If carbon taxation was the goal, wasn’t the solution to be gentle?
HAVE THE LIBERALS IRREDEEMABLY HARMED THE CAUSE OF CARBON TAXATION?
In Wednesday’s Financial Post, Calgary economist Jack Mintz asked the question “Why are carbon taxes so unpopular?”, pointing out that plenty of countries and jurisdictions have commitments to climate progress and energy efficiency but that few use this particular policy instrument. I guess Jack wouldn’t have had much of a column if he had just adopted the spirit of an auto mechanic explaining a breakdown to a naive car owner and jabbed directly at the problem. “See that word ‘taxes’? There’s your problem right there.”
And, truly, it is not quite as simple as that. But, as Mintz suggests, it is a big part of the difficulty. As a means of helping reduce carbon output, carbon taxes are competing with subsidies and regulations. Pervasive carbon taxes are, as a general principle, a less costly way of eliminating freely exhaled carbon, pound for pound or ton for ton.
If the tax is well designed, you are slapping a uniform unit price directly onto the thing you are trying to prevent; and you are leaving people and businesses to make decentralized judgments, based on their knowledge of their own circumstances, about whether to avoid the tax, and when, and how to do it. Even though the initial level of the tax must be something of a guess, you can adjust it by arbitrarily small increments until you have eliminated just as much carbon output as you wish to.
Economists will recognize that last paragraph as a grocery list of the relative advantages of carbon taxation. But voters are predisposed to hate taxes, and are very sensitive to their size and their side effects. They may not like government subsidies for windmills or carbon-capture schemes or certain species of light bulb either; but subsidies can usually be sold on the basis of local job creation or business incubation, and they can be — let’s face it, inevitably are — adjusted for maximum electoral benefit.
If subsidies fail outright to accomplish anything, the equivalent of the auditor-general probably won’t get around to telling anyone about it for a decade or more. And regulations have more or less the same problems. They’re like a tax, only more stupid. More binary. You are just abolishing some economically undesirable behaviour without any attention to cost at all.
I am not telling you anything you haven’t read in this newspaper pretty often, and I am, indeed, reiterating some of what Mintz wrote. My own question is this: what does all this imply about what the proper approach to carbon taxation by Canadian governments ought to have been?
When I imagine the early history of Canadian carbon-reduction policy being written, I am afraid it does not sound too good in my head. The capital-e Environment was given an incredible gift in 2015 when the New Democrats did the unthinkable and won an Alberta general election. In the face of unfathomable Conservative decadence, we bitumen-bemired Albertans picked a government that was prepared to embrace carbon taxation.
Moreover, that government went about it in a pretty intelligent way, from a strictly economic standpoint. They made sure the tax was unlikely to be punishingly regressive in most cases, although there were horrid local effects in coal towns, and they paid attention to economic competitiveness.
Given this brief window of opportunity in Alberta — this flicker of favourable conditions for the introduction of carbon taxation in the unfriendliest possible setting — it seems obvious in retrospect that the right thing to do was to be gentle. The federal government could have said, “Through no virtue of our own, there is a carbon tax in Alberta to go with the analogous tax in B.C. and the aggressive regulatory policy of Ontario. For Pete’s sake, let’s not fool with this!
“We can wait to start fights with other provinces — they’re less consequential from an environmental standpoint, and poorer to boot, and it is more important to maintain a beachhead for this kind of policy. Let’s not mix up the Liberal brand and the Trudeau name, which still churn a lot of stomachs out there in Alberta, with what Rachel Notley is trying to do. Don’t even praise her loud enough for anyone to hear if you can help it. We definitely shouldn’t sweep in, impose a higher carbon price nationwide than the one she has set, and hand the equivalent of a bag of loaded revolvers and extra ammo to the haters.”
The federal government has, needless to say, done the opposite of all this.
Hindsight is 20/20, but the political problems with taxes as an instrument are as obvious as the advantages are well understood. Why did the federal government need to move so aggressively on the carbon issue? Because of the danger that someone else might get the credit? Because New Brunswick could not be left to run riot and ruin Earth’s climate? Because no one in Ottawa can ever resist a “national strategy”?
If, in the long run, Trudeau-made carbon policy can be made to stick, that is one thing. But the Trudeau government’s ineptitude at communications has it already haemorrhaging the political benefit of forcing its way into the driver’s seat. If carbon taxation be a worthy cause — especially compared to the crummy central-planning alternatives — I am beginning to tremble for its fate.
IT SEEMS OBVIOUS ... THE RIGHT THING TO DO WAS TO BE GENTLE.