Fund faster climate action from progressive general taxation complemented by environmental taxes to change behaviours
Funding for measures to address the climate emergency should come from progressive forms of general taxation. Complementary specific environmental taxes are useful where they bring about behaviour change which reduces emissions.
Work like the 2006 Stern Review95 on the economics of climate change showed that it is the environment that underpins the economy and acting today on climate change is much cheaper than waiting to act when the situation is much worse. The review found that spending 1% of GDP a year could avert the worst of the climate crisis, whereas waiting to act could mean spending 20% of GDP in future to cope with the damage from climate change and reduce emissions. In 2008, Stern recalculated the necessary spend to be 2% of GDP.96
For comparison, Scotland’s GDP in 2019, the last pre-COVID-19 year, was nearly £170bn, so if Stern’s 2% number is applied to Scotland, we should be spending £3.4bn a year on tackling climate change. Common Weal’s detailed Green New Deal plans in Our Common Home97 are costed at £5bn a year.
The commitments listed as relating to climate change in the 2022-3 Scottish Budget total £2.86bn, with half of this being investment in rail network infrastructure and decarbonisation.98 This sounds impressive but still falls considerably short of Stern’s 2% target level and is demonstrably insufficient given we have missed a series of annual emission reduction targets, and the Climate Change Committee says we are off track to meet our future annual targets up to, and probably including, 2030.
The climate threat is so significant that both the Scottish Government and the UK Parliament formally recognised that there is a ‘climate emergency’ in 2019.99 Dealing with an ‘emergency’ should be a national priority. It should mean doing lots of things differently. Dealing with the climate emergency is also an enabler in delivering on other national priorities, including reducing the burden on the NHS caused by temperature extremes, making our transport system fairer, eradicating fuel poverty and driving the Just Transition for oil-dependent communities and workers.
Since it is a national priority, funding for action to reduce emissions and to fund our international climate obligations should mostly come from general taxation – a relatively stable and predictable source of finance. Where specific environmental taxes, levies, charges or other measures are applied, this should be predominantly because they will help bring about the desired behaviour change for an orderly transition, with any revenue generated as a result being an added benefit.
This is the case for other national priorities. For instance, the NHS is funded almost entirely from general taxation. Where there are health-related fiscal measures, like the duty on cigarettes, the sugar tax or the minimum price for a unit of alcohol, the primary purpose is to change behaviours away from behaviours which are bad for health. The Office for Budget Responsibility estimates tobacco duties will raise nearly £11bn for the government in 2022/23100 but none of this is specifically reserved for the NHS, despite smoking imposing a £2.5bn cost on the service. The minimum price for alcohol does not provide an income stream to the government, instead it is expected to boost income to the drinks industry. However, this measure is seen as a means of encouraging a reduction in alcohol consumption, thereby boosting public health and reducing the knock-on impact upon the NHS.
So we fund the NHS from general taxation because it is a national priority for us. We have relevant taxes, levies, charges and minimum prices because they help drive behaviour towards better health outcomes. This is also the approach the Scottish Government should take to action on climate change.
For further information:
- Financing Climate Justice, https://www.stopclimatechaos.scot/wp-content/uploads/2022/09/ FinancingClimateJustice_Report_ONLINE.pdf
The Economics of Climate Change, Nicholas Stern, 2006, see https://www.lse.ac.uk/granthaminstitute/publication/the-economics-of-climate-change-the-stern-review/
Cost of tackling global climate change has doubled, warns Stern, Guardian, 2008, https://www.theguardian.com/environment/2008/jun/26/climatechange.scienceofclimatechange
A real Green New Deal for Scotland, Common Weal, 2020, https://commonweal.scot/big-ideas/a-real-green-new-deal-for-scotland/
Nicola Sturgeon declares ‘climate emergency’ at SNP conference, BBC, 2019, https://www.bbc.co.uk/news/uk-scotland-scotlandpolitics- 48077802 & UK Parliament declares climate change emergency, BBC, 2019, https://www.bbc.co.uk/news/uk-politics-48126677
Tobacco duties, Office for Budget Responsibility, 2022, https://obr.uk/forecasts-in-depth/tax-by-tax-spend-by-spend/tobacco-duties/