Some common sense on a carbon tax

I rather fear that this post will be unwelcome in some circles, especially in some (probably many) Conservative circles, but Paul Boothe, who is a Professor and Director of the Lawrence National Centre for Policy and Management at the Ivey Business School, at Western University, in London, ON, and who was a very senior civil servant (deputy minister) in both the federal and Saskatchewan governments has posted an insightful series of tweets that I have compressed and edited only slightly for clarity.

My neighbours,” he tweets, “are reading about carbon taxes in the news and are wondering what its all about. Here is my handy Q+A to help them. Feel free to use it too:

  • Q1. Is climate change a real thing?
    • Yup – Carbon dioxide (CO2) in the atmosphere is increasing because the global population is growing and, on average, we are all doing more things that emit CO2 … [and] … Global temperatures are rising and the link between increased CO2 and rising temperatures is well documented. scientists say that if we don’t reduce our CO2 emissions drastically soon, we will see increased extreme weather, flooding, and drought;
  • Q2. Do carbon taxes actually work to reduce CO2 emissions?
    • Yup again. Raise the price of just about anything and you consume less of it. BC’s carbon tax experience shows that this basic economic fact is true for CO2 emissions like everything else;
  • Q3. Are carbon taxes a tax grab?
    • It’s up to us. If politicians reduce other taxes, like income taxes, by the same amount of money (like the BC Liberal government [originally] did), then no. If politicians decide to spend the money on things we don’t want, then yes;
  • Q4. Will carbon taxes wreck the economy?
    • Not if we are sensible about how we implement them. But we need to ~
      • a) not waste the money we collect (cutting other taxes would be a good example of not wasting it), and
      • b) make allowances for businesses that need time to adjust or are competing with firms in other countries that aren’t facing carbon taxes;
  • Q5. Are there other ways to reduce emissions?
    • Sure. For example, we could use regulations on companies with large emissions. However, using regulations to meet the targets will cost our economy more (and probably a lot more);
  • Q6. What if we do nothing?
    • If the whole world does nothing, then we will face all the effects of climate change. Adapting to the extreme weather events and flooding will cost us a lot … [plus] … the world will be an increasingly dangerous and miserable place for our children and grandchildren. If we leave it other countries to take action, we can expect that the ones that do will become increasingly unwilling to do business with us;
  • Q7. Aren’t we too small a country to make a difference?
    • If Canada were the only country to take action, we would be too small for sure. However, we are talking about joining a growing international effort to address this problem. Countries in Europe are doing their bit. China is taking this on. California (whose economy is larger than Canada’s) is a leader … [and] … For Canada to sit on the sidelines while other countries tackle global problems is pretty unusual;
  • Q8. How big will carbon taxes have to be to meet our targets?
    • In December 2015, countries agreed to work together to fight climate change. Canada promised to cut its emissions by 30% by 2030 relative to levels in 2005. To meet our 2030 target, carbon taxes might have to rise as high as $150 per tonne of CO2 by 2030 (the exact amount depends on a lot of things we can’t know in advance) … [but] … Putting this in perspective, this means the price of gasoline will rise by about 35 cents per litre by 2030. In other words, gas prices will have to rise, on average, by about 3 cents per year between now and 2030; and
  • Q9. So if carbon taxes would only raise gas prices about 3 cents per year and gov’ts could cut other taxes to give us the money back, what is all the fuss about?
    • Hey, I’m an economist, not a politician. All I know is that climate change is a big and growing problem. We know what we need to do and how to do it. We know the impacts of the actions we take can be quite manageable for Canadian families. 

I have argued, before, that a) global climate change is happening, and b) we, humans, are part of the problem, especially when we consume energy derived from carbon, and c) there is, therefore, a possible role for a carbon tax that aims to change our behaviour. I have argued that petroleum based fuels, especially gasoline, are best used for mobile applications like sea, land and air transport where their incredible power release per weight/volume ratio makes them ideal while, in my opinion, nuclear power is one of the best answers for static energy supply which we use to heat and cool our homes and to recharge our electric vehicles. Some fuels, like natural gas, are good for both … for example, all of the Hong Kong’s 18,000+ taxis and many of its buses run on liquid natural gas.

