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Tax Collector for the Climate State



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Catching up on papers and my inbox I just ran across this Financial Times article from a few weeks ago. he story is quite relevant now what with Congress accelerating its effort to replicate the Glorious Peoples’ Emissions Trading Scheme in Europe, under great pressure from industry lobbies — particularly some larger rent-seeking electric utilities — who see the need for such rationing schemes if not a need for them to pay for their emission “allocations”, or quota.

It seems that during Europe’s ETS “phase I” (2005-2007), many companies made vast amounts of money from selling those free permits to consumers for the amount the permits would have cost had the companies gone out into the market and bought them from their competitiors — this secondary market being one creation of such schemes, to encourage companies to find ways to reduce emissions and sell their excess (a process which in itself depends upon the government not over-allocating to these well-heeled lobbies, an assumption that proved over-optimistic in the EU). After all, they clearly are an asset which the company is sacrificing by engaging in its business of providing electricity; it just makes sense. In the world created once you dive down the bunny hole of such rationing schemes, that is.
This happened in the power sector especially, leading to the dreaded windfall profits, but of the purests sort, that is, one actually handed out to businesses by government
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That FT story estimated such profits at €20 billion annually across Europe. Spain reacted by imposing a €1.1 billion windfall tax on Spanish utilities for allowances given for free in 2006.

One way to view this is that the ETS increased electricity prices by that amount. The windfall profits tax simply makes utilities the tax collector for the climate state, appeasing the green lobby which despite mewling about high gas prices — here, at $3/gallon but, oddly, not about Europe’s $7/gallon — have proven themselves to only be concerned about price increases when the increase goes to some private sector entity, as opposed to the state.



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