO2 produced in Britain and China. However if you break it down a lot of China's carbon footprint is due to us outsourcing so much of our manufacturing. Their emissions per household are a very small proportion of our emissions per household.
It is important for all of us to try to live as lightly as possible and basically consume less- but that doesn't sit well with our financial system requiring eternal growth.
I sit here, on a flood alert (the 3rd in 4 days), the roads into town are hazardous with standing water- just as they were 6 weeks ago.I have lost count of how many alerts and warnings there have been in the last 12 months. I have never known a year like it.
I think part of the inertia to act is our tendency to optimism. We are aware of the risks but we don't really think it will happen to us until there is strong evidence- c.f. smoking and cancer.

Thanks (2)
Replying to Zarozinia:
By AndyC555
01st Oct 2019 11:48

I guess it depends on when you were at school.

I was there in the 70s when it was the hole in the ozone layer that was going to kill us all.

"there are a growing number of young people signing up to the birth strike movement."

I admire their sentiment but I have known a lot of women who have said that they were quite adamant that they didn't want children until they did. It would be interesting to see how many of these young people are still childless in 20 years time.

Thanks (1)
Replying to Zarozinia:
By Paul Scholes
22nd Oct 2019 13:44

In the eight month "phoney war" period, following our declaration of war in September 1939 there was significant doubt and resistance to the measures needed to ramp up the country to a war footing. Similarly, in 1943 a polish diplomat and courier for the Polish resistance brought evidence of the Holocaust to a US supreme court judge who, despite telling him he didn't think he was lying, told him he didn't believe him.

This sort of psychological barrier to inconvenient truths is still at play now with Climate Breakdown but, as screamed by the generation whose life is actually at risk, "change is coming, whether you like it or not" and, if it takes clumsy nudges such as fines or tax to steer us away from the damage we are doing, then I'm in favour.

The climate strike generation, David Attenborough, XR et al, believe the 97%+ of climate scientists and there really is now no time, or reason, to deal with deniers. Even if you feel safer believing the fringe or people like Nigel Lawson then just read what the oil company scientists wrote 40-50 years ago, then hid, or have a look at the Morgan Stanley report:

Despite the doom & gloom, this is an opportunity to make life better and to correct the damage and inequalities of the recent past. You don't have to be a Marxist to realise that our economic system is no longer fit for purpose, growth as a determinant of human wellbeing, never really worked, so let's wake up and make the changes needed rather than sit back and wait for other changes to be imposed on us.

Thanks (0)