Chris Huhne: Green taxes are the way to change our world

In Finland, CO2 emissions would have been 7 per cent higher if the taxes had not been introduced

This has been a week for the optimists about our capacity to tackle climate change. The International Energy Agency pointed out how much carbon could be saved just through low-energy light bulbs, while the most thorough review shows green taxes can be highly effective. Weighing in at 295 pages, the Nordic council report concludes that active environmental policy - using taxes and other market-friendly instruments to change behaviour - clearly works.

The researchers at the National Environmental Research Institute in Denmark say: "The Nordic countries pioneered the introduction of carbon and energy taxes ... such taxes have made an important difference to emission levels. In Finland, CO2 emissions would have been 7 per cent higher at the end of the Nineties if the taxes had not been introduced, while in Denmark the tax-subsidy scheme on industrial emissions caused emissions to decline by 23 per cent in just seven years."

There is even a "double dividend" with positive environmental effects and benefits for employment and competitiveness. "Sweden is undertaking an overall tax shift replacing taxes on income with taxes on energy, transport and pollution amounting to several billion Swedish kronor. Estonia, in 2005, decided to lower income taxes by 6 per cent and substitute them in part with new environmental taxes."

It is precisely this green tax switch - from taxes on income from work on to taxes on carbon emissions and other pollutants - that Britain needs today. There is no other policy on offer that can realistically deliver the deep change in behaviour needed to make our own activity sustainable and set a lead for others. Thanks to a curmudgeonly Treasury, we are muddling along with no clear strategy.

After all, the Government set a target in three manifestos to cut carbon dioxide by one-fifth from 1990 levels by 2010, but CO2 is up 3 per cent since 1997. Ministers also set a target that one-tenth of our electricity should be from renewables by 2010, but we will be lucky to reach more than half. And by 2012, a tenth of all new car sales were to be low carbon models. We are nowhere near.

Indeed, the Chancellor cynically agreed to accept half the advice of the Energy Saving Trust to establish a new gas-guzzler vehicle excise duty band G, but he ignored its advice that duty in each band needed to rise sharply to influence new car purchasing. Instead, the top band will cost just £45 a year, or about half the cost of a tank of petrol.

Far from rising, Britain's green taxes overall have fallen - from a peak of 3.6 per cent in 1999 to just 2.9 per cent last year, the lowest since 1989. This key measure of the pressure of green taxes is set to fall even further after the Budget.Nor frankly are the Tories any better. They are all very keen on "voting blue and going green" but not if it inconveniences any potential swing voter. They are just as guilty as Labour of pretending that we can tackle climate change without changing our behaviour.

The fact that David Cameron's new car emits more carbon dioxide than nine out of 10 of the top-selling cars in Britain, or that it follows behind his bicycle chauffeuring his shoes, is not just funny but indicative. The Tories have refused to promise a reversal in the fall in green tax pressure.

That is why the Liberal Democrats have suspended our participation in the cross-party agreement with the Tories. The agreement was designed to stop the sort of surrender that followed the fuel-duty protests in 2000, and to give us all the nerve to jump into the cold waters of voter disapproval with tough measures. It was not designed to give David Cameron an alibi for doing nothing.

Anybody who says that they care about climate change without advocating a reversal of the decline in green taxes is not a chameleon but a charlatan. The fuel excise should be protected in real terms, and the climate change levy should also rise in line with inflation. Green taxes should also mean a far higher top rate of vehicle excise duty of £,2000 on new cars that emit more than double the most eco-friendly vehicles (with discounts for rural areas where cars are a necessity).

Then there is aviation. Flights need to be brought within the EU's emissions trading scheme, and the member states should agree a tax on kerosene. We should reform our own ineffective air passenger duty, which has fallen by 8 per cent in four years, despite a 35 per cent rise in passengers. The right tax is surely on each movement of the plane, and its emissions. Then every airline would have the incentive to fill the plane, and not fly half-full.

Some say green taxes would shrink with changes in behaviour, thereby undermining tax revenues. But that is to misunderstand the economics: London's congestion charge has to be high if it is to continue to change behaviour. Taxes on fuel, cars and planes are no different. The object is to steer emissions to sustainable levels through tax incentives, not to eliminate the behaviour altogether.

People are willing to face up to our responsibilities for the future of our planet. A recent ICM poll showed 63 per cent ready to pay more green taxes to help change behaviour. The key is the green tax switch. We need fairer and greener taxes, but not higher taxes overall.

Chris Huhne MP is the Liberal Democrats' shadow Environment Secretary