Thursday, December 04, 2008

Re: Carbon Taxes, including ones on gasoline: I TOLD YOU SO

{Note: you may have heard on the news today that car sales fell 9% in October, due to the looming recession. You may have also heard that SUV and truck sales were UP due to falling gas prices!--MC}

Now that gas is back down to a dollar per litre, and no doubt that worrisome backlog of RVs, SUVs and light trucks are again moving off of car lots, and people are breathing a sigh of relief at being able to heat their homes for the winter without undertaking extensive renovations, I WOULD LIKE TO TAKE THIS OPPORTUNITY TO REMIND PEOPLE OF THE KIND OF CARBON TAX THAT I WOULD LIKE TO SEE.

First, UNLIKE THE NDP, let's acknowledge that small emitters are responsible directly for one half of all greenhouse gas emissions, and indirectly responsible (as the ultimate consumers of aluminum, concrete, plastic, forest and aluminum products) for a lot more. And don't give me that "North America is not Europe" crap. Yes, we are more sparsely populated and probably need to burn a little more fossil fuel. But that doesn't mean that we should be protected from spending just as much of our incomes on energy as Europeans do.

Second, UNLIKE GORDON CAMPBELL, we should not have a carbon tax that simply makes fuel a little more expensive. Instead, it should be used to set a FLOOR PRICE that is high enough to ensure continued modification of consumer behaviour. This policy would actually raise additional revenue that could be spent on fighting climate change. But above that floor price, additional carbon taxes would NOT make gas or home heating fuel more expensive at all; instead, they would merely replace EXISTING EXCISE TAXES. (That would mean that consumers would only pay more than they currently do if they chose dirtier fuels, less if they chose cleaner ones).

Such a carbon tax could in effect be 'revenue positive' to some extent when prices are low (because the floor price would be raising revenues ) and be 'revenue negative' when prices are high (because many consumers would be able to use it to reduce the excise taxes they pay on gasoline, home heating, diesel, etc.). The effect would be counter-cyclical, and stabilizing, in terms of moderating swings in prices and in terms of the income effects on consumers of energy price changes.

I am not a professional economist, and I know that we need to be mindful of prices in neighbouring jurisdictions, so I don't know exactly where that floor price should be. But under current conditions, I imagine that for gasoline I would like it to be in the $1.20-$1.30 range.

My understanding is that about half of existing taxes on gasoline and home heating fuels are spoken for (i.e. are currently dedicated to raod and highway infrastructure and maintenance); the rest goes into general revenue, and it is that latter portion that I am proposing be converted, at least in part, to carbon taxes.

It is unfortunate that we tend to punish well-intentioned and useful experiments in public policy, when we should simply be learning from them. Gordon Campbell and Stephane Dion may have given carbon taxes a bad name, but I am confident that in the long run, we might just get it right.


Merwan Engineer said...

Hi Mark,

I fully agree. Too bad the combined opposition couldn't have gotten on board the carbon tax as a basis for left/center coalition to implement it. Ironically, had measures been taken earlier, we would have been in a much better energy efficient position to handle high energy prices.


P.S. The current financial crisis is truly bizarre. Here is my take:

Benita said...

Hi Mark,

My personal opinion: I agree with you that we do need some kind of carbon tax, even in recessionary times. However, I’m sympathetic to the burden this may place on poorer people. The tax should be structured in a way that places a larger burden on those with greater means.

Unfortunately, acceptance of a carbon tax requires that people be more concerned about future generations then about maintaining/enhancing their own standard of consumption. As not only the response to date to the concept of a carbon tax, but also the roots of the financial crisis, clearly show, this is not the zeitgeist of our times.


Mark Crawford said...

Well put, Benita! I am glad that I have gotten a couple of economists to comments on my blog. So would a carbon tax rebate for people making less than $30,000 per year do the trick?

Benita said...

Yes, I think something like that would make sense.

Mark Crawford said...

One thing that makes me sad though is that we often punish people (like Stephane Dion and Gordon Campbell) for sticking their necks out and trying a new idea. We should be revising and refining the carbon tax idea, instead it has become something of a political dead-letter.