The case for carbon taxes

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.

Comments

3 Comments

Grumpy

Oct 9, 2008 at 7:45am

The Carbon Tax is the biggest academic and political scam to hit the taxpayer for increased taxes, while pretending to be Green. It is an elitist attack against the Canadian taxpayer, who, like our federal and provincial government think the Canadian taxpayer are mindless rubes who just love to pay tax.

It is no point comparing Canada with European countries, our vast size and small population distribution, means we will use more gas per capita and pollute more per capita than European countries.

If one really wants to be Green one must:

1) Stop building with expensive metro's and build with much cheaper LRT. This means:
a) Building on-street LRT for under $10 million/km. (the Europeans can)
b) Use existing railway infrastructure where possible. (The Europeans do)

2) Stop building new highway schemes, rather increase capacity on existing highways (add another lane) while not increasing capacity at choke points (new bridges and rivers). This means:
a) Stop Gateway
b) Compel commercial vehicles to use the highways during specifies (non-peak hour) times.

3) Reevaluate how commercial traffic is carried in the region and the true cost of commercial traffic has on our roads. This means:
a) Forcing commercial carriers to pay a fair share of road taxes, based on the actual wear and tear trucks do to roads (The Europeans do)
b) Compel trucks onto 'rail' for long distance trips. (The Europeans do)
c) Carry freight via LRT (The Europeans are beginning to)

It is so simple for SFU types to invent new taxes; it so easy for politicians to embrace new taxes; its so easy for the media not asking the real questions. Simply, 'Legend in their own minds' university professors championing new carbon taxes, is a very easy thing to do. The hard work is actually planning for good and cost effective transportation measures, that will reduce pollution in the region In Metro Vancouver it is so easy to see that well paid university types have taken the easy, armchair, way out - just force a carbon tax on the region and all will be Green.

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Antonio San

Oct 14, 2008 at 5:53pm

"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”.

Another SFU public policy, economist anything BUT climatologist lecturing about climate change! Oh and the credibility factor... ah Canadians must repent and be afraid of others passing judgement on them... really pal? Why don't you play God with the Chinese, the Indians just to see how you'd fare over there?
You and your kind cannot wait to embrace a new order where of course you'd be on top and no one could dissent... eco totalitarism, so when Nature will prove the AGWists wrong, you could claim innocence and hide behind the so called consensus! Shame on you Mr Richards...

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RickW

Oct 17, 2008 at 7:42pm

Over the long weekend, signs popped up like mushrooms under the Liberal campaign posters, saying: "Stop the Dion Carbon Tax".

Evidently, it was a successful ploy.

Now my questrion is: Will those who did not vote for the Liberals because they did not want a carbon tax, now also NOT vote for the provincial Liberals in the upcoming provincial election, because Campbell DOES have a carbon tax?

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