On the carbon tax

Warning: I don’t spend a lot of time thinking through issues of global warming and the best ways to mitigate it. However, I am curious about this whole carbon tax debate.

A few years ago I had coffee with a guy who was an adamant supporter of a “revenue-neutral” carbon tax under which the price of fuel would more than double to about 1.50/litre but consumers would get that back in tax cuts elsewhere. Essentially, it would raise the cost of carbon emission activity but cut elsewhere so that the overall hit on consumers would be neutral. He told me in my case, the cost of running my car, heating my house, etc. would go up by a few thousand but I would get that back in income tax reductions by a similar amount.

Well, funny thing about these things is that we are almost at $1.50/litre without a carbon tax and the government is taking in windfall taxes from the high cost of gas (although NB did cut a few pennies off its gas tax when the Libs got in).

So, now everyone is freaking out about a ‘carbon tax’. Al Hogan is turning red, chomping the cigar and yelling at his minions to crank out anti-carbon tax stories.

Question for those of you more tuned into this stuff: What is wrong with a carbon tax if you get it back elsewhere and it encourages more conservation and new technology utilization? Can we be a ‘cheap’ energy province and have a ‘carbon tax’?

Questions. Questions. Questions.

On July 1, 2008, subject to approval by the legislature, British Columbia will begin to phase in a fully revenue-neutral carbon tax.

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0 Responses to On the carbon tax

  1. nbt says:

    I’ve always been impressed with Tony Blair’s position on Kyoto and climate change (he was never convinced that the protocol would work unless big emitting countries, like China and India, get on board). In other words, he believed it was useless to lead on the file at home (and rework your economy) if other countries are nullifying your efforts by polluting. I guess he once said that if you pulled evrey car off the road for a year in the UK, it would still only take two months for China and India to reverse the negative reductions in Greenhouse Gases [GHGs] that were made.

    Furthermore, like a lot of leaders on the climate change file, there’s much more hot air being emitted in rhetoric then there is in action. UK emissions did not fall at all while Labour was in power under Blair. So a lot was being said, but nothing was getting done. Something Suzuki has been saying for decades.

    I guess the same could be said about the Canadian Liberal government (and the current one). They’re attending a lot of meetings and global summits, but not much is getting done.

    Right now the two main arguments (on the table in Canada) are “cap and trade” and the “carbon tax”.

  2. John Ackerson says:

    Even with a neutral carbon tax strategy as espoused by your coffee mate, it does nothing to get us off fossil fuel – if it ultimately costs us the same with other commodity tax cuts being applied elsewhere. Either way, as you already mentioned; there’s no monetary gain or loss for the average consumer.

    I’m actually skeptical if it wouldn’t work towards the opposite effect by prolonging our total dependence on oil by subsidizing the oil industry as a whole by allowing it to continue to flourish. Is this not a reward system for the oil industry?

    It sounds like a smoke-screen to me. This strategy is distracting enough as to disallow real time and energy (an easy out) by politicians to put into place real world efforts (policies) to promote quicker, alternative technologies.

    The recently announced 5 percent mandate by the Fed to have gas mixed with ethanol is such a policy. It does no real good – if anything it allows itself to appear to the general public to be doing something of value, which in reality, it is not. Not for the collective good, at any rate.

    Unfortunately, I also think the cap and trade carbon offset purchasing idea will be a hot ticket on Wall Street for years to come without actually doing much for the environment overall either.

    Example: (If company A has reached its allowable emissions limits, but has the market to sell more widgets, than they simply buy carbon credits from company B that is not polluting as much, and then company A can now pollute to its heart’s content, or until the additional profit margins become negligible).

    I think that some very profitable companies today will just look ahead to carbon tax purchasing as just another cost of doing business rationale, and will settle for not as nearly obscene profit margins in the near future.

    Or, am I missing something here?

