B.C. shifts to inefficient way of reducing carbon emissions.

British Columbia presented its long- awaited “climate change plan” Friday, with a good dose of new regulations and subsidies aimed at curbing emissions. Much to the angst of carbon-tax-loving NGOs and experts, the government rejected raising its well- designed carbon tax above the current $30 per tonne of CO2.

Premier Christy Clark, facing a spring election, is in no mood to raise taxes and hurt the economy, arguing — rightly — that no other jurisdiction in Canada has a carbon tax as high as B.C.’s. In fact, Alberta is the only province to introduce one that will eventually match that $30 a tonne, by 2018 (although it is later scheduled to rise even higher).

B.C.’s new plan is not much different than climate plans being rolled out by other provinces — and that’s a problem, since it relies on trying to change consumer and producer behaviour through a mind-boggling list of regulations and subsidies. There are subsidies for lower-emission vehicles, for carbon-neutral buildings, for “greener” transit, and for renewable power. Carbon-tax supporters should be most upset with B.C.’s shift to a far more harmful method of reducing emissions.

As economists have pointed out for several decades, if we want to slow emissions, we can do it efficiently by pricing the assumed economic cost of the environmental impact through a tax, or by capping total emissions and allowing firms to trade permits to reduce compliance costs to achieve a target. Ideally, once the price is established, the market will find the least-costly way to curb emissions.

Further, any revenues raised by governments can be used for a double dividend: better environmental performance and a more efficient tax system, by reducing other more harmful taxes, to improve the economy’s competitiveness.

If the objective is to curb carbon emissions, an ideal system does not need subsidies for wind and solar electricity, gas-mileage limits for cars, regulated energy retrofitting for buildings, ethanol quotas, and bans on coal. A tax, or cap-and-trade, lets the market figure out the least- costly actions and new technologies to reduce carbon costs. The economy ends up better off as resources are put to their best use to produce goods and services, including clean air, water and land.

At least that is the theory. B.C. was first province to take that direction with a relatively comprehensive carbon tax implemented in 2008. It strayed from the ideal policy by augmenting the carbon tax with various regulations and subsidies, which in principle are not necessary except for policies affecting the public sector. But at least B.C. smartly used revenues to cut other harmful corporate and personal income taxes.

Today, most governments are not using carbon revenues to reduce more harmful taxes. Instead, the carbon tax has become a revenue grab to implement a morass of regulations and spending programs on transit, high-cost renewable energy, and a host of other policies, regardless of whether they deliver carbon reduction at the lowestpossible economic cost.

Alberta’s new carbon tax will fund new subsidy programs, and “Rachel- bucks” ( nicknamed for Premier Notley) for low- and middle-income households. It will not reduce other taxes nor lead to a more efficient tax system. Forcing coal-based electricity out in favour of high-cost renewable power, as Ontario did, is the biggest part of Alberta’s emissions plan. None of this is consistent with the idea of using a broad-based carbon tax to achieve emission reductions and improve the fiscal system.

And while Ontario is implementing a California-style cap-and-trade system, the real essence of the provincial government’s new Climate Change Action Plan is a grab bag of up to $8.3 billion in new program spending in the next four years, purportedly funded by carbon-permit auctions.

As a result of these targeted regulations and subsidies, our economy bears significant and unnecessary costs. Ethanol regulations are estimated to be as high as $200 per tonne of CO2. As I have previously pointed out, blocking pipelines and forcing oil onto relatively less-efficient rail is the equivalent of a $200 per tonne carbon price, and leads to even higher GHG emissions. Phasing out coal also imposes a much higher “implicit” carbon price than a more general carbon tax would.

So why are politicians increasingly opting to eschew comprehensive carbon taxes for even more damaging policies? Obviously a carbon tax is highly visible, and a steep one would be unpopular, especially if it’s out of line with competing jurisdictions (as Clark clearly realizes). Further, a carbon tax has an unpredictable impact on carbon reductions when governments are fixated on hard targets (even if history shows we consistently fail to meet them).

Some argue that only low carbon taxes can be made politically acceptable for now, so governments must temporarily use other policies. Then, as carbon taxes rise, this plethora of regulations and subsidies will disappear. This is a pipe dream. Governments rarely undo policies once the special interests who benefit from them become entrenched.

If the Trudeau government is to achieve anything, it would to push the provinces towards a principle of setting a single price on carbon harmonized with the rest of the world. That is, at most, $30 per tonne. I suspect that won’t happen. Instead, we will just suffer the growing weight of government intervention as politicians continue to fly climate policy by the seat of their pants.

B.C. SHIFTS TO A FAR MORE HARMFUL METHOD OF REDUCING EMISSIONS.