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Responsible fiscal leaders agree: we need a price on carbon

September 24, 2012

If you’ve been watching Parliament in the past week or two you may have just heard mention of the phrase “carbon tax.”  We’d be delighted if this meant that there was an intelligent debate going on in Parliament about how to address climate change, but unfortunately it’s only a baseless attempt by the ruling Conservative party to associate the opposition New Democrats with a policy that the NDP has (unfortunately) never supported. 

However, the attacks have resulted in some interesting discussion about the idea of a carbon tax on the blogosphere, so let us join in the controversy with some points of our own. 

Responsible fiscal leaders agree: we need a price on carbon

The National Roundtable on the Environment and Economy (NRTEE), before the Canadian government axed it in the last budget, pointed out that by 2020 (a mere 8 years from now), the impacts of climate change will cost the Canadian economy $5 Billion each year.  And that number’s scheduled to increase to up to $43 Billion even if world governments are successful in aggressively cutting global fossil fuel use and greenhouse gas emissions.  If we don’t bring our emissions under control, the NRTEE predicts that figure could rise to as much as 25% of Canada’s GDP (based on current GDP, that would be about $435 Billion each year).

After disavowing its Kyoto commitments, the federal government made specific, but less ambitious international commitments to reduce Canada’s greenhouse gas (GHG) emissions, but we’re currently not on target to meet those, either, despite government spin

So getting Canada’s greenhouse gas emissions under control should be a major priority for any fiscally responsible government.  Most economists agree that a carbon price – making polluters pay something for their pollution – is by far the simplest way of doing it. The carbon price sends a market signal that helps to reshape the economy, over time, to one that is both more efficient and less dependent on activities that produce GHGs.

A price on carbon can be achieved through a carbon tax, as has been implemented successfully in British Columbia (more on this in a moment), or through an “Cap and Trade system”, such as is proposed by the NDP, and was promised by the Conservative Party itself in the 2008 election.

That’s right, folks – the Conservatives broke an election promise and are now attacking the NDP for promising to deliver on the same promise of a cap and trade system (which, four years on, the Conservatives are apparently unable to distinguish from a carbon tax). 

Instead of Cap and Trade the Conservatives are now promising “sector by sector regulations” to address climate change.  However, such regulations, if they were to truly be effective in reducing GHGs to the levels required, would almost certainly have a larger economic impact than an equivalent carbon price.  Indeed, Environment Minister Peter Kent appears to acknowledge that these regulations will have an economic cost, but explains that the regulations are different from a tax because they are not intended to generate revenue for government. The only way that the Government could avoid the regulations having immediate economic consequences would be to adopt deliberately weak regulations, or regulations that put off real regulatory requirements (and therefore costs) years into the future.  
However, whether you use Cap and Trade, or a carbon tax, it’s fiscally irresponsible not to set a price on carbon.

Ironically enough, the NRTEE – which documented the price we will soon all be paying for the impacts of climate change – was axed because it had advised the government of this reality, in one of the first documented examples of senior government Ministers being unable to distinguish between the concept of a carbon price and the instrument of a carbon tax.  Natural Resources John Baird frankly explained to Parliament that the NRTEE was being axed because it had repeatedly advocated for a carbon tax, but what the agency had really recommended was that a price be established for carbon.

BC’s carbon tax delivered GHG reductions and economic growth

Despite Conservative MPs referring to a “job-killing carbon tax” (a piece of rhetoric imported from the U.S.), the track record of BC’s carbon tax – which was designed to be revenue neutral, but actually returned more money to taxpayers than it raised – is clear: results are greenhouse gas reductions and no harm to provincial economic growth.

[S]ince 2008 BC’s greenhouse gas emissions have dropped by 16.4% compared to the rest of Canada; at the same time BC’s economy has grown at a rate on par with the rest of Canada.  [Sustainable Prosperity at the University of Ottawa] suggest[s] that the carbon tax is leading to a “decoupling” of the economy from fossil fuel use.

Economist Magazine reported on the carbon tax’s success in reducing emissions without hurting the economy:

Since 2008 fuel consumption per head in the province has dropped by 4.5%, more than elsewhere in Canada. British Columbians use less fuel than any other Canadians. And British Columbians pay lower income taxes too.

The new tax has not weakened the province's economy, which has been boosted by high world prices for its commodity exports. Unemployment is slightly below the national average, and growth slightly higher. Because the tax started low and its rises were set out in advance, businesses had plenty of time to make plans to cut their carbon use.

