Scheer’s climate plan must be magic

Plan will reduce emissions with no tax, somehow

Worried about climate change? Worried even more about the federal government’s plan to tackle climate change by taxing carbon? Relax. Andrew Scheer has a plan.

Or at least, he will. "We will be unveiling a very detailed and comprehensive plan” in time for the next election, the Conservative leader told a television interviewer over the weekend. A detailed and comprehensive plan to do what he was not at liberty to say, except that it will achieve the target for reductions in greenhouse gas emissions to which Canada committed in the Paris accord, and that it will do so without taxing carbon.

That’s some plan, or it will be whenever the Conservatives get around to figuring out what it is. At present, Canada is nowhere near to meeting its Paris target — a 30 per cent reduction from 2005 levels by 2030. In fact, we’re currently barely below 2005 levels; as of December 2016, when the Pan Canadian Framework on Clean Growth and Climate Change, as the latest federal plan is called, was announced, we were headed for almost precisely 2005 levels by 2030, or about 220 megatonnes over our 523 megatonnes target. I say latest federal plan, because the last 20-odd years of utter failure, as Canada blew through a series of similar commitments to reduce its emissions — Rio, Kyoto, Copenhagen — have not been for lack of federal plans. We’ve had federal plans coming out our ears: the National Action Plan on Climate Change (1995), Action Plan 2000 (2000), Achieving Our Commitments Together (2002), Project Green (2005), Turning the Corner (2007), Climate Change Action Plan (2010). None of them made a lick of difference.

By contrast, the federal government now projects emissions will fall by 90 MT versus baseline projections by 2022, leaving us only 90 MT off the pace required to hit our 2030 target. That’s actually further off than we were projected to be a year ago, but never mind: at least now there is some movement in the direction of our target. Or at least there is projected to be.

The difference: this plan, unlike previous plans, includes carbon pricing, whether the tradeable emissions credits Ontario and Quebec have put in place, or the carbon taxes preferred by British Columbia and Alberta, building into every transaction a permanent and growing incentive for consumers and businesses to reduce their emissions, by whatever means occur to them.

If we are still projected to fall short of our target, even with carbon pricing, it is because the price has been set so low to start, rising only gradually, from $10 per tonne in 2018 to $50 in 2022. To achieve the targeted reduction in emissions, economists estimate, would require a price of at least $100. Whether that is achievable, and at what cost, economically and politically, will depend on how it is implemented.

The Parliamentary Budget Officer caused a stir last week by estimating the impact of a $50 carbon tax, in terms of lost output, at about one-half of one per cent of GDP by 2022. But that was based on the assumption that governments would return the revenues to the public as a simple lump-sum payment, rather than the reductions in corporate and personal income tax rates economists recommend. (Lump-sum payments have no effect on incentives to work, save and invest; tax cuts do.) Were the latter route taken, the PBO reckons the economic impact would be negligible.

So if Scheer has a better plan — a plan to get us all the way to our Paris target, while pricing carbon at zero — it will be fascinating to see what it is.

At a minimum, one supposes current carbon pricing schemes, federal and provincial, would be dismantled, with all the costs that would entail, not least to businesses that had made investments in the expectation they would continue.

What would replace them? Either Scheer has some completely new approach in mind, never before imagined, or he favours the sorts of schemes, federal and provincial, that were tried before carbon pricing (most of which remain in place): a mix of regulatory edicts to industry — reduce emissions! or else! — and subsidies to conservation and green energy programs. Since these have so signally failed to make much headway in the past, we must assume Scheer intends to make even heavier use of them: tighter regulations, bigger subsidies, enough to reduce emissions by 30 per cent that the same measures to date have not reduced at all.

The issue here isn’t whether these could achieve the desired reduction: squeeze hard enough, and government can usually deter whatever it is they wish to deter. The question is at what cost? $200 a tonne may sound like a lot, until you look at the cost of other approaches.

In almost all cases, as economists have shown, they are more, often considerably more. For example, the cost of Quebec’s program of rebating consumers part of the price of electronic vehicles has been estimated at $400 per tonne of emissions reduced.

Unlike carbon taxes, moreover, the costs of regulatory schemes imply no revenue yield to government, with which to finance offsetting tax cuts. They are rather in the form of lost efficiency, ostensibly borne by business but passed on to consumers in the end — only not in a way that gives consumers any incentive to alter their behaviour or information to guide them, hidden as they are in prices.

For politicians, however, that same invisibility is a plus, preserving them from the wrath of voters conditioned to believe “a tax is a tax is a tax.” So it will also be interesting to see whether Scheer’s detailed and comprehensive plan includes the economic costs of the measures he proposes, and a comparison of these to the costs of carbon pricing.