Thursday, July 17, 2008

One More Memorial to Angus McInnes, Lest We Forget--Again

Tom Berger recalls a formative event from his childhood in the early 1940s in his memoir, One Man's Justice. His father remarked to him that Angus McInnes, who stood almost alone in British Columbia against the internment of the Japanese Canadians, was "a very brave man". I know that McInnes has a special collection in the UBC Library named after him, and that in 1994 a park was named for him and his wife Grace McInnes somewhere in East Vancouver. Nevertheless, given the importance of multiculturalism and human rights in British columbia, I suggest that a statue of McInnes be erected in a more central location, either on the grounds of the Legislative Assembly or in Stanley Park. A memorial placed in one of these settings would educate more members of the public, and would be more difficult for the opinion leaders of our community to ignore. The thought occurred to me last January when I visited the Japanese Canadian War Memorial in Stanley Park, right beside the Aquarium. A video of the occasion is included here:

Tuesday, July 15, 2008

"As I was Saying".....What to do about Carbon Taxes and Gasoline Taxes, etc.

While critics of carbon taxes like to point out the incentives that high energy prices give consumers to conserve, two headlines from yesterday's news illustrate perfectly the double-edged quality of higher oil prices in terms of their effect upon the environment. The front page of the Vancouver Sun proclaims, "B.C. Oil Could Ease Crisis: Offshore exploration should be considered, agency says"--quoting a senior official of the International Energy Agency as saying that exploration of the Alberta tar sands and drilling off the B.C. coastline would enable Canada to play a "crucial role" in the alleviation of the international energy crisis. Meanwhile, in the United States, President George W. Bush announced his intention to lift the moratorium on offshore drilling and drilling in the Alaskan wildlife refuge in order to reduce America's dependency on foreign oil. In a similar vein, a group of representatives from OECD countries (most of whom are signatories to the Kyoto Accord) were featured passing a resolution calling on Saudi Arabia to increase oil production in order to ease the current energy crisis.

Aaaahhh....the miracle of the market!

When I first wrote on this subject on June 26 , it was with something of a knee-jerk reflex, but a well-informed one. If both Science and The Economist agree with me, and if David Suzuki and Tim Flannery agree with the economists at the Canadian Centre for Policy Alternatives, and all of these people plus William Nordhaus of Yale and Marc Jaccard of SFU and Jeffery Sachs of Columbia all seem to agree that carbon taxes are the best and most efficient policy instrument for tackling global warming, I have no reason to apologize for my opinion. I was simply reflecting something close to a consensus of the best minds who have thought about the subject. Of course, a well-designed cap-and-trade system is better than a poorly designed carbon tax; but a comprehensive policy would include both, with cap-and-trade for large industrial emitters.

But what if a surge in oil prices threatens stagflation and global recession? Do high energy prices, backed by long-term pressures stemming from Asian economic development, make carbon taxes inadvisable, redundant or unnecessary? My answer is no--but with considerable qualfication in the short run. If we are entering a period of economic disequilibrium, we should probably not follow through on the Campbell version of carbon taxes as they apply to gasoline, but modify the policy. We also need some kind of federal-provincial agreement on tax-shifting in order to create some order out of the current policy chaos.

The principles guiding such a coordinated national tax strategy for global warming should be: (1) initially restrict the role of carbon taxes with respect to gasoline to simply setting a floor price --I suggest that for the time being there be no additional tax burden on gas above $1.50 per litre. This is to guard against temporary gluts in oil production causing a price fall and a consequent relaxation of the transition to greater conservation and fuel efficiency in either industry or the public at large. (2) Additional carbon taxes on gasoline above the $1.50 mark should come at the expense of other excise and sales taxes on gasoline. Here the folks at Petro Canada and the Canadian Taxpayers Federation surely have a point---the average Canadian motorist pays about 28% of the price of gas in government taxes and as much as 34% in British Columbia after the government's recent carbon tax addition. This includes an insulting (to our intelligence) charge of the GST on the total pump price , including all federal provincial and federal taxes--in other words, a tax on the tax. While it is true that half of this revenue is dedicated to roads, highway and bridge improvements, a large chunk of it should simply converted to carbon taxes. (3) Mother nature doesn't care whether greenhouse gases are being produced by a small number of large emitters or a large number of small emitters. There should be a value-added (or, more properly, a carbon-added) tax, which taxes both producers and consumers according to how much they use the atmosphere as a garbage dump. As it happens, major industrial polluters in BC are responsible for roughly half of the emissions, while us regular motorists and homeowners are responsible for the other half. Taxes should apply to both sides now. (4) It is becoming readily apparent that revenue neutrality, even when it is believed, is only revenue neutrality for the government. We need greater revenue neutrality for all of the users of petroleum products, and for all of the regions and industries in the province.

So here is the summary of my recommendations:

*in the short run, increase tax only to secure a reasonable floor price.

*Beyond that, carbon taxes on gasoline should only be substituted for other taxes. They should not raise the net total of taxes on gasoline.

*Carbon taxes should take the form of a value-added or carbon-added tax (C.A.T.)

* These and other measures should help to ensure revenue neutrality for the most affected taxpayers and not just for the government itself. In fact, governments should even be willing to surrender some revenue if consumers and businesses can pay less tax by reducing their gas consumption.

* Let's not just have made-in BC or made-in Alberta cap and trade regimes for industrial polluters. Cap and trade ideally works best in the context of a global market price for emission credits, which is less susceptible to political manipulation and lobbyist meddling.

