The hole in Trudeau’s carbon tax theory
Imposing hard limits on emissions would be more effective than a tax grab
In economics, plasticity is a measure of a variable’s sensitivity to a change in another variable, most commonly this sensitivity is the change in price relative to changes in other factors. In business and economics, elasticity refers to the degree to which individuals, consumers or producers change their demand or the amount supplied in response to price or income changes.
Price elasticity of demand is an economic measure of the change in the quantity demanded or purchased of a product in relation to its price change.
Inelastic demand occurs when demand for a commodity does not change proportionally with price.
Goods which are price inelastic tend to have few substitutes and are considered necessities by users.
In 1921, the average price of gasoline at the pump in the U.S. was $0.21 (US). It reached a high of $3.64 in 2012, and today sits at $2.25. In 1919, 7.5 million automobiles were registered in the U.S. Today that number is 287.3 million — a whopping 3,730.67 per cent increase.
During the 1970s there were large increases in gas prices, as result of the “oil embargo” imposed in 1973 by members of the Organization of Arab Petroleum Exporting Countries (OPEC) upon nations alleged to have supported Israel in the Yom Kippur War. Targeted nations included Canada and the U.S.
By the end of the embargo in March1974 the price of oil had risen nearly 300 per cent, from $3 (US) per barrel to nearly $12 globally;
American prices were significantly higher.
During the decade that followed, gas prices increased from $1.59 to $2.97. This represents an almost 87 per cent hike at the pumps. The number of automobiles however did not decrease. Registrations increased almost 24 per cent, from 101,412,229 in 1973 to 125,489,216 in 1983.
So, an 87-per-cent price increase in gas prices, rather than reducing the number of vehicles, actually resulted in a 24-per-cent increase in the number of two-and-a-half ton gas-guzzlers spewing carbon emissions into our fragile stratosphere.
This a textbook example, albeit crude and non-inflation-adjusted, of inelastic demand.
Raising gas prices will not stop Canadians from driving automobiles.
Prime Minister Justin Trudeau’s carbon tax increase to $170 per tonne by 2030 is expected to result in an increase of 39.6 cents per litre at the pumps. That translates into a 38 per cent increase from Canada’s national average price for December 26 of $103.7 per litre — less than half the 87 per cent hike absorbed by consumers back in the 1970s.
If you happen also to believe that the tax is being collected only to be returned by way of rebates, as Trudeau has promised, the carbon tax makes even less sense … even within the logic-free eco-environment of Justinomics.
There is no global consensus regarding carbon tax theory.
Obviously, one of the fundamental flaws is that a carbon tax doesn’t stop carbon emissions, or even necessarily reduce emission levels, because it doesn’t enforce any emissions levels. A carbon tax is merely a pay-as-you-go increase in the cost of doing business. It may be intended to incentivize a reduction in emissions, however, due to the laws of inelastic demand, those consumers able to afford the additional cost will continue buying.
Until there are viable green-energy alternatives available to all, Canadians still depend on the internal combustion engine and fossil fuels to travel to work, take their children to school, and buy groceries.
The scarcity of alternative transportation presently, in most parts of Canada outside the large urban Liberal centres which form the base of Trudeau’s electorate, forces a large percentage of the population to continue to rely on their automobiles.
Since the prime minister can not be unaware of this reality, the carbon tax must be viewed simply as yet another Liberal tax grab, targeting those many hard-working Canadians who do not reside in a downtown GTA condo close to a GO train station.
Until rapid transit and charging stations reach Moose Jaw, carbonemitting vehicles remain essential.
The Trudeau tax punishes Canadians, without solving the problem.
Regulation legislation imposing hard limits on emissions would be more effective than raising taxes if the Liberals were serious about climate change.