In my opinion, Professor Boothe is closer to getting things right than almost anyone else I have read. But he’s not all the way there … for example, Dr Jack Mintz points out, also on social media (on Oct 13), that the “BC corporate tax rate is now 12 percent, higher than Ontario and Quebec. It’s top rate for 2018 is close to 50 percent higher than Alberta. BC does not have the lowest personal and corporate rates.” That being said, Carbon taxes can be part of the solution IF, and it would be a huge IF with this spendthrift federal government, they are applied correctly and, as Paul Boothe says, they replace, for example, income taxes, and if sensible transition arrangements are made for companies that need to adapt or that must compete with other countries that do not apply such a tax.

In my view the right way to apply a carbon tax is as a so-called “sin tax,” which is to say that the end user ~ you and me, not the oil companies ~ pay 100% of the tax, and know how much we pay because à la the hated HST/GST it is added on when the bill is presented, and is then rebated to intermediaries. If the goal is, as Professor Boothe and I believe it should be, “raise the price of [e.g. carbon based fuel] and you [and I] consume less of it,” then a carbon tax, applied to then end user, with special provisions for some users who cannot use anything else. We saw this work when, in 1973/74, the Arab OPEC countries suddenly hiked the price of oil to punish the West for its support of Israel in the Yom Kippur War. One of the enduring impacts of the sort that many policy makers want to see again was the demise of the “gas guzzler” and the rise of “economy car.” Many analysts expect that a well applied carbon tax can do the same thing, or even more in the 21st century.

It’s not clear to me how much of a tax is needed. The Trudeau regime says $50.00 per ton; Professor Boothe says it will need to be $150,00 per ton by 2030 and the recent UN report says between $135.00 and $5,500.00 per ton, also by 2030 … yes that’s a price of $5,500 per ton! According to recent data each Canadian, man, woman and child, uses 15 tons of carbon per year thus, given that the average family is 2.5 people we might expect the average middle class Canadian family to pay something like $5,600.00 (2.5 X 15 X 150) more in carbon taxes a year by 2030, using Paul Boothe’s estimate if they do nothing to reduce their carbon footprint. If, on the other hand, a well managed carbon tax works to reduce demand then that same family might manage, by 2030, to reduce it’s family carbon footprint by ⅓ by using better appliances and making better use of better public transport and because governments and corporations found better ways to serve them (e.g. nuclear power) with less carbon, and the family’s carbon tax bill might be only $3,750.00 and that might result in a 10% cut in income taxes given that “in 2016 the average Canadian family (including single Canadians) earned $83,105 in income and paid $35,283 in total taxes,” if, and it’s a Big IF, the government acts in a way that Professor Boothe and I would find responsible.

If, as I do, you assume that climate change is real and that its impact can be and should be mitigated, and if you accept that quite broad scientific consensus that human generated CO² is part of the problem, and that it is a part that can be ‘contained’ ~ I know that’s a lot of “ifs” ~ then a carbon tax makes sense … if it is applied in a way that will actually change how we want to use carbon. But, as former Prime Minister Stephen Harper points out, in an interview with Global News, it will take a high carbon tax to change behaviours enough ~ certainly more than Justin Trudeau’s proposed $50.00 per ton, more likely more than Professor Bothe’s $150.00 per ton ~ so it looks, to me, as though the Trudeau carbon tax is just a backdoor way to raise more revenue.

In my opinion, it will require more than just taxes; we need an environmental plan that works for Canada; we will have to build pipelines to get oil to where it is needed, including to China and India, who are not going to revert to third world status while we, in the West, continue to live the good life; we will need plans to prevent and mitigate line breaks and spills and to restore oil sands mines to their natural states; and we ned to build nuclear reactors and find a safe, efficient way to store the spent fuel ~ a technological challenge that I believe is less difficult that making “clean coal” work or solar power work in Canada.

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