THE CAR­BON TAX STARTED OUT AS A SIM­PLE CON­CEPT BUT — THIS BE­ING CANADA — HAS GROWN EVER MORE COM­PLEX. STILL, THAT IS NOT A REA­SON FOR DO­ING NOTH­ING, AR­GUES AN­DREW COYNE.

Windsor Star - - NP - AN­DREW COYNE

Like much else this gov­ern­ment touches, the car­bon tax started out as a sim­ple idea that has grown steadily more com­plex.

The case for the car­bon tax was very much tied to its sim­plic­ity: a uni­form na­tional tax, ap­plied econ­o­my­wide, based on the car­bon con­tent of every good and ser­vice. Where reg­u­la­tions en­cour­age com­pli­ance up to the level re­quired and no fur­ther; where sub­si­dies of­ten pay peo­ple to do what they would have done any­way; and where both ap­ply only to those ac­tiv­i­ties it oc­curs to the plan­ners to ap­ply them to, a car­bon tax gives ev­ery­one a per­ma­nent in­cen­tive to re­duce emis­sions, by what­ever means they can de­vise, so far as it still costs less to do so than to pay the tax.

Small won­der that every eco­nomic study shows that car­bon taxes achieve far more re­duc­tions per dol­lar spent, by or­ders of mag­ni­tude, than al­ter­na­tive ap­proaches. What is more, the ev­i­dence sug­gests they are su­pe­rior to their close cousin, cap and trade. While con­cep­tu­ally iden­ti­cal, the prac­ti­cal dif­fi­cul­ties of es­tab­lish­ing and run­ning a world­wide mar­ket for emis­sions cred­its have soured econ­o­mists on its po­ten­tial.

But this is Canada, where there are prac­ti­cal ob­sta­cles to do­ing any­thing. The first of th­ese was the prov­inces. By the time the fed­eral gov­ern­ment de­cided to get se­ri­ous about re­duc­ing emis­sions, sev­eral prov­inces al­ready had their own schemes: some us­ing a car­bon tax (Bri­tish Columbia), some cap and trade (On­tario and Quebec), some nei­ther, but all with dif­fer­ent rules, dif­fer­ent ex­cep­tions, and dif­fer­ent ef­fec­tive prices. This pre­sented a nightmare for any busi­ness so fool­ish as to at­tempt to op­er­ate in two or more prov­inces.

The planned fed­eral car­bon tax plan, de­tails of which were re­leased this week, will at least put a floor un­der all this. Prov­inces will have to im­pose a fed­er­ally-man­dated min­i­mum tax on car­bon, or its equiv­a­lent in cap-and­trade terms, or have a “back­stop” tax im­posed by the feds. But it still means a more costly, com­plex sys­tem than it might have been. More­over, rather than im­ple­ment a car­bon tax as a sub­sti­tute for other, costlier ap­proaches, the Lib­er­als have sim­ply loaded it on top of the ex­ist­ing pile. In­deed, they have added new ones.

This much was al­ready known. But this week’s tech­ni­cal pa­per adds some new wrin­kles. The fed­eral “back­stop” tax would in­clude spe­cial ex­cep­tions for heavy in­dus­try, known as out­put­based al­lo­ca­tions, fol­low­ing the Al­berta model. Large emit­ters — those over 50 kilo­tonnes a year — would ef­fec­tively only be taxed on a por­tion of their emis­sions.

It’s odd to be spar­ing heavy emit­ters from a tax whose whole point is to de­ter emis­sions. The jus­ti­fi­ca­tion, that this is nec­es­sary to keep them com­pet­i­tive with for­eign ri­vals, as­sumes that to oblige them to bear the full cost is anoma­lous and un­nat­u­ral — as if in the cal­cu­lus of com­par­a­tive ad­van­tage car­bon costs some­how didn’t “count.”

There is a cost to emit­ting car­bon just as there is a cost to hir­ing labour. It’s just that un­til now com­pa­nies have been able to slough off those costs onto so­ci­ety rather than in­clude them in their own cost base: car­bon emis­sions are what econ­o­mists call an “ex­ter­nal­ity.” But they are just as real as any other costs, even if the gov­ern­ment has to force com­pa­nies to pay them. If we wouldn’t spare a com­pany from com­pe­ti­tion be­cause its labour costs were higher than its ri­vals’ — and we shouldn’t — why should we do the same for heavy emit­ters?

Well, one rea­son comes to mind. If com­pa­nies face a car­bon tax in Canada, but not in the United States, they might sim­ply move pro­duc­tion across the bor­der. What­ever re­duc­tion in emis­sions recorded here would be off­set by an in­crease there: so­called “car­bon leak­age.” This would, it is ar­gued, de­feat the whole pur­pose of the ex­er­cise. That’s what Al­berta Pro­gres­sive Con­ser­va­tive leader Ja­son Ken­ney meant when he said the tax was “all eco­nomic pain and no en­vi­ron­men­tal gain.”

The sup­po­si­tion is that un­less emis­sions are re­duced glob­ally, there’s no point. But you could just as well make the case that there’s no point any­way. With just 1.6 per cent of global emis­sions, we’re more or less ir­rel­e­vant as far as sav­ing the planet is con­cerned. That’s not an ar­gu­ment for do­ing noth­ing. It’s an ar­gu­ment for do­ing our part — as long as we are un­der no il­lu­sions what “our part” means.

Cli­mate change is an ex­am­ple of a col­lec­tive ac­tion prob­lem. Though each coun­try might make very lit­tle dif­fer­ence on its own, to­gether they make a great deal of dif­fer­ence. Yet if every coun­try, fol­low­ing the logic of its own unim­por­tance, did noth­ing, no one would do any­thing.

Usu­ally th­ese sorts of prob­lems are re­solved by com­pul­sion: it’s why you have to pay taxes. At the in­ter­na­tional level, it can only re­ally be by agree­ment — though there may be penal­ties for non­com­pli­ance. Liv­ing up to our promised emis­sions re­duc­tions isn’t about sav­ing the world so much as stay­ing on­side with the world, if for no other rea­son than there may be costs to not do­ing so.

The choice fac­ing us as a coun­try, then, is rather like that fac­ing a com­pany un­der a car­bon tax: to re­duce emis­sions, so long as it is less costly than the al­ter­na­tive. One im­pli­ca­tion of that is we should do so in the least costly way pos­si­ble, namely by tax­ing car­bon. At some point, if we keep pil­ing on un­nec­es­sary costs, it will be cheaper to re­nege.

The other is that it is our own emis­sions we should be con­cerned with, not some­one else’s. If a re­duc­tion here is off­set else­where — be­cause a plant re­lo­cates, say — that’s a state­ment about that ju­ris­dic­tion’s cli­mate poli­cies, not ours. Cer­tainly, it is not an ar­gu­ment for of­fer­ing ex­emp­tions to some sec­tors that im­ply greater costs for every other.

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