Similar results may be found elsewhere in the world.  For example, Sweden’s carbon tax led to a 9% reduction in GHG emissions between 1991 (when the tax was introduced) and 2006; during the same time the country experienced about 44% economic growth.  

In fact, the carbon tax (and any system which results in a carbon price) ensures that polluters pay a price for their pollution, which creates an incentive for efficiency.  Many economists believe that taxing negative things (like pollution) creates a more efficient economy than taxing positive things (like income).  As one recent columnist notes, it’s income tax, and not a carbon tax, which is “the ultimate ‘tax on everything.’”

As a result of its tax, BC, and Sweden, may be better prepared than many jurisdictions to weather dramatic fluctuations in oil and gas prices. 

That’s not to say that a government might not choose to raise taxes through a carbon tax, instead of increasing income or corporate taxes (for example, BC Opposition leader, Adrian Dix, has promised to reverse the corporate tax cuts that were paid for by the carbon tax); governments do need taxes, after all.  But certainly there’s every reason to believe that carbon taxes are less job-killing than many other types of taxes. 

Meanwhile, blogger Scott Ross has a couple of posts pointing out that just because we don’t have a price on carbon, doesn’t mean that we’re not all collectively paying for it.  He points out that climate change means that we’re needing to rebuild our infrastructure to adapt to a changing climate and we’re paying for programs to adapt to climate change impacts (which he calculates as costing taxpayers 1 cent per litre of gas consumed by Canadians) – both of which need to be paid for by government through conventional tax revenues if they’re not willing to put a price on the carbon that is contributing to those costs.

I don’t mean to pick a fight with our Prime Minister, who is, after all, an economist, but if he has a rational argument about why a carbon tax necessarily hurts jobs, or why shifting taxes from income to carbon wouldn’t help the economy, let’s hear it. 

Unanswered questions about the NDP’s “Cap and Trade”

All of this is not to let the federal NDP off the hook – because we share the frustration that a number of bloggers have expressed with how the NDP has chosen to respond to the Conservative attacks (here and here, for example).

OK – we agree with Opposition leader Mulcair that the Conservative attacks are a “lie” – in that the NDP has never supported a carbon tax (and, in fact, attacked Stephane Dion’s proposal for such a tax during the 2008 election).  But rather than use the attacks as an opportunity to explain what carbon pricing is and what the NDP plan means, the NDP has bought into the Conservative claim that carbon taxes – and implicitly any plan that makes consumers pay more for gas and carbon-intensive products – are bad. 

Mulcair specifically said that carbon taxes would “hurt families … and [are] regressive”.  Just what is regressive about making polluters pay for their pollution?  How is ensuring that our children don’t have to suffer from a degraded atmosphere hurting families?  Carbon taxes, if they’re not designed well, can indeed penalize the poor or rural taxpayers (as can any poorly designed tax system), but those are problems that can be addressed through proper design.  This is one area where BC could do better – and we, along with several BC unions and other environmental organizations, have made recommendations on how to do just that.

The NDP, by accepting that carbon pricing that has any impact on consumers is automatically bad, have opened themselves up to the criticism that their cap and trade will do just that

There are merits to both a Cap and Trade and a carbon tax system, but a carbon tax is much simpler to design and implement.  Most of the NDP criticisms of a carbon tax can be addressed through proper design of the tax, while a poorly designed cap and trade system might have many of the same problems.  The spectacle of NDP MPs heckling Green MP Elizabeth May to avoid her questions about their own climate change plans are troubling (although it’s quite possible that the NDP MPs – like May herself – expected the Speaker to turn the floor back over to May to allow her to finish her question).

Here in BC an opportunistic attack by the provincial NDP on BC’s carbon tax in the last election alienated a great many people who were concerned about climate change (leading to the party dropping proposals to axe the tax), and some have suggested that this position might have hurt the BC NDP in the 2009 provincial election.  In BC, of course, the carbon tax was already in place, but the federal NDP’s hostility to the carbon tax has at least one Liberal blogger suggesting that the Liberals should take a second run at advocating for a carbon tax – a position which might draw some environmentally minded voters to the Liberals. 

At the end of the day, we need a real price on carbon.  It’s clear that the NDP, the Greens and the Liberals have proposed plans to offer a carbon price, while the Conservatives, after having promised and abandoned such measures, don’t really have a plan that will meet Canada’s international commitments,  and at present are playing dangerous games with our right to a healthy atmosphere.

By Andrew Gage, Staff Lawyer