20 April 2007

Carbon Tax Scaremongering

Environmental policy is turning into a new battleground in Canadian politics, with the positions of the major parties rapidly shifting in response to the general solidification of global warming consensus. Prior to the Conservative's election victory in which they won a minority government, the Liberal's ratified Kyoto. Then, the Liberal party nominated the green former-environment minister Stephen Dion to their leadership position. The Conservative government evidently decided they were fighting a losing battle on environmental policy (and votes) and fired back with a major six-point plan named 'ecoAction' and replaced the existing environment minister with John Baird to provide new blood at the position. ecoAction was a major program, involving several billion dollars in spending, and acted to steal much of Dion's thunder. I am still in the process of reviewing ecoAction to determine how much is real reform and how much is green washing (to be the subject of a future post). Politically it was a big win for the Conservatives.

The Liberals, in conjunction with the New Democratic Party (social-democrats) and Bloc Quebecois (Quebec nationalists) decided to hit back by introducing a bill (C-288) that would require Canada to meet the Kyoto greenhouse gas emission targets. Since the Conservatives are in a minority, the other parties can potentially force the bill through parliament. If it passes the Conservatives have implied that they may consider it a vote of no confidence (and hence it would result in a new election being called). The Conservative government is strongly against any sort of carbon taxation or trading scheme. As a result, they commissioned a study which was released on Thursday that interpreted the proposed bill as narrowly and inflexibly as possible, claiming that the bill would plunge Canada into a recession.

The report makes a number of interesting charges, most of which are very sensational:
  • The unemployment rate would rise by 25% with
    about 275,000 Canadians losing their jobs by 2009;
  • The cost of electricity would increase by 50% after
  • The price of gasoline would rise by 60%;
  • The cost of natural gas would more than double;
  • Real disposable income for a family of four would
    fall by $4,000.
The study claims that a carbon tax of $195 would be necessary to generate 75 % of the required 30 % greenhouse gas emissions reduction, with the remaining 25 % fraction of the carbon pie coming from market purchases of carbon credits from other countries. That 25 % of carbon credits in turn is said to reflect 75 % of the world market of carbon purchases. The supposition is that with Canada purchasing the supermajority of credits, a bull market on credits with result and potentially prices skyrocketing. Sounds responsible right? Unfortunately, there's a credibility gap here: the study specifically eliminates credits resulting from those eastern European countries whose economies crashed after 1990 and have the majority of the world's carbon credits to sell. Why? Because, "EU countries are expected to generate very few, if any, excess AAUs for sale internationally that would represent real GHG reductions." Fair enough, but why play the stupid numbers game if that's your primary point? Afterall, the real objective of the Kyoto protocol is to put a dollar value on greenhouse gas emissions and establish a basis for a worldwide market in carbon.

Media coverage has been amusing, ranging from pure support from CanWest Global (complete with stock photos from the Depression), to a little more skeptical from CBC. CBC's article by Robert Sheppard quotes Simon Fraser University's Mark Jaccard as pointing out:
"As someone who studies capital stock, this is an insane discussion," Jaccard says. To meet Kyoto in the short run, he says, we're talking about forcing the turnover of about 30 per cent of our old cars, housing and inefficient machinery in the space of just a few years.

The whole exercise basically amounts to cooking up numbers that have little basis in reality. Kyoto clearly has a couple of huge problems for Canada: one, the moving five-year average terminating in 2012 means that meeting any targets requires changes to begin years ago, and as a consequence meeting Kyoto de facto implies buying carbon credits from the crashed economies of former Soviet-bloc countries. The Conservative study has essentially eliminated this as a possibility, which as a result it reaches implausible conclusions.

I think it's pretty clear that Canada can't meet its Kyoto commitments, particularly if it has to compete against a non-regulated USA marketplace in the short-term. Energy efficiency and clean-tech programs in general seem to offer short-term pain for long-term gain. Purchasing foreign carbon credits seems to be the only way to actually meet Kyoto targets, but will it actually accomplish a global reduction in CO2 emissions? I don't see it happening — the market is diluted by what the Eastern European countries can sell and still stay under their 1990 numbers — and in any case it is better politics and policy to keep that capital in Canada and use it for Canadian energy programs. Canadian politicians need to be saying, "No, we aren't going to meet Kyoto, but we don't feel that absolves us of our responsibility to act as a good global citizen. In order for both Canada and the world to resolve the climate change crisis, we will both need to curtail our emissions and develop technology and policy that we can share with less well-to-do nations and avert future calamity." Instead we get a doomsday scenario.

In short, it appears both parties are acting dishonestly. The Liberals are attempting to force-feed the Conservatives a piece of poison-pill legislation that would see the country spend large amounts of capital to purchase carbon credits internationally with dubious environmental benefits. The Conservative, in turn, are taking their marching orders from the oil and gas industry (Alberta is responsible for 43 % of the growth in GHG emissions since 1990) and being exceedingly inflexible in their efforts to stave-off a carbon tax. As a result they've painted themselves into a corner by not allowing themselves room to reach a compromise and claim victory. Rather than placing blame on the previous Liberal governments for doing nothing, they're still stuck in the old denialist camp of claiming nothing can be done due to the potential expense without recognizing the benefits of a green economy can be considerably greater than the costs of a brown one.


Robert said...

I don't know about Canada, but we only pay about $0.50/gal [all units US] in taxes on gasoline. If we were to raise that to a European level of $3/gal and convert it to a carbon tax it would be about $1,250/Metric Tonne of Carbon. The US consumes ~530MT of carbon in the form of motor vehicle fuels a year, and at least that much in coal for electricity generation. This does not include fuels used for industrial processes nor for home heating.

Equalizing the carbon tax across sectors at that level would, if consumption were unchanged, produce revenue in excess of $1.5T/year which is more than the current take of all federal income taxes. and about 55% of current Federal expenditures. The policy option to take would be to cut the income taxes.

Robert McLeod said...

I certainly wouldn't disagree that the limited taxation on fossil fuels isn't terribly onerous, I would say that rapidly increasing them in large chunks is going to cause some unnecessary pain, especially for poor people.

Europe is way ahead of North America with regards to global warming and peak oil policy. I'm not entirely sure how well we can play catch-up when you consider the turnover times for things like cars, public transit, building insulation. I suspect we will lag them for quite a long time.