Based on poll results to date, this federal election will bring a humiliating defeat to the Liberals. There are sensible reasons to vote for the other parties, but many Canadians might do so based on the Liberal “Green Shift” proposals for taxing carbon emissions. This is not a sensible reason. It says something deeply depressing about Canadians’ unwillingness to grapple with a major international problem.
For two decades, Canadians have been all talk, no action. We signed the Kyoto Accord and gave ourselves ambitious targets for lower emissions. Since we signed, our emissions have risen faster than those of the Americans—who didn’t sign—and no one expects Canada to meet its Kyoto targets.
Canadians are not the only ones refusing to deal with the problem. The burgeoning middle class in China, India, Vietnam, Thailand, and elsewhere are enjoying industrial prosperity, which means they, too, are major greenhouse-gas emitters. (China alone now consumes 10 percent of world oil production.) When they’re confronted with their responsibility for global warming, their retort goes like this: “You in the West have enjoyed two centuries of industrial prosperity; we want it too. You used the atmosphere as a dump. You make the first moves to dump less. If you act, we will—probably—do likewise. If you don’t act, why should we?” It is a powerful argument.
There are two ways to “dump” less: incur a dramatic economic recession (as took place in the former Soviet empire after 1989) or make people pay to emit greenhouse gases. Given the current chaos in world financial markets, we may get a serious recession. I hope not. To reduce emissions without a recession, we must price activities that generate emissions. Exhortations (like Rick Mercer’s “one tonne challenge” TV ads) don’t work.
There is near unanimity among economists: paying for emissions is the only foundation for successful climate-change policy. It induces consumers to reduce activities that cause emissions, and it encourages firms to develop new technologies that don’t emit carbon. In turn, there are two ways to price emissions: impose carbon taxes that vary according to greenhouse gases emitted, or cap total emissions among major emitters and establish a market in which firms can buy and sell emission permits.
A “cap and trade” system can work—the most important example is the European Union’s Emission Trading Scheme. However, carbon taxes are administratively easier to implement and cover a higher share of carbon-emitting activities. Those countries having achieved the best results are in Northern Europe. They have relied on both carbon-taxing and cap and trade. And pricing emissions has not brought on recessions.
Starting in July 2008, B.C. implemented North America’s first significant carbon tax. The tax starts at a low rate per tonne of carbon emitted, with a scheduled commitment to ramping up the tax in future years. It is a broadly based tax that gives people ample time to adapt. The tax is accompanied by a clear set of tax reductions to ensure revenue neutrality. Furthermore, the reductions are designed to favour the poor. The Green Shift proposals are broadly similar.
Both initiatives deserve support; both initiatives are mired in controversy that may humble their proponents. Five centuries ago, Machiavelli observed: “There is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to institute a new order of things.” Implementing a climate-change policy that works is, rather obviously, to “institute a new order of things”.
The Tories have damned carbon taxation as a scheme to thwart Alberta’s prosperity and return Canada to discredited “tax and spend” traditions. The B.C. and federal NDP have opposed carbon taxation on the spurious grounds that the alternative cap and trade system is inherently superior, that it will make the “big polluters” pay with no cost to consumers. The NDP ignore the fact that, if forced to buy emission permits, the “big polluters” will pass on the cost via price increases.
There remain two weeks for Canadians to change their minds.
By all means, let us debate the design of revenue offsets to reassure those worried about tax and spend. Perhaps we should also subsidize investments by truckers in fuel-efficiency innovations; perhaps we should award large one-off grants to finance conservation investments that reduce space-heating requirements. Should the federal Liberals get to implement their proposals, we in B.C. could insist that total taxes imposed in B.C. not exceed the higher of federal or provincial rates. (Presumably, that means B.C. residents would become eligible for only a prorated share of federal tax offsets.)
To sum up, if Canadians are to avoid the cynical judgment of the rest of the world and be credible in international climate-change negotiations, it is long past time to “institute a new order of things”.
John Richards teaches in Simon Fraser University’s public-policy program and is a fellow in residence at the C. D. Howe Institute. He recently returned from Bangladesh, where he undertakes research and teaches.