The Problem With Singapore’s First Climate Rally
Environmental activism today is in vogue. Climate change protests have been going on for years in the West.
The Problem With Singapore’s First Climate Rally
Yet it was only this past weekend where the importation of such Western-style activism to Singapore’s shores saw an officially organised, wide-scale effort. For that reason, it is worthwhile considering the popular sentiments around the rally, which drew hundreds of concerned young students and adults. What do they want? They make clear their policy suggestions in their call-to-action manifesto. I will not attempt to address every single claim in this short blog post. But in their myriad of claims and demands is the expansion of bigger governmental action in the form of carbon taxation, a typically common policy tool championed by environmentalists.
What is Carbon Taxation?
For readers who are not economically-inclined, the logic of carbon tax policy can be briefly summarised as such:
Carbon emissions impose a public externality. Because any one given individual has very little incentive to be environmentally-conscious, greenhouse gases pollution is said to suffer from a collective action problem that requires top-down governmental action (in the form of tax policy). By paying carbon taxes, industrialists and corporations will be forced to internalise these social costs. From an economic perspective, this would reach economic efficiency.
Watching the videos of the climate rally, one comes away easily with the impression that a carbon tax policy in Singapore would be all gains and zero losses for human welfare. This is because virtually none of the many speakers in the rally even makes a remote reference to the dozens of different trade-offs and problems that economists and policymakers consider when carbon tax policies are actually imposed in the real world. Let’s consider just a few here. Firstly, carbon taxes are commonly known to be a regressive tax. In other words, carbon taxes disproportionately hurts the poor more than the rich, since the poor spends a larger proportion of their income on energy consumption. The Hong Lim Park protestors frame their activism against the backdrop of grandiose doomsday claims of the Earth ending in 11 years. This rhetoric creates the impression to be pro-human-welfare when in fact it is the poor who will likely be hit the hardest by carbon taxes. Consider Australia’s 2012 experiment with carbon taxation, which was repealed a whole two years later. The Institute of Energy Research summarises:
… the carbon tax was immediately harmful to the country’s economy… in the first year under the carbon tax household electricity prices rose 15 percent, including the largest quarterly rate jump on record. By 2014, 19 percent of Australian household electricity costs were a product of the tax and accompanying mandates and regulations. Additionally, a number of business closures were directly linked to the carbon tax within its first year and, correspondingly, unemployment figures climbed sharply. In July 2014, just two years after implementation and in an expression of the open-ended nature of the political process, the Australian parliament repealed the tax.
As expected, consumer households, especially the low-income:
Upon the announcement of the repeal, the Treasury estimated that it would save Australian households an average of 550AUD per year. Despite the carbon tax repeal, Australia’s energy economy remains straitjacketed by a dizzying array of mandates and regulations that regularly leave electricity customers in a state of vulnerability as rolling blackouts are utilized in the hottest, highest-demand months of the year.
What does this tell us? The world of economic policy must inevitably deal with trade-offs. This is nothing to new to anyone who has taken an introductory module on economics. Yet why are the costs nowhere to be found in the climate rally speeches? Reducing carbon emissions might be a goal worth striving for, but it is highly disingenuous to omit the fact that it is low income households whom will bear the biggest brunt of a carbon tax policy, rather than middle and upper income households who can afford to pay higher prices in energy consumption.
The concept of Revenue Neutrality
To be sure, economists propose different measures to rectify for this regressiveness. One method is known as the concept of “revenue neutrality”, where the government promises both businesses and its citizens to offset the carbon tax increment, so as to avoid a net tax increase. This is done via the lowering of other taxes or lump-sum cash rebates to households. Revenue neutrality is appealing in theory. The problem is that economic theory almost never plays out as elegantly in real life as it does within the confines of a theoretical model on a chalkboard. Consider another carbon tax case study. The government of British Columbia implemented a carbon tax on the political promise of “revenue neutrality”. This tax began at 10 CAD in 2008, reached 30 CAD in 2012 and is set to soar even higher to 50 CAD by 2021. But the revenue neutrality commitment that was initially promised has since been abandoned for various political reasons. What then? Environmentalists will assure us that citizenry vigilance will keep the government in check against bad or haphazard practices. But this idealism ignores the fact that most voters are politically apathetic, let alone engaged in environmental activism or equipped with the relevant expertise to assess economic policy. This explains why inefficient policies tend to be entrenched for years, even decades. The same collective action problem that environmentalists use to invoke governmental action comes back to bite them in the rear since the political process itself is subject to just as severe a collective action problem. Environmentalist predictions must be taken with a grain of salt, given its long track record of failed predictions. But even as a concerned citizen that believes in the urgency of action against climate change, one should heed the wisdom of the Hippocratic Oath. Which is to say, “First, do no harm”. Carbon tax policies are rid with all kinds of regressive effects that harms the unseen poor, which are probably not the ones that fill the protester ranks this past Saturday at Hong Lim Park. But they exist amongst us nonetheless as hawker centre cleaners, taxi cab drivers and other blue-collared occupations. This short post only scratches a superficial surface of the many problems with carbon tax policy. If Singaporean environmentalists claim to be really fighting for the underprivileged, then they should do better to convey a more genuine and honest message in future protests.