22 February 2009

Carbon Taxes:
Good for the environment,
not bad for the economy

New research shows that carbon taxes can reduce pollution
but also secure existing jobs without leading to more government
spending during the financial crisis

In a recent study supported by the Anglo-German Foundation, researchers from the London School of Economics (LSE) show that carbon taxes can reduce pollution without harming the economy. LSE economist Ralf Martin will be presenting results of his research on 25 February in Berlin.
Most governments and politicians like to express their concern for climate change. In most cases this concern has not yet translated into sustainable policies, however. Research on the effectiveness of climate change policies has therefore to rely by and large on hypothetical policy simulations rather than the study of the effect of actual policies. There are exceptions, however. In 2001 the U.K. government introduced a tax on various energy fuels for industry - the Climate Change Levy (CCL).
A research team from the Centre for Economic Performance (CEP) at the LSE, led by Ralf Martin, has conducted an in depth evaluation of the effect of this policy on individual firms using a representative sample of the UK economy which includes detailed data on more than 10,000 companies.
They found that the Climate Change Levy – which on average corresponds to a £20 carbon tax per ton – has had a strong impact on power usage by companies and reduced electricity consumption for the average manufacturing firm by 10 to 20 percent. The economists also examined whether the levy had had any adverse impacts on economic performance of companies in areas such as employment or productivity. They did not find any evidence for this.
Ralf Martin summarises the outcome of the research as "good for the planet and not bad for the economy". He goes even further, suggesting that an increase in carbon taxes and a simultaneous reduction of taxes on wages and employment could be the ideal policy measure in the current crisis, as it would secure existing jobs without leading to more government borrowing.

Ralf Martin will be presenting major results of his research on Wednesday, 25 February, at the Centre for Economic Research in Berlin. The event is co-hosted by the Anglo-German Foundation and starts at 12 p.m. (registration required). More information is available here

You can access Ralf Martin’s blog on this here

A summary of the study can be downloaded here
The full report - shortly to be published as a CEP discussion paper - is available from the author upon request. Please see contact details of Ralf Martin below.

For queries in the research please contact:
Dr. Ralf Martin
Centre for Economic Performance
London School of Economics
Houghton Street
phone: +44 (0) 20 7955 6975
mobile: +44 (0)796 722 3812
[email protected]
Contact person for the media at the Anglo-German Foundation:
Winfried Konrad
Media Relations
Anglo-German Foundation
Anna-Louisa-Karsch-Str. 2
10178 Berlin
phone +49 (0)30 2063 4985
[email protected]

The author:
Ralf Martin is a British Academy Postdoctoral Research Fellow at the Centre for Economic Performance and the Grantham Institute for the Study of Climate Change at the London School of Economics. He studies business behaviour and performance. Currently, his main research interest is the determinants of business sector greenhouse gas emissions and the impact and design of climate change policies for business.

Please note:
The Anglo-German Foundation supported Ralf Martin’s research based on its initiative 'creating sustainable growth in europe (csge)'. For more information please see