In a hard-hitting report on the government’s comprehensive spending review and last October’s pre-budget report, the House of Commons Environmental Audit Committee has criticised the government for a "lack of ambition" in its use of green taxes.1
The audit committee complains that green taxes accounted for just 7.3% of all taxes in 2006 - down from a peak of 9.7% in 1999. It dismisses the Treasury’s argument that tax take from these sources has fallen because they and other measures have been effective in changing behaviour, and points out that most environmental taxes were frozen between 2000 and 2006.
"The Treasury’s argument that new or higher green taxes are unnecessary because the government is doing enough to protect the environment through other policies is hardly convincing given the government’s lack of progress in reducing UK carbon emissions over the last decade," says the report.
The MPs want the government "to significantly increase" the level of taxation on high carbon activities like flying, and while they welcomed last year’s increase in the Air Passenger Duty (APD), they point out this merely returned the duty to 1997 levels.
They also supported the forthcoming reforms to the APD that will see the duty being applied per flight rather than per passenger, but recommended that the APD be split into three bands for short-haul, long-haul and very-long haul to better reflect the different amounts of carbon dioxide emitted.
Money raised from green taxes should be used to increase environmental spending or reduce other taxes, said the MPs, but the Treasury remains strongly opposed to any linking of green taxes to environmental expenditure.
While the committee recognises that strict hypothecation reduces the flexibility to manage public finances, it also argues that public opposition to green taxes would fall if the revenue was seen to be spent on the environment. The committee urged the Treasury to do more to explain and make the case for green taxes.
Regardless of where the money comes from, the committee is adamant that cutting greenhouse gas emissions should be a "much higher spending priority" for the government. It thinks that the flagship environmental transformation fund - with just £170 million of new money over three years is "spread too thin", and too little of the fund is aimed at supporting a switch to a low-carbon economy.
The committee was "disappointed" that the government has allocated less money to the fund than it is likely to receive from the auctioning of allowances under the second phase of the EU emissions trading scheme. It called on the Treasury to look again at the fund once it has a clearer idea of the size of the revenue it will receive from auctioning.
Ironically, just before the report’s publication, Environment Secretary Hilary Benn announced an extra £30 million for the fund.
But it complained that the government was not doing enough to support CCS: "It is imperative that the Treasury provide considerably more assistance for CCS projects overall," said the report. The committee wants the Treasury to consider a feed-in tariff or other economic incentive to encourage power companies to fit CCS.
In spite of its sponsoring the Stern Review into the economics on climate change, there is little sign that the Treasury is "responding on the scale and with the urgency Stern recommended," said the Committee. As an example of this, the Committee pointed to the public service agreements (PSAs) through which the Treasury assigns policy objectives to government departments.
It thinks that the PSAs are leading to environmental issues being "ghettoised" instead of mainstreamed into the day-to-day business of government.
"The new PSA on climate change is too diffuse, with no clear departmental targets for reducing emissions," says the report. Instead, the Committee wants the government to introduce emissions reductions targets for individual sectors like transport, and give relevant departments the responsibility for meeting those targets.
The situation is made worse by the new shadow price for carbon that departments use to appraise the climate impacts of policies (ENDS Report 396, pp 30-33 ). The Committee pointed to the anomaly that because the price is based on an assumption that future action will limit the amount of carbon dioxide in the atmosphere, it is lower than a price based on unconstrained emissions.
As a result, many measures required to limit the emissions to the level assumed in generating the price will not be taken because they are judged too expensive. The Committee recommends that the price be recalculated based on the climate impacts of business-as-usual emissions.