There are benefits to a carbon tax

Western Canada’s premiers last week passed up an opportunity to help Alberta expand the oil pipeline to Vancouver, by essentially turning a blind eye to the raging AlbertaBritish Columbia pipeline dispute.

As exercises of interprovincial statesmanship go, it was less than impressive.

The western premiers, including leaders of Manitoba, Saskatchewan, Yukon, Nunavut and the Northwest Territories, held their annual meeting last Wednesday in Yellowknife to discuss matters of interest in the region. The main thing happening in Western Canada this year is that the Kinder Morgan pipeline company is trying to expand its pipeline from Edmonton to Vancouver in order to ship Alberta bitumen to export customers. Alberta’s New Democratic Premier Rachel Notley supports the pipeline project. B.C. Premier John Horgan is obstructing the project as best he can in hopes of discouraging Kinder Morgan and inducing them to abandon it.

Notley learned ahead of the meeting that her colleagues would not support a joint statement along the lines that Horgan should let the pipeline be built. She stayed home and sent her deputy premier in her place. In her absence, the premiers talked about other things, including marijuana and pharmacare funding. On the Trans Mountain pipeline expansion project, they had nothing to say.

“The Trans Mountain issue clearly has the magnifying glass over it, but we also have other issues that affect our Canadian economic future,” Manitoba Premier Brian Pallister told the closing news conference. His Saskatchewan counterpart, Scott Moe, said the federal government should solve the pipeline problem.

Employment and income are inevitable benefits of the Trans Mountain project. Expansion of oilsands production will offer opportunities for construction workers and other tradespeople from all parts of Canada, especially the Prairie region and the North. If there ever was a moment for the western premiers to stand up and be counted, this was it.

The federal government has to gauge sentiment in the region and in the country in deciding how much vigour to put into support of Trans Mountain expansion. If they accept guidance from the Yellowknife meeting, they might conclude that no one east of Alberta cares one way or the other. They could justifiably turn their backs and let the thing die.

By boycotting the meeting, Ms. Notley made it easy for her colleagues to evade the pipeline question. With more adroit diplomacy, she could have been able to lead the Yellowknife meeting into an expression of Western Canada’s eagerness for the benefits the project can bring. Even without her leadership, the others should have spoken up.

At the moment, Notley’s plan is to shut off shipment of the petroleum products that drive cars, trucks and airplanes in B.C. This is a sly way of showing Horgan’s hypocrisy in running an oil-based economy while refusing shipment of oil across his province for other customers. For his part, Horgan has insisted that domestic oil consumption and export oil-pipeline expansion are separate issues.

Horgan may succeed in killing the Trans Mountain expansion project through administrative obstruction. If he does, he should thank the western premiers for sitting on their hands when the time came to push the project forward.

It is fascinating to see how the public and politicians react to the idea of a carbon tax. In essence, such a tax is aimed at reducing people’s consumption of fuels that result in the generation of carbon-based gases. Those gases are deemed to be a major cause of climate change. So, the higher the tax the greater the anticipated reduction in the consumption of carbon-based fuels.

If the carbon tax is made revenue neutral, (that is, the revenue collected from the carbon tax is offset by reductions on other taxes) then consumers are left no worse off in after-tax disposable income, though his or her consumption pattern will have changed yielding a changed total income utility (in economistspeak).

The income gained by the carbon tax could be used to further reduce consumption of carbon-based fuels by reducing taxes applied against electric vehicles, or reducing public transit fares, or providing subsidies to homeowners increasing the energy efficiencies of their homes. The possibilities are almost endless. On an individual level, however, if you continue to drive your gas-guzzling truck just as far as you did before the carbon tax, you will pay more — which is the point, after all.

Politicians are sensitive to what the voters want and are often more than anxious to meet those desires.

Consider the current provincial election campaign in Ontario.

The current Liberal government met the federal government’s call for a carbon tax by adopting a cap-and-trade system under which the government issues a fixed amount of permits for carbon pollution and allows firms to buy and sell those permits for a defined period.

This supposedly permits each individual participant in any given sector to use the systems for pollution reduction which they consider most cost-effective.

The competing Conservative and New Democratic parties are pledging to abolish the cap-andtrade system and not introduce a carbon tax as a replacement. Indeed the Conservative leader has recently said he would further reduce taxes on gasoline. The mind boggles. Contrast this with polling information which shows voters in Ontario are concerned about climate change and want government to take action to have Canada meet its commitments to the Paris Accord.

How this can be done without something equivalent to a carbon tax is not obvious. Nor is it clear why inefficient pickup truck sales in Ontario have recently exceeded the sales of more fuel-efficient compact cars.

The role that automobiles, particularly highpowered models, play in Canadian society has long exceeded simply providing a means of transportation.

Egos, competition with neighbours and status are all critical ingredients. So there is an implicit battle between the need to deal with the planet’s deteriorating environment and the sociological forces that exist in our society.

With carbon pricing, undoubtedly more fuel-efficient and electric cars will gradually gain an increasing share of the personal transportation market. Together with a changing cost structure — for example, a mobility tax that puts a price on using independent personal transportation (your car) versus using public transport — this will work to change public’s perception of the role automobiles should play in our society. Most commentators think this will take significant time, however.

Think back to of the role of tobacco in Canadian society in 1970 compared to now. Sure, people still smoke, but it is much less common. Partly this change was the result of the price per cigarette increasing by many hundreds of per cent, the outlawing of advertising the product and finally a relentless public campaign against smoking.

We are still a long way away from having in place the public programs and support structures — such as better public transit — and the effective tax structures that will yield the desired end result for carbon-based fuels.

But, a substantial and annually-increasing carbon tax with the revenue gained thereby being returned to the provinces to spend as they see fit is key.

David Bond is a retired bank economist who resides in Kelowna. This column appears Tuesdays.