way of making some short-term decisions – about investments that will
pay off within ten years or so – but can we expect markets to do a good
job of making decisions about energy, decisions whose impacts last many
decades or centuries?

If the free market is allowed to build houses, we end up with houses
that are poorly insulated. Modern houses are only more energy-efficient
thanks to legislation.

The free market isn’t responsible for building roads, railways, dedicated
bus lanes, car parks, or cycle paths. But road-building and the provision
of car parks and cycle paths have a significant impact on people’s
transport choices. Similarly, planning laws, which determine where homes
and workplaces may be created and how densely houses may be packed
into land have an overwhelming influence on people’s future travelling
behaviour. If a new town is created that has no rail station, it is unlikely
that the residents of that town will make long-distance journeys by rail.
If housing and workplaces are more than a few miles apart, many people
will feel that they have no choice but to drive to work.

One of the biggest energy-sinks is the manufacture of stuff; in a free
market, many manufacturers supply us with stuff that has planned obsol-
escence, stuff that has to be thrown away and replaced, so as to make
more business for the manufacturers.

So, while markets may play a role, it’s silly to say “let the market handle
it all.” Surely we need to talk about legislation, regulations, and taxes.

Greening the tax system

We need to profoundly revise all of our taxes and charges. The aim is to tax pollution – notably fossil fuels – more, and tax work less.

Nicolas Sarkozy, President of France

At present it’s much cheaper to buy a new microwave, DVD player, or
vacuum cleaner than to get a malfunctioning one fixed. That’s crazy.

This craziness is partly caused by our tax system, which taxes the
labour of the microwave-repair man, and surrounds his business with
time-consuming paperwork. He’s doing a good thing, repairing my micro-
wave! – yet the tax system makes it difficult for him to do business.

The idea of “greening the tax system” is to move taxes from “goods”
like labour, to “bads” like environmental damage. Advocates of environ-
mental tax reform suggest balancing tax cuts on “goods” by equivalent tax
increases on “bads,” so that the tax reforms are revenue-neutral.

Carbon tax

The most important tax to increase, if we want to promote fossil-fuel-free
technologies, is a tax on carbon. The price of carbon needs to be high