  3. David Campbell says:

    I am looking for commentary on this becauase I honestly don’t know. It does seem intuitive that if you tax carbon, there will be incentives to cut down on its use. However, what do you do with those tax revenues? If you just take more money out of people’s pockets, you just reduce economic activity. So the revenue neutral theory makes some sense. The problem I have is that New Brunswick has serious long term economic problems. I think that it can’t afford to be too cavalier a out things that could negatively impact its economy. I don’t want to be too crass about it but we are already in population decline (our population dropped from the 1996 to 2006 Census) and our fiscal house is not as strong as our provincial government would have us believe. Our need for Equalization is hovering at historical despite the fact that McKenna and others are running around talking about how great things are here. Our unemployment rate is low because of 15 straight years of net out-migration not because of economic growth. So, I would like to see us try and use alternative energy as an economic driver not as an economic retardant.

  4. mikel says:

    China and India have high emissions because of OUR desire for cheap goods. This is not a question of THEM ‘going against the grain’. Canada has the wealth, the opportunity, and even the general political desire and we STILL are doing nothing. Western corporations are HEAVILY invested in China especially, they don’t cap because WE don’t want them to.

    The second comment is also untrue. When gas goes up, don’t you drive less? It’s well established, particularly in the US, that when gas goes up, vehicle sizes go down. Hybrid sales go up.

    It’s basic economics. Green technology is not implemented because it is not ‘cost effective’. If something else can be found cheaper, people will use it. Higher gas prices by definition make green energy more cost effective, therefore more people will use it. And gas production doesn’t include ALL the costs, like dealing with the effects of pollution.

    Ethanol does PLENTY of real good, one litre of ethanol reduces carbon dioxide emissions by (up to) eight percent. Vehicles designed for high ethanol use (up to 85% ethanol) reduce emissions by 75%. That is ‘real good’.

    Cap and trade is still fairly new, but not on Wall street and the Kyoto Protocol has already had an impact on the EU emissions. While critics maintain that it is still too ‘loose’ its had amazing success with 100% european compliance. Like GM foods, it is very likely that trading with the EU will have carbon footprints as a major factor-that’s the effect of ‘monetizing’ pollution-it makes it a concrete cost and therefore part of trade policy (for economic geeks see Pigovian Tax).

    Next, what is ‘missing’ is that ‘cap and trade’ is NOT a mechanism for the polluting industry, it is a mechanism to make them pay to build up a sustainable green industry. They ALREADY ‘pollute as much as they want’, this means they make less money doing it, while some of their funds are used for other projects (they need to have somewhere to buy the credits FROM).

    As for David’s comments, the GOOD thing about carbon taxes is that its getting canadian governments doing what they should have done long ago, which is using tax dollars for very specific purposes. The carbon tax is specifically earmarked for green power projects. Of course thats where its tricky, the gas tax of course was supposed to go to highways, and most of it never did. That brings us back into making our government function better, but if ‘doing something green’ requires canadians actually controlling their government then its quite likely nothing would EVER get done.

    The trick is to ensure the money goes to that particular purpose-thats done by media, opposition politicians, and organizations, and people in general.

    However, as for the environment, you can’t say “we’re poor, we can’t do anything” for everything. Like I’ve said before, the ‘new economy’ is changing, and operating like a 19th century company town HURTS economic investment. Any company would look at the Irvings influence, the lack of legislation, the poor record on environment, the lack of educational and research facilities, the lack of any real green proposals and avoid New Brunswick like the plague.

    Companies in the ‘knowledge industry’ of course will look for places that are SMART. THey will look for policies and environments that coincide with how they do business. As has been noted here before, investment can turn on a dime, it can be as simple as saying ‘look at our progressive policies’.

    Of course if a place doesn’t WANT those industries, and just wants the Molsons, Bennett’s and Potash’s, then of course it makes sense to simply pander to the lowest common denominator. But you can’t be surprised when service oriented company’s balk when they get a phone call from provincial reps.

    The environment is an industry now, just like medical tourism, just like animation. Unlike those, this industry has a concrete way of affecting other industries, which means avoiding it has repercussions all over-sort of like the educational industry. We don’t know the economic effects, however, we do know that PEI’s emphasis on green power certainly didn’t HURT its other industries, in fact it seems to have helped.

    Media ignores this for a reason. We are SUPPOSED to know nothing about it, that way when Al Hogan prints his tirade people think ‘well that seems true’. That’s of course all you need, because in politics there are two choices-doing nothing and doing something. Getting the government to ‘do something’ takes A LOT of work. There are hundreds of organizations in BC that have been pushing this, you think Gordon Campbell is a big fan?