*Remember that if we need to impose carbon tariffs (i.e. import taxes) on India and China in the future, we will have no legal, moral or political leg to stand on unless we have a clear, comprehensive carbon tax regime domestically. Even if one argues that carbon tariffs could be applied exclusively to major industrial polluters, a relevant domestic cap-and-trade scheme would ideally need to have pollution credits set by an international (market) price. The more comprehensive, effective and transparent the carbon tax regime is domestically, the better it will be for the purpose of applying carbon tariffs in international trade law.

* Let's not forget that in addition to an improved tax structure, there is a role for good old-fashioned regulation, as both David Schreck (in his comment on my previous posting) and Marc Lee and Seth Klein at CCPA have pointed out. For example, we could mandate car-like standards for light trucks and SUVs; and in the longer term some form of bio-diesel (not made with regular corn or other grains that would push up food prices too much) for the big trucks that cannot get sufficient torque from electric or hybrid engines.

Friday, July 04, 2008

The New Utilitarians: Ignatieff, Campbell, Dion, and the Inadequacy of Revenue Neutrality

As the late Harvard Professor John Rawls pointed out in his classic A Theory of Justice, one of the problems with utilitarianism (the theory that we should act so that to maximize "the greatest good for the greatest number") is that it did not take the different situations of individuals sufficiently into account. By ignoring distributional considerations, utilitarian calculations risked harming the rights of minorities. I recognize a similar flaw in the boasts of Michael Ignatieff, Gordon Campbell, and Stephane Dion , all of whom have touted the global "revenue neutrality" of their proposed carbon taxes as supposed proof of their unselfishness and concern for the common good and social justice. The fact that government takes in the same amount of revenue as before totally ignores the differential impacts that their policies may have on particular individuals, classes, regions, and industries.
It is relatively easy for Gordon Campbell to point out how urban middle and upper class voters (his natural constituency) can 'win' by trading in their Hummers for Hybrids and bicycle paths, or by claiming any number of tax incentives as write -offs on their income taxes. Poorer citizens who have less income will realize far fewer gains through the tax system; more seriously entire industries are threatened by higher fuel prices augmented by carbon taxes. These include most notably the tourism, agriculture and ranching/cattle industries in the interior and north of our province. These are the likely losers in the revenue neutral system, and they are also likely to be the losers in other provinces in Canada under Mr. Dion's federal plan.
Clearly, what is needed is for carbon taxes to replace excise taxes on fuel. That would be revenue neutral for the user, and not just for the government or their supporters in upper middle class urban neighbourhoods. In the parlance of welfare economics, substituting carbon taxes for excise taxes would also be "pareto efficient": everyone who could reduce their carbon emissions would be better off, and nobody would be worse off, since those who could not easily switch to lower carbon emissions would be paying the same amount that they would have paid in excise taxes. Of course, under such a scheme the government could actually lose revenue as people switched to to more efficient and environmentally-friendly ways of living, but I am sure we could all live with that. If not, government could raise taxes elsewhere, instead of just making an income tax gift to the wealthy and to urban-dwellers.

On the other hand, I cannot accept without heavy qualification Carole James's statement that "the market has already taken care of giving people incentives to change their behaviour" because gas has risen 30 cents a litre. The market is also giving the signal to Saudi Arabia, OPEC, and the Oil Companies to increase fossil fuel supplies, including those from Alberta's dirty tar sands. Market analysts are already predicting that gas prices may come back down somewhat as a result. Carbon taxes should be in place to ensure that $1.50 per litre is a floor, and not a ceiling. Carbon taxes should be in place to ensure that energy sources substituted for gasoline and oil are not simply other types of fossil fuel or their derivatives.

As I pointed out in my previous posting, the NDP cannot very well axe the tax without also axing the tax cuts that go along with it. NDP taxes on industry will to a large extent be passed along to consumers, who will not have the same benefit of offsetting tax cuts. (While I was impressed with John Horgan's point expressed on Voice of BC that costs associated with caps on emissions of industrial exporters can be passed on to foreign customers, it must be remembered that (1) these emissions probably don't account for more than about 30% of the total; and (2) we cannot assume that raising the price of exports will not cause lost sales, investment and employment.)

The best policy may be one which offers some degree of exemption above $1.50 per litre, but which makes it clear that there will be no return to cheap gas, even if world market conditions allow it. With transportation accounting for 38% of provincial greenhouse gas emissions, it would be irresponsible to simply "axe the gas tax".

The best policy would still have a role for cap-and-trade as a flexible tool for regulating industrial emissions, such as those in in the gas, aluminum, concrete, commercial and manufacturing sectors; this would form part of the growing North American system of emissions trading. (As far as I know, the Liberals are in favour of this. )

Finally, the best policy would make much better decisions than the BC Liberals are doing about how to allocate revenues from carbon taxes. This would not only mean spending more of the revenues on environmentally sound policies such as public transit and helping those sectors and regions of the province that are not fully compensated by income tax cuts to make the transition to a greener economy; it would mean spending additional revenues on top of those raised by the carbon tax in order to attend to public infrastructure and distributional issues associated with climate change.

Academics and journalists who have been rightly applauding Gordon Campbell for showing some initiative need to get beyond the rectitude of the carbon tax as a concept and attend to these very important details. If they don't, the result may only serve to discredit an otherwise intellectually sound policy.