The IMF, Fossil Fuels and the Name for a Rose

Juliet:

Tis but thy name that is my enemy;
Thou art thyself, though not a Montague.
What’s Montague? it is nor hand, nor foot,
Nor arm, nor face, nor any other part
Belonging to a man. O, be some other name!
What’s in a name? that which we call a rose
By any other name would smell as sweet

 IMF:

But if thine enemy is the fossil fuel industry,
And one would name a rose as ‘tax’,
then television, and radio, and newspapers
and twitter and a multitude of social media
would declare such rose as smelling most foul,
like vomit, or excrement or the pustulent sores
of a pox-ridden hag in the lowliest of taverns

In truth, Juliet was wrong. Names do matter. They frame narratives, just as the names Montague and Capulet did.

We live in a neoliberal world where both ‘tax’ and ‘subsidy’ are framed as evil. So whatever you do don’t talk about introducing a carbon ‘tax’, talk about eliminating a carbon ‘subsidy’. And this is what the IMF has done in a widely publicised report issued yesterday (here):

A key factor in estimating the magnitude of current subsidies is which definition of “subsidies” is used. Pre-tax consumer subsidies arise when the price paid by consumers (that is, firms and households) is below the cost of supplying energy. Post-tax consumer subsidies arise when the price paid by consumers is below the supply cost of energy plus an appropriate “Pigouvian” (or “corrective”) tax that reflects the environmental damage associated with energy consumption and an additional consumption tax that should be applied to all consumption goods for raising revenues.

Generally, when we talk about externalities, we talk about costs rather than subsidies, but, like double-entry book keeping, these are two sides of the same concept. When consumer A transfers a cost to consumer B, we can think of consumer B subsidising consumer A.

At this point, my first inclination is to shout “go IMF”. Cost? Subsidy? Whatever! At the end of the day, the burning of fossil fuels is leading, and will lead, to sharp declines in welfare. So let’s pull out a few charts from the report to capture the main story. Then, after that, I will inject a note of caution.

First up, the costs (oh, sorry, subsidies) are big, amounting to over 6% of GDP (click for larger image for all charts):

A great many of them relate to coal:

And the main gains at this stage relate to air quality rather than climate change (but remember climate change has yet to hit its stride):

To rectify the situation and eliminate these ‘subsidies’, the IMF has to mention the dreaded three-letter ‘t word’:

I can precise the above passage as follows: “In summary, we recommend a carbon tax.”

The IMF’s report has obviously been released to form part of the evidence base for the COP 21 climate talks in Paris in December. But does framing the debate in terms of subsidies wrestle the initiative away from the climate skeptic lobby? Perhaps.

My mother, who I use as a proxy for the non-economist general public, certainly does not understand the subtlety of the IMF’s post tax subsidies. After reading The Guardian newspaper’s write-up of the the IMF report (here), she came away thinking that governments are physically handing US$10 million a minute to the fossil fuel companies. Like my mum, I think the average man or woman on the street views a subsidy as a direct, rather than indirect, transfer of value.

Prior to the Copenhagen talks in 2009, the climate skeptic lobby stooped far lower than this, leaking the Climategate e-mails in an attempt to discredit the Intergovernmental Panel on Climate Change (IPCC). There is a fine line between framing and misconstruing, and in this case I believe the skeptics crossed it in true Machiavellian style.

In the US political drama House of Cards, the actor Kevin Spacey plays Frank Underwood, a politician who sees all policy-making as purely an exercise in framing and spin.

It seems that we operate within a polity that requires a touch of Frank Underwood to get anything done, especially with respect to carbon emission mitigation. But I would add a couple of notes of caution: a) let us not stray over the line from frame to misconstrue and b) let us be very good at framing so it doesn’t come back to bite us in the arse. I hope the IMF report meets these tests.