Climate Change and Carbon Taxes

Climate change is now becoming widely recogClimate change is now becoming widely recognized as a world emergency. It is not surprising, therefore, that the press in Canada gave prominence on 20 February 2008 to the announcement of British Columbia’s program to take a step forward in dealing with climate change, and praising the plan for including the first tax in Canada that is applied equally to the burning of coal, natural gas, oil and other liquid fuels. The imposition of a carbon tax recognizes that greenhouse gas emissions must be reduced and that the tax mechanism, especially if combined with incentives to reduce emissions, can have the desired effect.

Five successive Federal Governments since the 1992 international conference in Rio have failed to act significantly on greenhouse gas emissions except through voluntary measures devised to make industries more efficient in their use of energy; and, during the intervening years, Canada’s per capita emissions have risen annually.

Early in 2008, the National Round Table on the Environment and the Economy (NRTEE) released its 2007 report entitled, “Getting to 2050: Canada’s transition to a low-emissions future.” The report examines how a 65 percent reduction of greenhouse gas emissions might be achieved by 2050 through the imposition of a carbon tax. In their study, it was assumed the details of technological change would be left to “market forces”, which, it was assumed, would adjust to the imposed, gradually rising taxes. Taxes are plural here, since there are many greenhouse gases to be taxed, but the tax on any one of them — and carbon dioxide is the most prominent — would be the same per tonne of the gas emitted, regardless of the source. Thus carbon dioxide would be taxed equally per tonne whether it originated from coal, oil or natural gas. I shall refer to a tax of this kind as a blanket tax, as distinct from one that targets a particular class of emitters, such as engines.

NRTEE’s report shows, according to computer modelings, that reductions of greenhouse gases of 65 percent could be achieved by 2050, though the carbon tax might have to be rather high in the latter years. The highest required tax rate to achieve the 65 percent reductions is scenario-dependent, that is, it depends how in detail the tax is increased in the earlier years. The finding that the tax alone can achieve such reductions without disastrous effects in the economy is impressive, since the measures considered by NRTEE did not include any incentives. And surely, sticks and carrots amount to more effective means than sticks alone. The BC Government’s inclusion of incentives is important to note in this context.

The NRTEE scenarios have five enabling conditions, the first of which is that “Canada will have to act in consort with the world.” This first condition can surely not be met in the short term, and would be hard to bring about within a few years, so that it would be foolish to rely on its fulfilment when planning reductions of emissions, More important, Prime Minister Harper has said that he will not impose a carbon tax.

In addition, Jeffrey Simpson stated in The Globe and Mail, 8 January 2008, that the data contained in NRTEE’s report reveal that the Federal Government’s current plans for reducing greenhouse gas emissions by 65 percent by 2050 will not achieve their aim.

Since a national carbon tax seems rather remote, and other Federal plans inadequate, it is worth a quick look at what else can be done. The main burden of dealing with climate change within Canada thus falls, for the time being, on provincial governments, municipal governments, individuals, institutions, businesses and industries, and will require excellent collaboration among these.

The next dimension in planning the reductions of greenhouse gas emissions includes the sectors of the economy together with plans on what to do in each sector.

Yet another dimension is that of bringing about a change in public attitudes, so that conservation will become a new focus.

Lastly there is the time dimension, since much that needs to be done requires long lead times. For example, it is foreseeable that, in order to reduce emissions sufficiently from truck transport, it may be necessary to revive or reinvent the railways, so as to displace much of what is found on today’s major road arteries onto a system that could be electrified. The new infrastructure needed to do this is considerable, since execution of such a plan could take 20 years. Therefore, the planning would need to start soon.

The fact that BC’s climate change plan contains incentives as well as taxes may indicate that the Province is on the right track. However, a tax of $10 per tonne of carbon dioxide is so modest that its main effect may merely be to alert people to the higher levels of tax to follow. When higher levels are implemented, the effects of non-fulfilment of NRTEE’s first enabling condition will start to be felt. Carbon burned in BC will be taxed, but what about imports from far away places? Will BC attempt to impose a tax at ports of entry, to match the carbon tax on manufactures in BC? Will it also attempt to impose a tax on the long-distance transport of imported goods? These factors will be increasingly important since, if they are ignored, they will amount to subsidizing foreign products. An even more difficult problem will arise when products from across Canada arrive in BC from provinces that do not have comparable taxes. How will the Government of BC impose the equalizing taxes?

The BC Government has had the wisdom to precede its imposition of the new tax with a gift to each of its citizens. And it has legislated that the tax must be revenue-neutral, so that all funds raised will go back to individuals and to businesses in BC — a factor that was important in gaining political support for the tax. It also has been planned with some regard to those with the lowest incomes, since any blanket tax affects most those who are near or below the poverty line.

The part of the rebate benefiting individuals needs eventually to be slanted toward the lowest incomes, perhaps as illustrated in fig.1.

Fig.1: A hypothetical slanted income supplement shown as a function of income and of level of funding made available from the carbon tax. Each diagonal line represents an equal step increase in the funds made available, on the arbitrary assumption that the pre-supplement income distribution is flat.

The style of rebate illustrated in fig.1 obviously benefits the poorest most of all. It would benefit young adults in post secondary education increasingly as the tax rises.

Not all those who favour a blanket carbon tax are in favour of it being revenue-neutral. Some would prefer to see a portion of the tax retained for essential research and infrastructure development related to climate change, and there is wisdom in that too.

Apart from Quebec, which has imposed a targeted carbon tax even smaller that that of British Columbia, the other provinces have not yet introduced such taxes. In Ontario, members of the Global Issues Project of Science for Peace are endeavouring to stimulate more action to address climate change at the provincial level, In addition there is much activity at the municipal level and with individuals and businesses. Members of Science for Peace could do well to look at the website: www.toronto.zerofootprint.net.