Hidden Energy Articles

Hidden energy articles — Are some taxes better than others?

I normally do not like to even mention articles in company blogs because they are necessarily biased. After all, they’re marketing. But take a look at this article:

Stranded assets: do they have a future? The post was written by Bruce Menzies, who is the Chairman and co-founder of PAL, an UK based company that works on carbon pricing.

In a nutshell, the post talks about the risk of stranded assets for carbon-intensive companies. Or in other words, the risk of owning something that they think it’s valuable, to then find out that it is useless because, when the time for using it comes, it will not be profitable (or in some cases even allowed – but this article refers to profitability). The objective of the post is to put forward a product that PAL sells, which, in Menzies’ words, “calculates, in percentage terms, the relative proportion of any company’s assets that can be vulnerable to the risk of carbon liability”.

I will avoid giving my view on PAL’s product. That’s not the point of this ‘hidden energy articles’ series. However, the article brought to mind some previous notes about the increasing interest in the topic of carbon taxes ‘right-wing’ forums.

There are many different ways in which a carbon tax could be delivered. Here’s a fast non-exhaustive list of options:

  • POLITICAL PRICING – Politicians could go for a picnic one day and arbitrarily agree that they want to tax carbon at a rate of whatever-% just because God told them to.
  • SCIENTIFIC PRICING – An expert commission could establish minimum carbon prices on the basis of a number of fixed considerations.
  • DYNAMIC PRICING – The same commission could sit down and establish guidelines that set the rules for prices to be calculated upon.

PAL’s tool falls in the set of options available for dynamic pricing. However, it is also not the only option. Here’s another non-exhaustive list.

  • POLITICAL COMMISSIONS – A commission made could meet periodically and re-evaluate the mandatory price of carbon.
  • EMISSION THRESHOLDS – Instead of legislating on the price, per se, limits for total emissions could be agreed and actors would be required to trade allowances within those roofs (like the EU ETS).
  • ALGORITHMS – Instead of legislating on the price, per se, tools like PAL’s could be used to establish minimum but dynamic carbon prices.
  • CERTIFICATIONS – Instead of legislating on the price, per se, actors could be required to purchase allowances from independent certifications with the liberty to charge whatever they want from their customer.
  • A COMBINATION OF THE ABOVE – Better to not let me get started.

Takeaway

There are plenty of combinations to choose from. Some may be more/less acceptable depending on your political views. It may be worth thinking about which of the above-noted options sounds more reasonable to you and why? Just in case the issue acquires further prominence.