The challenges of carbon tax

It would seem that the Conservative party, both federal and provincial, is suffering from an anti-carbon-tax virus. Andrew Scheer, Jason Kenny and Doug Ford all have denounced it and Ford rescinded the cap-and-trade legislation aimed at achieving the same result as a carbon tax.

It’s not exactly clear whether their opposition is grounded in skepticism about global warming and the need for action to slow it or in a more fundamental aversion to new taxes.

Ford, Ontario’s new premier, seems to believe that drivers have a God-given right to cheap gasoline. But whatever the reason, they should rethink their position and perhaps, if they need a campaign cause, one-up Justin Trudeau on the matter.

The three do have some rational basis for their opposition. A carbon tax — in whatever form — will discourage wasteful consumption of energy that results in carbon entering the atmosphere.

But, the trouble with existing and proposed carbon taxes is they are just too low to have much measurable impact. A carbon tax that would, for example, raise the price of gasoline to about $2.50 a litre certainly would cut down consumption of carbon-producing sources of energy. Of course, at that level there would be screams of anguish from drivers and truckers and users of electricity generated from coal or natural gas

Therefore, two guiding principles with respect to the design of carbon taxes are necessary. First the tax must be set at a level to actually impact consumption rather than just providing comfort to politicians who want to appear to be doing something.

Second, it must be revenue neutral. That is, the revenue collected must be offset by tax reductions elsewhere or, preferably, returned to taxpayers through refundable tax credits (so that even lower-income people would see a benefit).

Politicians should not stop there. An exception to revenue neutrality might be using some of the large funds generated by the tax to increase government investment in technologies aimed at further reducing carbon production. Among such technologies would be more efficient internal combustion engines and vastly improved energy storage capacity not just for electric vehicles but for industrial energy users.

Wind and photo electric farms will not meet the challenge of bringing about a substantial reduction in carbon production. We need to invest large amounts in developing technologies that will capture carbon cost-efficiently and provide capacity for massive amounts of such capture. Whether by direct subsidies or via special tax treatment for carbon-capturing enterprises, we need to greatly increase incentives for such research and development.

Of course, controlling the dumping of carbon into the atmosphere will only be a total success if it becomes a true global effort. If China and India, for example, continue to rely on coal as a primary energy source targets will missed. So, if we develop an inexpensive, but reliable method of capturing carbon, we should make it freely available to the entire world.

We also have to overcome our fear of nuclear power generation and the dogged adherence to the massive heavy water systems that have dominated nuclear generation to date. In B.C., we have to repeal the foolish prohibition on any nuclear generation that former Premier Gordon Campbell instituted, thereby rewarding mostly those who wanted to sell expensive run-of-the-river power to BC Hydro. Smaller nuclear plants using thorium salts as the basic fuel would generate less radioactive waste and can be built to service even small communities at a substantially lower cost (compared to other means) per kilowatt generated.

One final thought. To encourage the reduction of the production of carbon pollution, we should consider designing our tariff schedules to penalize polluters and reward those who cut carbon production.

Messrs. Scheer, Kenny and Ford - even if they do not believe in man made climate change - need to respond to the melting polar ice caps, rising ocean levels and the steady increase in annual global temperature over the last few decades.

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