Thursday, January 10, 2008

Carbon tax the best way to cut emissions

You would think that most of Canada's governments would agree on the power of the marketplace.
That's what's driven the great advances in computers, for example, that let anyone with a few hundred dollars buy a machine that outperforms anything available at any price two decades ago.
And it's what makes the drug trade so resilient in the face of decades of police activity. As long as there's serious demand, suppliers will take the needed risks.
But when it comes to climate change, Canadian governments - even free enterprise ones like the federal Conservatives - are reluctant to rely on market forces.
This week the National Roundtable on the Environment and the Economy weighed in with a report on climate change. More specifically, what needs to be done to reduce greenhouse-gas emmissions.
It was mostly a good news report. The roundtable, an advisory panel set up by Brian Mulroney when he was in office, said Canada could make dramatic cuts without significant harm to the economy.
But it said that to make that happen, the government would have to introduce a carbon tax, a cap-and-trade system, or both.
The principle seems obvious. Companies and governments and individuals won't change their behaviours without some incentives, especially if the change involves short-term sacrifice.
Businesses, for example, have an obligation to make profits for shareholders. If reducing emissions would cut those profits, they're unlikely to take action.
A carbon tax would provide the necessary incentive, the roundtable reported. A tax on fossil fuels - gas and diesel and coal and oil - would make it smart for companies and individuals to use less of them.
The cap-and-trade system works on the same principle. The government - or an agency of government - would set emission caps for industries and organizations. If a company couldn't meet its target, it would have to buy offsetting credits from some other company that was emitting less than it was allowed.
Again, it's a market-based incentive. If carbon credits have value, then it's worth investing in cleaner fuels or more efficient processes. There's an actual return on investment.
The roundtable's support for the idea isn't surprising. The group includes environmental and business leaders. It's headed by David McLaughlin, who until August was Finance Minister Jim Flaherty's chief of staff.
The group has both an understanding of the environmental issues, the business risks and the value of letting the market drive change.
But it took federal Environment Minister John Baird a matter of hours to reject the report's conclusions.
Partly, Baird was just playing politics. "We think a new tax sounds like a Liberal idea," he said, a silly way to dismiss the proposals without dealing with their substance.
He also says the government will ensure that big emitters will pay in some still-to-be-determined way under the Conservatives' climate-change plans.
But the roundtable found that without a carbon tax or cap-and-trade system, the federal government would not meet its targets for greenhouse-gas reductions.
None of this is new. The European Union has a successful carbon-credit trading market and B.C. is working with several states and provinces to launch one.
And Sweden and Norway have carbon taxes. Quebec introduced its own version in October, imposing a 0.8 cents per litre tax on gasoline. The revenue - about $200 million a year - will go to greenhouse-gas reduction measures. Finance Minister Carole Taylor is also considering some sort of carbon tax as part of next month's provincial budget.
The plans would have to be well thought-out. The roundtable said the carbon tax should start at a low level and increase gradually, to give industry a chance to adapt.
If that's done, it said, there would be no serious economic impact.
And Alberta has raised legitimate concerns that a carbon tax would see money taken from the province and redistributed elsewhere.
But the problems are manageable. The Harper government should not be so quick to reject its expert panel's advice.
Footnote: The report offers a good backgrounder for the coming provincial budget. Premier Gordon Campbell declared climate change a central issue a year ago and the province has announced tough targets. But so far, there are few details. The budget will be watched closely for signs of progress.


Anonymous said...

Before instituting a carbon tax, it would be useful to see a study of the impact of gasoline taxes on automobile use over the past 50 years. The gasoline tax is effectively a carbon tax, so determining whether it reduced automobile usage seems like a critical test of whether a carbon tax could have the desired effect.

Anonymous said...

I can't wait for every level of government to introduce a whole new category of taxes.

But we all have to be politically correct and shut up while our pockets get looted. After all a gas tax is very effective in getting people off the road. Just look at the facts, gas has risen by 350% in the last ten years and we have many more cars on the road. Logically a 2% tax is going to lead to the dramatic reduction in cars on the road that the 300% increase from market forces couldn't do.

Remember these are "revenue neutral" taxes because these taxes won't go into general revenue. I'm not sure how that makes it revenue neutral to the taxpayer. That can't think we're that stupid can they?

All levels of Canadian governments must be ecstatic. You get a whole new tax category to fill the coffers. And the media can't help but fall all over themselves promoting this new wonderful level of taxation.

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