Green taxes, dark thoughts

As someone who has made a career out of being a business economist, I guess I am supposed to believe unquestioningly in the ability of free markets and the price mechanism to deliver the optimal allocation of scarce resources. However, I am finding it harder and harder to keep the faith.

My latest bout of uncertainty has been triggered by the "green" tax increases announced by Gordon Brown in the pre-budget statement this week: a small increase in taxes on motor fuels, and a doubling (though still to a very low level) of the tax on passenger flights. Even these very modest moves have been criticised. The freight lobby has muttered about fresh fuel protests, though it's hard to see there would be any public support for that, given the current "green" mood. For their part, airlines are decrying what they portray as a tax grab that will do nothing to change consumer behaviour. They are clearly quite confident in this assessment of the elasticity of demand: BA has already indicated that it plans to pass the tax on to passengers.

Where things get trickier for me is when I start to contemplate the much larger price changes that may be needed in the future if we are actually going to get serious about global warming. A big jump in fuel prices is not going to deter Roman Abramovich from filling up his tenth yacht, or stop investment bankers from driving to their second homes in SUVs. But it might force some nurse or teacher somewhere to conclude, sadly, that she can't afford to take a slightly better job in the next town because she can't afford the commute. I may stump up for higher fares for my three or four trips abroad each year, but the low-wage family of four may have to go without a holiday at all. (Aside: it has been reported that SUV sales have fallen sharply in recent months. I would be very surprised if this has very much to do with fuel costs, which are much lower than they were at the start of the year. It's happened because the green lobby has succeeded in demonising the accursed things).

In a world of winner-takes-all capitalism these thoughts may come across as heretical, but I think the possibility that green policies will lead to an of ever-widening gap between the lifestyle of the Rich and Famous and that of the rest of the population should be a real matter for concern. There seems to be some recognition of this in the media -- and not just in the Guardian. People are wondering if there some non-price alternative that should be considered. I imagine my personal preference -- ban any vehicle that Jeremy Clarkson likes -- will be rejected as too simplistic. But I have seen a couple of commentators suggesting that every adult should get some kind of annual fuel allowance, with those who don't use it permitted either to sell it to the highest bid from the local petrolheads (which would provide extra cash for those too poor to travel) or to tear up the fuel coupons (which would allow the greenest members of the population to make an extra contribution to reducing overall fuel use).

After a lifetime of supply and demand curves and competitive forces, this sort of proposal makes me queasy. However, the recent surge in environmental awareness is likely to persist for many years. Consequently, I think we can expect to see more musings about non-price-based methods of curbing travel as Governments realise the dangers of letting the price mechanism do all the work.