Economists oblivious on carbon tax
The suggestion that hundreds of economists could put out a letter endorsing the federal government’s signature climate policy, the carbon tax, without it being perceived as political is incredibly precious. Although Pierre Poilievre’s Conservatives are not directly named, they are the clear targets of the letter, which was released last week. Hardly apolitical, the stunt, and the 340-plus economists who have so far signed on to it, are deserving of nothing more than a massive eye roll.
The fact that multiple signatories to the letter felt the need to distance themselves from the Liberal party’s claim that “Economists agree, our plan puts more money in your pockets as we fight against climate change,” shows just how naive this whole endeavour was.
Journalists who should know better, like columnist Andrew Coyne (usually one of the last remaining reasons to read the Globe and Mail), were unfortunately dismissive of the idea that the letter was political. Coyne called it a “measured, factual, non-partisan analysis.”
Toronto Star columnist Bruce Arthur, whose cynicism usually only goes one way, predictably lamented that “expertise” isn’t welcome in today’s politics. The presumption is that the economists’ letter should be perceived in isolation of any political agenda. Why? Because they are experts.
While Arthur puts the blame for our rejection of expertise on the right — an argument he turned into a cottage industry during the pandemic — it has long been the left that has dismissed any kind of academic opinion that doesn’t support policies of economic redistribution, or whatever social-engineering dogma is popular at the moment. For example (if a bit off topic), the phenomena of people rejecting modern medicine such as vaccines was a movement on the anti-corporate left long before it, unfortunately, spread to the right.
As much as everyone may want to pretend otherwise, we are not sitting in a giant grad seminar — or if we are, it is one where fistfuls of mud are being smeared everywhere. The idea that there was some previous era of respect for expertise is largely nonsense. All that has changed, in the context of the carbon tax at least, is that some conservatives are now joining liberals in their rejection of economic analysis.
That said, broadly speaking, the economists’ letter endorsing the carbon tax is factual and measured. Mostly, anyway.
It is true, as many a Financial Post columnist will tell you, that, as the letter states, “Carbon pricing is the lowest-cost approach because it gives each person and business the flexibility to choose the best way to reduce their carbon footprint.”
The consumer carbon tax, like other consumption taxes, is transparent and gives individuals control over how much tax they pay. As the letter states, alternatives like “direct regulations tend to be more intrusive and inflexible, and cost more.”
It is also correct to point out that quarterly rebates are consistent with carbon pricing. “Consumers still have the incentive to reduce emissions,” the letter reads. “Those that reduce emissions the most will come out further ahead; they will pay less in carbon fees but still get the full rebate.”
A better design would be to lower income taxes in tandem with bringing in a carbon tax. The idea here is to tax what we want less of (carbon emissions) and cut taxes on what we want more of (jobs). Choosing the rebate option is merely for political convenience so the Liberals can regularly remind Canadians they are sending them a cheque.
But there is nothing inconsistent about pairing rebates with a carbon tax.
Where the letter falls down is that beyond a few nods to the fact that a carbon tax is a preferred policy to subsidies and regulations, the letter mostly assumes that the carbon tax exists in isolation. There is no mention of the fact there are, as economist Jack Mintz has written in the Post, stacked carbon taxes. On top of the consumer carbon tax, there are clean fuel regulations, federal and provincial fuel excise taxes and “federal and provincial sales taxes that apply to gasoline prices inclusive of carbon and excise taxes.”
Nor does the letter mention the swath of new tax credits announced last year geared toward “clean electricity” investment or credits to “manufacture or process key clean technologies.” And the letter certainly doesn’t mention emissions caps for the oil and gas industry or millions in subsidies for electric vehicle battery manufacturing plants. That’s before we even get to the de facto ban on the export of natural gas, or the throttling of oil pipeline construction — the Trans Mountain expansion, approved only after several other pipeline projects were killed, notwithstanding.
Instead, the letter flaunts its obliviousness to these other policies, stating: “In a world of scarce resources, it seems imprudent to abandon carbon pricing, only to replace it with more costly methods of reducing emissions.”
However, carbon pricing isn’t being implemented as an alternative to other policies intended to lower carbon emissions, it is being used on top of, and in addition to, the “more costly methods of reducing emissions.”
The economists also fail to consider that, while most households will receive more in rebates than they pay in carbon tax, once you account for the fact that the tax will slow down the economy, most everyone, the parliamentary budget officer concluded last year, will be worse off.
Certainly, a letter that is intended to be easily digestible need not consider every single counter-argument. But shouldn’t we expect “experts” intervening in a public policy debate to consider the policy as it exists in reality, rather than as a thought experiment best kept for the ivory tower?
THE IDEA THAT THERE WAS SOME PREVIOUS ERA OF RESPECT FOR EXPERTISE IS LARGELY NONSENSE.