    In order to get, say, the NB government to actually have a carbon tax, meaning put a higher price on something already high, would take far more lobbying work than the CCNB is capable of. I don’t think they’ve EVER had a policy success other than forcing a cleanup or something.

    We are supposed to be ignorant of this stuff, that’s how populations are controlled. If they ‘vaguely think’ things are bad then of course they won’t demand something is done about them. I’m glad this isn’t a popularity contest because again I’ll remind you that per capita New Brunswick has the WORST emissions level on the continent. That may have changed with all the mills closing, however, its nothing to brag about. But again, thats not even the fault of NBers, they don’t make policy.

  5. Anonymous says:

    The reality is, no one is a carbon tax expert; there has yet to be an effective solution. However, if we consider the laws of supply and demand, we can change policy to have some impact.

    The so called evil indutrial people, like Irving, are simply responding to consumer demand. Irving would not build a refinery if comsumers were not buying so much gas. GM would not build Hummers if people were not buying them. So, what can be done to influence buying habbits.

    When gas hits $10 per liter, there will be those that will still drive SUVs. So, instead of ridiculing those people, just make them pay. The present government’s election promise to reduce gas taxes is exactly opposite to what should be happening. Tax gas more. Use those taxes to pay into a trust fund that is used to subsidize mass transit and provide incentives for more environmentally friendly alternatives.

    The challenge here is understanding what is truly more environmentally friendly. The people lobbying for corn producers have illustrated just how dangerous policy can be in this regard.

  6. nbt says:

    So, I would like to see us try and use alternative energy as an economic driver not as an economic retardant.

    So would I. Which is why I am very suspicious of social democrats preaching revenue neutrality. Since when has an NDP government ever reduced payroll taxes, corporate taxes or income taxes to help economic growth while in office? Well, other then Gary Doer, who btw, supports a cap and trade system.

    Another thing that bothers me is you have people like David Suzuki and Elizabeth May running around saying that those who don’t support a “carbon tax” are not progressive. That is a wack of malarkey since the people they speak of support the pricing of carbon, just not a tax on it. Not to mention, the system of cap and trade moves much quicker and would see a strict limit on big polluters. So in the end, all the money saved by putting a cap on these big polluters could be moved into the solution. Whereas, as David said, a tax would act as an economic retardant, not just for big polluters, but for everyone involved.

    And just a political note on this, I see John McCain and Barack Obama support a cap and trade system (as does the European union). So we all know there could be a good chance that North America and Europe will be working in unison on this in the future.

  7. Anonymous says:

    An important issue, intelligently discussed in the comments.

    But again with the Al Hogan rant.

    It’s out place here. Get some help…

  8. David Campbell says:

    Are you Hogan’s defender? Why is he off limits? Al Hogan should be putting up intelligent editorial and stories looking at the pros and cons of things like this. Instead he takes a rigid position on one end of it and beats the drum over and over again. I have cut back on my Al Hogan commentary and quite franking on reading the T&T. I still do a little because I need to know what’s going on – even through a jaded perspective.

    You don’t want to read Al Hogan rants? Don’t read this blog.

  9. Anonymous says:

    Done.

  10. mikel says:

    There are no LAWS of supply and demand. Right now I DEMAND some marijuana. I can prove its benign, more cost effective than pharmaceuticals, less addictive, less harmful. Where is the supply? It doesn’t exist (legally I mean).

    In gas, Irving provides it because they can. Americans can buy it from other sources, they don’t need irving, and the demand in NB is minute, it doesn’t need a refinery at all. As I’ve said elsewhere, Irving makes it ‘cost effective’ because YOU help pay the costs. You clean up the Irving Whales, you subsidize their natural gas terminal to the tune of millions. Again I’ll mention that US gas companies pay tens of millions in property taxes on refineries, Irving pays 4 million.

    Supply and demand has nothing to do with it. It’s been well established that the US and Canada had burgeoning public transit systems up until just prior to world war two. We KNOW that oil companies purchased them and closed them down.

