Carbon tax comes with costly convoy
ALBERTA’S CARBON TAX INITIATIVE, THEN, LIKE BRITISH COLUMBIA’S BEFORE IT, IS LESS A REVOLUTION THAN A LONG OVERDUE CORRECTION. — ANDREW COYNE A FLOTILLA OF NEW REGULATORY AND SUBSIDY SCHEMES.
Any time you can assemble such a widely disparate coalition as the one that came out for Alberta Premier Rachel Notley’s new climate policy on Sunday — oil industry executives, environmentalists, aboriginal leaders, all sharing the same stage — it generally means one of two things. Either you have found the policy sweet spot, the perfect balance of competing interests. Or it’s a giant fudge.
Or, as in this case, both. The Alberta policy gets one big thing right: it taxes carbon, across the board — consumers and corporations, small emitters and large, with no carve-outs for favoured industries. At an initial $20 a tonne, rising to $30 in 2018 — and $100 by 2030 — it gives every Albertan a permanent interest in reducing his or her share of carbon emissions, not as a matter of moral obligation but of financial self-interest.
It requires no elaborate calculations of individual “carbon footprints” or offerings to Gaia, no superhuman projections of empathy on to the planet or generations yet unborn. It requires only an ability to count.
The carbon tax will embed the social costs of carbon emissions, notably through their contributions to global warming, into the price of every single thing in the Alberta economy, in proportion to its carbon content. The choice will be every Albertan’s: reduce emissions, so far as it costs less to do so than the added cost of the tax, or in the alternative, pay the tax.
It is pitched as novel, a revolution, but it is in fact how we already deal with most other costs in the economy. It is how we are dealing with the challenge of climate change now, but it is how we have been dealing with a far more pressing challenge to our survival — scarcity — for centuries.
If we did not price things — and if we did not encode into those prices the costs of the scarce resources it took to produce them, giving every producer and every consumer an incentive not only to limit their demand, but to search out fresh sources of supply — we would not have achieved anything like the standard of living we now enjoy.
None of the extensive division of labour, not only within countries but across the globe, so characteristic of modern economies would be possible without the information that is embedded in prices and passed along, like DNA, from stage to stage through the production chain.
And it is largely in those areas of life where we have failed to apply the logic of price — carbon emissions and other pollutants are one; road use is another — that we still find ourselves beset by the problem of resource overuse. Alberta’s carbon tax initiative, then, like British Columbia’s before it, is less a revolution than a long overdue correction — of a market failure, yes, but in a way that is built on market principles.
Had the government limited itself to a carbon tax, with rebates for low-income households and transitional assistance for workers in particularly carbon-intensive industries, the policy would have fully deserved the praise it has been getting.
Had it, indeed, been introduced as a replacement for the regulatory and subsidy schemes already enacted in the name of “fighting climate change,” at high cost and negligible benefit — for the purpose of both is not to reveal the costs of economic choices, as prices do, but to disguise or even offset them — it might even qualify for the revolutionary label.
But the carbon tax will not be in place of, but in addition to existing policies. And it will not come in on its own, but in convoy with a flotilla of new regulatory and subsidy schemes — a mandated 45 per cent reduction in methane emissions by 2025; a mandated phase-out of coalfired electricity by 2030; a “hard cap” on emissions from the oilsands, at 100 megatonnes; vast new subsidies for public transit and renewable energy and energy efficiency programs of various kinds — all of them unnecessary, some of them actively harmful.
Once you have priced carbon, you have given consumers and businesses all of the information they need to reduce their emissions, together with the incentive to use it. Coal was already in sharp decline, as a share of the province’s energy output, as it was: from roughly 40 per cent today to a projected 17 per cent by 2030. A carbon tax would surely have been enough to speed that to zero without need of regulatory edict. The tax, likewise, would offer a hefty incentive for drivers to switch to public transit, in the form of roughly seven cents a litre tacked on to the price of gas at the pump.
Ditto for conservation subsidies: consumers have in the past shown themselves quite adept at finding ways to reduce their consumption of energy in response to price signals, without need of a cookie from the government. Much of the subsidy, if experience is any guide, will pay them to do things they would have done anyway; much else will divert them into reducing their consumption in the ways that occurred to the government to subsidize, rather than other, newer choices that might offer more bang for the buck.
The Notley government has already endured much ridicule for claiming the carbon tax would be “revenue neutral” — apparently on the basis that it would spend all of the $3 billion it expects to raise from it, and not, as the term usually implies, that it would offset any revenues collected with a reduction in other taxes, as B.C. famously did. But it also is not “regulatory neutral.”
There was an opportunity here for the government to meet its climate policy objectives, including the need to present a cleaner face to the world, in a way that could have otherwise lightened the province’s regulatory and tax burden, not least on its suffering energy industry. As laudable as the carbon tax is, it’s a shame that opportunity was missed.