Discourage flying by taxing carbon emissions, or by promoting alternatives like sleeper trains for long trips within Europe? Answer: both. They are like two hands, one washing the other, doing one alone is bound to disappoint.

Could sleeper trains replace international air travel? asks Enrica Papa (The Conversation, 20/01/2020). And although she describes inspiring cases and some evidence that flight shame is driving a small revival to sleeper trains, what she shows ultimately is a bleak picture overall – there are far fewer sleeper trains in Europe than there were a decade ago, and most air travellers won’t make that switch.

What about cutting air travel with a polluter-pays tax on aviation fuel? I’m all for it. What needs to be understood, though, is that the availability of less-polluting alternatives (like sleeper trains) makes the pollution tax more effective in cutting pollution, and can also make the impact of the tax much fairer as well.

The point of a pollution tax is to cut pollution, by making it expensive to pollute. But, if you think you need to make a trip and there’s no good alternative to flying, the tax just means you pay more; if there’s a reasonable, less polluting alternative – a sleeper train, say, that costs less than the flight – you can pay less and pollute less, and the same level of tax becomes more effective at cutting pollution. The same principle applies to taxes on fuel for cars: if there is good bus service and there are safe ways to get around by bicycle, a fuel tax can do a lot to cut pollution; if there are no good alternatives to driving, a tax on fuel has a much smaller effect on pollution, and costs people more money.

One problem with pollution taxes is that they often appear regressive – as a percentage of income, they fall more heavily on poor people than on rich ones. Whether they are regressive in the end, however, depends on how the tax revenue is spent: if the spending leans heavily towards things that benefit those with lower incomes, these taxes can be quite progressive. This is nowhere more clearly illustrated than with cases where the tax revenue is spent on providing lower cost and less polluting substitutes: sleeper trains from a tax on aviation fuel, bus service and bike paths from a tax on motor fuel.

To put that all in technical terms: a tax on pollution is more effective, and consumers pay less, if the price elasticity of demand for pollution is high; elasticity of demand for pollution will be high when there are good, less polluting substitutes available.

23 January 2020