    Supply and demand has nothing to do with it-again, thats why its an ENVIRONMENTAL issue and taxation issue. I have no idea what the comment about corn refers to, however, as for Al Hogan, there’s a frequent anonymous poster that comments pretty similarly at Charles Leblanc’s blog. Telling people to ‘get help’ because they criticize Irvings or Al Hogan is definitely out of place. If anything, there should be a contrarian piece to Al Hogan and Irving editorials every day of the week. With a functioning media there would be.

    Mr. Campbell has been churning them out lately, but those pieces on Al Hogan were definitely very interesting, and I’ll bet more NBers think so than agree with the post above.

  11. nbt says:

    Mr. Campbell has been churning them out lately, but those pieces on Al Hogan were definitely very interesting, and I’ll bet more NBers think so than agree with the post above.

    Everybody needs an enemy, mikel. For Democrats it’s Bush. For Republicans it’s Gore. For Liberals it’s Harper (and sometimes Mulroney). For Canadian Tories it’s Trudeau. I guess David has Al Hogan…an sometimes AIMS. hee hee

  12. Anonymous says:

    Wow. Economics 101 has gone through transformational change. No law of supply and demand. I see an opportunityfor an economics textbook recycling business.

  13. David Campbell says:

    I can’t disagree with that. Everyone has a bogeyman.

  14. nbt says:

    Here’s an interesting article in the New York Times today that may add to the interesting debate in this thread regarding the “demand side” (or better yet, to conserve). Here’s a clip (snip, snip):

    Individually, of course, most of us will start conserving – people are already driving less, buying more fuel-efficient cars, etc. We’ll keep on finding ways to save as prices stay high.

    Should the government mandate even more conservation? No, “too much” conservation is as economically harmful as “too little.” Just consider the economic harm that would be delivered by, say, capping speed limits at 30 miles per hour, or banning recreational long-distance travel. Both would save gobs of energy – but at the cost of doing more harm than good.

    The only thing government should do on this front is ensure that prices are “right” – that is, that they reflect total costs. That’s mainly an issue for electricity, where retail power prices typically bear little relation to wholesale prices. State governments need to encourage real-time pricing of electricity – so that consumers will get the signal to, for example, run the clothes dryer at night, when power is cheaper.

    Incidentally, those who argue that gas and diesel prices don’t reflect important “external” environmental and national-security costs are simply wrong – at best, those added costs are trivial on a per-gallon basis.)

    But there’s a fair bit to do on the supply side. Congress could take four positive steps – if it really wants to bring prices down.

  15. mikel says:

    Virtually every economic ‘law’ has turned out to be no more than a bad theory. It used to be a ‘law’ that unemployment and inflation were inversely proportional, you learned that in the first week. Now its a joke, NOBODY believes that, virtually the opposite is true. If you want to hear a room full of laughter just mention the definition of an ‘economic law’ to a group of natural scientists. They aren’t even in the same ballpark as the law of thermodynamics.

    I think its a mistake to use the ‘enemy’ analogy because that belittles the issues. It’s not like David knows Al personally and Al spit in his face or called his kids ugly or something. I know absolutely nothing about Mr. Hogan but I think every editorial on gas should have a picture of the vehicle he drives-if its true he drives a hummer. That goes a long way towards explaining his views, even with no relationship to Irving.

  16. nbt says:

    I know absolutely nothing about Mr. Hogan but I think every editorial on gas should have a picture of the vehicle he drives-if its true he drives a hummer. That goes a long way towards explaining his views, even with no relationship to Irving.

    It’s amazing how negative attack ads work/stick. I’ve never met Al Hogan before (and he could be a fantastic guy for all I know?), but the “Hummer” attack has stuck in my mind for two years now. Just yesterday I was driving through Cap Pele and a silver Hummer past by us. My next reaction was, “it must cost Al Hogan a ton of money to cruise around the east coast on a Sunday afternoon.

    Thanks a lot, David. 😉

  17. Anonymous says:

    I agree with Mikel. An Irving refinery with leading edge pollution controls will lead to higher gas prices.

    Adopt a NIMBY approach and let refineries be built where regulations are not strict.

