Notes On The Front

Ban SUVs

No one doubts we need to act urgently if we are to avoid climate armageddon.  While the debate has focused on sectoral targets, especially agriculture, we need to move to concrete proposals and implementation. Quickly.

While much of the debate takes place at a high level – off-shore wind, data centres, electric cars, retrofitting (with targets that are highly challenging) – moving towards climat ae justice will take a myriad of small steps.  And a key issue is whether we use tax incentives or regulation to help us along the way. 

Let’s look at one proposal in the area of transportation – banning Sports Utility Vehicles.  This is not a substitute for radical action to extend public transport or transition to electric vehicles.  However, it is one of a number of small steps that can help reduce greenhouse emissions.

Sports Utility Vehicles are, in climate terms, highly damaging.  The International Energy Agency made a finding that stunned even its own researchers.

‘SUVs were the second largest cause of the global rise in carbon dioxide emissions over the past decade, eclipsing all shipping, aviation, heavy industry and even trucks . . . ‘

If all SUV drivers banded together to form their own country, they would rank as the seventh largest emitter in the world.  According to Fatih Birol, executive director of the IEA:

‘The global rise of SUVs is challenging efforts to reduce emissions.’

Sebastian Castellanos, a researcher at the New Urban Mobility Alliance, stated:

‘To avert the worst of the climate catastrophe, the transport sector needs to be completely decarbonized . . . With the explosion in SUV sales, we are moving even farther away from our goal of decarbonizing the sector.’

Again, the New Scientist reports: 

‘The good news is that more people bought electric cars in 2020. The bad news is that SUVs continued to grow in popularity, too. The fall in oil consumption due to the first trend was completely cancelled out by the second, say Laura Cozzi and Apostolos Petropoulos at the International Energy Agency in France.  The growing popularity of SUVs is making it even harder to cut carbon dioxide emissions and meet climate goals. “Policy-makers need to find ways to persuade consumers to choose smaller and more efficient cars,” says Petropoulos.'

It should be noted that estimates of carbon dioxide emissions from SUVs do not factor in the manufacturing carbon cost.  As SUVs are heavier, their emissions would be higher still. 

It should be a no-brainer that we have to reduce the number of SUVs on the roads.  After all, there are ‘substitution’ goods; that is, there are less-damaging cars that can be purchased – including electric vehicles, though Jason Power warns that electric SUVs remain a bad idea. 

However, SUVs are highly popular.  Half of all new car purchases in the US are SUVs while they make up one-in-three purchases in the US.  Ireland is part of this trend.  Hannah Daly and Vera O'Riordan of UCC found that:

‘SUVs are also favoured by city-dwellers as much as country folk: nearly 19,000 were sold in Dublin last year, nearly half of new cars registered in that county.’

They put the issue in stark terms:

‘Ireland must rapidly reduce fossil fuel consumption to meet climate obligations. As one of the many changes needed, the prevalence of heavy, fuel-hungry SUVs on Irish roads should end. But instead, SUV sales are growing rapidly: 55,000 were sold in 2021 (nearly 55% of all new cars). By contrast, only 8,600 fully electric vehicles were sold that year. SUVs' greater weight and height mean that they emit around 20% more carbon dioxide than medium-sized cars, and far more than electric vehicles.’

Governments will be reluctant to interfere with people’s choice of cars, especially such a large cohort of people.  However, when we compare the challenge of reducing SUVs with other challenges – transitioning to renewables, retrofitting hundreds of thousands of buildings, expanding public transport – it is pretty small scale.

One issue is how we implement this reduction.  The usual route is through tax incentives; namely, increasing the tax on SUVs.  The logic of this is that the additional tax will direct purchases to cheaper and less environmentally damaging vehicles.  However, this still results in high income groups capable and willing to pay the additional tax, being able to continue engaging in environmentally damaging transport.  In short, they can buy their way out of responsible consumption.  And this impacts all of us.

A more direct and egalitarian policy approach would be to simply ban them.  This means that, regardless of one’s income, people will be required to purchase other, less carbon dioxide-intense vehicles.  Whatever about the issue of commercial vehicles - using SUVs for work purposes - the removal of fossil-fuel SUVs from our roads would help in decarbonisation. 

In the overall, this should not be a difficult issue but it requires a government intent on a robust strategy of climate justice and willing to win people over to that strategy.  This is just one small rung on the sustainability ladder that we will have to climb if we are serious about climate change and repair.

Now, who’s up for banning private jets?

Raise the Income Floors, Lower the Price Ceilings

With the Exchequer awash with revenue (much of it potentially unsustainable corporate tax revenue) there is no shortage of proposals for the upcoming ‘cost-of-living’ budget.  Social protection increases, tax cuts, once-off subsidies, public service supports – there’s something for everyone in the audience. So how do we decide what is the most economically efficient and socially equitable within all this noise? 

