The Eco­fail­ure Com­mis­sion

National Post (Latest Edition) - - FINANCIAL POST - Philip Cross Philip Cross is the for­mer chief eco­nomic an­a­lyst at Sta­tis­tics Canada.

Fif­teen months ago, the Eco fis­cal Com­mis­sion was launched, with some of Canada’s most renowned self- ap­pointed com­mis­sion­ers mak­ing it their goal to re­duce car­bon emis­sions by cre­at­ing a more ef­fi­cient tax sys­tem. Judg­ing by ei­ther of those two cri­te­ria, the pro­ject could be rechris­tened the Eco­fail­ure Com­mis­sion, since it has not made any progress on ei­ther.

How can I call it a fail­ure, when gov­ern­ments across the coun­try are poised to im­pose taxes on car­bon, the favourite tool of com­mis­sion chair Christo­pher Ra­gan and his merry band of Ecofis­cal­ists? First, the com­mis­sion has abysmally failed to con­vince gov­ern­ments to off­set higher car­bon taxes with lower in­come taxes, which has left us with tax grabs in­stead of a more ef­fi­cient tax sys­tem. Se­cond, it has failed to con­vince or­di­nary Cana­di­ans of the need to change their be­hav­iour, with­out which car­bon taxes will not be high enough to change any­thing, es­pe­cially when oil prices are col­laps­ing and auto and gaso­line sales are soar­ing. Third, the com­mis­sion has ig­nored tech­no­log­i­cal in­no­va­tion, the real long- term way to in­crease en­ergy ef­fi­ciency, be­cause of its sin­gle- minded de­vo­tion to con­trol­ling car­bon emis­sions by tin­ker­ing with the price sys­tem.

To re­duce pe­tro­leum de­mand in t his coun­try would re­quire ei­ther taxes that raise prices well above their 2014 highs or a re­ces­sion in in­comes such that Cana­di­ans could not af­ford to con­sume at cur­rent rates. Gaso­line prices to­day in most parts of the coun­try are 30 to 40 cents a litre below their 2014 highs so, by it­self, a car­bon tax would have to boost prices by well more than that to lower con­sump­tion ( bar­ring a re­ces­sion). There is no govern­ment in Canada pub­licly con­sid­er­ing a gaso­line tax of 50 to 60 cents a litre. That would be political sui­cide.

The cur­rent car­bon tax of a few cents a litre be­ing pro­posed in Al­berta, On­tario and Que­bec, and al­ready in ef­fect in B. C., are the mod­ern equiv­a­lents of the pa­pal in­dul­gences is­sued in me­dieval times: a to­ken paid to as­suage the con­science for hav­ing com­mit­ted a sin­ful ac­tiv­ity. To the de­gree that car­bon taxes mis­lead peo­ple into think­ing they are al­le­vi­at­ing a prob­lem while still burn­ing fos­sil fu­els, they may worsen their de­sired out­come.

The Ecofis­cal Com­mis­sion doesn’t even hint at the tax in­crease that even­tu­ally will be re­quired to meet its car­bon am­bi­tions. It trum­pets stud­ies that pre­tend to mea­sure the re­spon­sive­ness of emis­sions to car­bon taxes, and we know the fu­ture emis­sions tar­gets Canada is com­mit­ted to achiev­ing. But the com­mis­sion re­fuses to meld the two to come up with even a rough es­ti­mate of what it will cost Cana­dian con­sumers to hit the car­bon tar­get. This si­lence prob­a­bly re­flects that the need- ed tax in­crease would be enor­mous, tak­ing the whole idea of a car­bon tax off the ta­ble im­me­di­ately. There is a much that is disin­gen­u­ous about a Tro­jan Horse plan that aims to first get ev­ery­one on­side with the idea of a car­bon tax, only to then slowly re­veal the mag­ni­tude that will be re­quired.

The real work the com­mis­sion should be un­der­tak­ing is the heroic task of con­vinc­ing Cana­di­ans they need to ac­cept sharply higher en­ergy taxes to fun­da­men­tally al­ter their be­hav­iour. In­stead, the Eco­fail­ure brain trust sim­ply pro­vides a con­ve­nient in­tel­lec­tual cover for gov­ern­ments to en­gage in a tax grab that does noth­ing to ad­dress the long- run trend of ris­ing fuel con­sump­tion. Con­vinc­ing On­tario Premier Kath­leen Wynne to raise taxes is child’s play, not a sig­na­ture achieve­ment.

Gov­ern­ments no longer even pre­tend to be de­sign­ing a more ef­fi­cient tax sys­tem, un­like the way B.C. did when it off­set higher car­bon taxes with lower in­come taxes. In­stead, cash-strapped gov­ern­ments in Al­berta, On­tario and Que­bec are sim­ply rais­ing car­bon taxes with no off­set­ting cuts. And let’s be clear: Rev­enue neu­tral­ity means an equal re­duc­tion in other taxes, not an equal hike in spend­ing on the en­vi­ron­ment, as Rachel Not­ley’s govern­ment claimed in Al­berta’s bud­get. Only in the warped world of NDP ac­count­ing is a tax hike com­bined with more spend­ing “rev­enue neu­tral.” In­stead of be­ing out­raged that gov­ern­ments are so brazenly dis­tort­ing its ideas, the Eco­fail­ure Com­mis­sion meekly watches in si­lence, lack­ing the courage of its own con­vic­tions that the tax sys­tem should be de­signed more ef­fi­ciently.

The timid­ity of gov­ern­ments in rais­ing car­bon taxes may also re­flect the fact that they know the only real so­lu­tion will come from tech­no­log­i­cal i nno­va­tion ( just as the so­lu­tion to traf­fic con­ges­tion is driver­less ve­hi­cles, not the road tolls Ra­gan ad­vo­cates). How­ever, as Steve John­son noted in his book Where Good Ideas Come From: The Nat­u­ral His­tory of In­no­va­tion, we lack a solid the­ory of how in­no­va­tion oc­curs.

John­son ar­gues t hat, con­trary to as­sump­tions, in­no­va­tion may not be pri­mar­ily driven by profit or high prices. In­stead, i nno­va­tions are most likely to come in clus­ters and in ar­eas re­searchers are al­ready work­ing on (“the ad­ja­cent pos­si­ble” — ex­ten­sions of what in­no­va­tors are al­ready work­ing on — not “light­ning bolt” ideas out of the blue). This is en­cour­ag­ing since there is plenty of work ac­tively go­ing on in re­duc­ing green­house gas emis­sions, in­clud­ing within the oil in­dus­try. Un­til such in­no­va­tions oc­cur, gov­ern­ments should drop the pre­tense that car­bon taxes are about any­thing ex­cept rais­ing their own rev­enues.




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