  18. nbt says:

    Oh btw, it looks like the carbon tax argument just got weakened a little bit more in North America today as the most populated part of our country (central Canada) agreed to a joint accord:

    The Ontario and Quebec governments have signed an accord on fighting global warming after a historic joint cabinet meeting Monday that gives the clearest signal yet the country’s two most populous provinces are turning their backs on Ottawa.

    The accord establishes a market-based trading system to cut greenhouse-gas emissions – an initiative that will lay the foundation for a national cap-and-trade program and an alternative to the Harper government’s blueprint on climate change.

    Premier Dalton McGuinty said he and Premier Jean Charest want the cap-and-trade program in place by 2010.

    That makes Obama, McCain, Layton, Gary Doer, Charest and McGuinty all for cap-and-trade. And Elizabeth May, Shawn Graham, Gordon Campbell and Dion for the tax. I’m betting Dion isn’t happy with the premier of Ontario one bit, especially since he has been rumoured to be courting his federal position.

  19. David Campbell says:

    Hey, I didn`t know Al Hogan had a hummer until someone said so on this blog. But I have the same reaction as NBT – I look for a cigar chomping J. Jonah Jameson everytime I see a Hummer.

  20. richard says:

    “There are no LAWS of supply and demand. Right now I DEMAND some marijuana. ……Where is the supply? It doesn’t exist (legally I mean).”

    The supply is there, it just costs more because of restraints on trade. Now here is a real opportunity for growth in NB. Lets see what we can do provincially to legalize drugs such as cannabis, then regulate producers and retailers in the drug business. By imposing taxes on these now-legal drugs, we could reap fortunes in tax revenue. I have a proposal ready now for a cannabis enhancement research project.

  21. mikel says:

    Refineries ARE being built where regulations are not strict-New Brunswick. However, by WHOSE standards will it be ‘leading edge’? European standards? The current one barely goes through a year without breaking New Brunswicks extremely lax environmental laws, so thats quite a presumption to assume ANYTHING about it.

    I’d love to see the marijuana research project, I’m with Richard, in fact with DAVID as well….just imagine the ‘medical tourism’ that would resulte from legalizing marijuana. Virtually every cancer chemo patient in North America would be heading for New Brunswick, and all it would take is changing one law!

    The CTC isn’t exactly impartial, but they have interesting information on Carbon tax vs. cap and trade. What is sad in all this is, again, New Brunswick going in virtually the opposite direction and lowering fuel taxes while raising income taxes. If that isn’t a clue that Irving sets public policy I don’t know what is.

    In a related story, if nobody can verify the hummer story, then I won’t mention it. Somebody should talk to somebody at the transcript and at least verify it-otherwise we’ll have to get Charles onto a bus ‘to investigate’.

    Here’s from the CTF:

    CTC regards carbon taxes as superior to carbon cap-and-trade systems for six fundamental reasons:

    1. Carbon taxes will lend predictability to energy prices, whereas cap-and-trade systems will aggravate the price volatility that historically has discouraged investments in less carbon-intensive electricity generation, carbon-reducing energy efficiency and carbon-replacing renewable energy.
    2. Carbon taxes can be implemented much sooner than complex cap-and-trade systems. Because of the urgency of the climate crisis, we do not have the luxury of waiting while the myriad details of a cap-and-trade system are resolved through lengthy negotiations.
    3. Carbon taxes are transparent and easily understandable, making them more likely to elicit the necessary public support than an opaque and difficult to understand cap-and-trade system.
    4. Carbon taxes can be implemented with far less opportunity for manipulation by special interests, while a cap-and-trade system’s complexity opens it to exploitation by special interests and perverse incentives that can undermine public confidence and undercut its effectiveness.
    5. Carbon taxes address emissions of carbon from every sector, whereas cap-and-trade systems discussed to date have only targeted the electricity industry, which accounts for less than 40% of emissions.
    6. Carbon tax revenues can be returned to the public through progressive tax-shifting, while the costs of cap-and-trade systems are likely to become a hidden tax as dollars flow to market participants, lawyers and consultants.

    Just a reminder, nobody should believe that ANY of those politicians are actually FOR any of those policies. It’s been those ‘rabid environmentalists’ who have been pushing them for years.