We can start with two principles:  first, raise the income floor; and second, lower the price ceiling. 

Income Floors

Raising the income floor directs resources to predominantly low-income groups.  This can be done in two ways: 

• Increase social protection payments (substantially)
• Increase the national minimum wage (substantially)

Not only is this socially equitable, it is efficient.  Lower income groups have a very high propensity to spend; that is, they spend most of any additional income they receive.  Given that one of the biggest recessionary threats is a reduction in consumer spending and, so, investment – increasing the income floor would help bolster consumption and business revenue. 

One flying kite doing the rounds is a €15 weekly increase in social protection payments, which  would cost €1.1 billion – though the Irish Times reports that this proposal is fading.   Even so, if the goal is to protect those on fixed incomes, this proposal would come up short. 

• The Central bank estimates inflation to be 12.2 percent in 2022 and 2023.

• A €15 weekly increase next year combined with the €5 increase this year would only raise social protection rates by 9.9 percent.

There’s also the finding by the CSO that inflation hits low-income groups harder than those higher up the income scale.

While the national headline rate was 6.7 percent, for the lowest income deciles inflation was higher than 7 percent while for the highest income deciles inflation was below the headline rate. 

 At a minimum, social protection rates should increase by €20 per week if protecting people’s living standards is the goal.  At that level, with additional supports (fuel allowance, electricity rebates), we could be successful in protecting those on fixed incomes.

A substantial minimum wage increase is also needed to increase the earnings floor.  The CSO’s latest data shows there were nearly 125,000 on the minimum wage.  However, increases in the minimum wage impact more than just those on the wage floor.  It affects all those being lifted up to the new wage.  And it impacts on people above the new rate as the increase pushes up wages.  Given that there are over 400,000 who are officially categorised as low-paid, a significant increase would directly and indirectly impact on a sizeable proportion.

Apart from protecting low-paid employees against inflation, a minimum wage increase would have other benefits.  First, it increases tax revenue which the Government can redirect into further social protection or public service supports.  Secondly, it would help bolster consumer demand.  The National Competitiveness and Productivity Council has warned of the danger to domestic SMEs from falling consumer spending as a result of uncertainty over inflation.  As low-income earners spend nearly all the additional income, this would end up being spent (ditto for social protection increases).  

These two measures – substantial increases in social protection rates and the minimum wage – could protect low-income groups from inflation, support the domestic economy, and help the Government ensure that targeted measures are not eaten up by price increases.

Lowering the Price Ceiling

Lowering price ceilings could come via energy price regulation.  This could, at the very least, limit the damage of any upward pressure on, especially, gas prices.  I’ve discussed this here and here.  There are a number of ways could this be done, apart from freezing prices through maximum price orders:

• Substantially reduce standing charges – they are effectively a flat-rate tax on energy consumption, totally detached from the amount of energy used. A single pensioner suffering energy poverty pays the same standing charge as a high-income household.

• Introduce temporary social tariffs – ensure that low-average income households pay no more than 5 percent of their income on energy. This would, of necessity, be a means-tested scheme.

• Require all energy suppliers to extend their lowest tariff to all customers.

Introducing a windfall profit tax would be a second-best option.  The Finance Minister recently told Ged Nash, TD, that raising the corporate tax rate on energy companies from 12.5 percent to 50 percent would yield €271 million.  That’s a decent enough haul.  However, it implies profits of over half-a-billion Euro.  Wouldn’t it be better just to require energy companies to reduce prices by that amount for a temporary period?  Investment in green alternatives could be protected by direct investment subsidies.

Former Prime Minister Gordon Brown has weighed in on the debate in the UK. 

‘ . . the government should pause any further increase in the cap; assess the actual costs of the energy supplies being sold to consumers; and, after reviewing the profit margins, and examining how to make standing charges and social tariffs more progressive, negotiate separate company agreements to keep prices down. And if the companies cannot meet these new requirements, we should consider all the options we used with the banks in 2009: guaranteed loans, equity financing and, if this fails, as a last resort, operate their essential services from the public sector until the crisis is over.’

Regulate and, where necessary, nationalise.  That is a serious progressive perspective.

* * *

Once these two principles have been established in policy, then we can assess the range of further options to assist households and businesses based on economic efficiency and social equity.   There is, quite naturally, demands to assist people and enterprises throughout the economy.  The Government will need to prioritise the most effective policies while minimising the inefficient, the inequitable. 

Raising the income floor and lowering the energy price ceiling is the foundation.