How we got carbon taxes wrong

production and investment simply move to jurisdictions without a carbon tax. In this case, emissions are simply displaced in whole or in part.

Carbon leakage is worse than you think, as it can actually increase global emissions. Take the case of Canadian aluminum, which produces only two tonnes of carbon per tonne, versus American aluminum at 11 tonnes of carbon per tonne. In practice, no one should have to explain to an aluminum worker that leakage, every carbon-pricing scheme uses output-based allocations (OBAs). Industries that are energy intensive and trade exposed (EITE) are given free permits to emit or a carbon-tax rebate to allow them to compete. For example, we would give the aluminum industry a tax exemption for carbon taxes based on its output.

However, as carbon-tax enthusiasts like to point out, people like to avoid taxes, so everyone will lobby for a tax get to work. The Conference Board of Canada found that even a $200/tonne carbon tax would only reduce 12 megatonnes of Canadian emissions before carbon leakage. Global carbon would likely only be reduced by 70 per cent of this amount. Meanwhile, just one large LNG plant could achieve more than that by replacing coal in China with natural gas.

Canada has a global comparative advantage in carbon in many industries because of our high environmental standards. A global approach to capitalizing on Canada’s environmental advantage would yield a double dividend of a stronger economy and a cleaner global environment. Carbon pricing, on the other hand, may create a green paradox — policies meant to reduce emissions that not only eliminate some people’s jobs, but increase global emissions.

So why do our left-wing friends love carbon taxes, when they say reducing emissions is their concern? The answer is the epitome of Reagan’s description of government, all wrapped up in one simple, marketable policy: “If it moves, tax it. If it keeps moving, regulate it. And, if it stops moving, subsidize it.” Even many conservatives have let themselves be convinced that carbon pricing is an efficient, market-based policy. An acceptance of the theory without examining the practice is what got them there.