The problem with debating carbon taxes, observes Nicholas Rivers, Canada Research Chair in Climate and Energy Policy at University of Ottawa, is that “on this issue, people are tribal.”
Either you embrace the approach Prime Minister Justin Trudeau unveiled last week – taxing carbon in provinces that do not have such a tax, and rebating the money to consumers – or you think the Liberal announcement is just a tax grab.
“When I look at the carbon-tax debate, I don’t see a lot of well-reasoned, well-thought-out discussion by either side,” observes Trevor Tombe, an economist at the University of Calgary.
And yet, in the next election, most voters will side either with the Liberals to keep the tax or with the Conservatives to scrap it. That choice will shape the economic and political landscape for years to come.
No one in their right mind denies the planet is warming, and that human activity contributes to that warming. The scientific consensus is overwhelming.
And although no single event can be attributed to climate change, this year witnessed the worst fire season on record in British Columbia, a record-setting heat wave in Central Canada and half-a-dozen tornadoes that struck the Ottawa region in September.
Those tornadoes cost the insurance industry almost $300-million, and since government spending on remediating disasters is typically three to four times private spending, “we’re probably looking at a billion dollars for that event alone,” says Craig Stewart, a vice-president at the Insurance Bureau of Canada.
Insured losses for climate-related disasters are up from an average of $400-million annually over the three decades before 2010 to more than a billion dollars a year in this decade, and rising, he points out.
When it comes to fighting climate change, Mr. Stewart says, “we know for certain that the cost of doing nothing is higher than the cost of doing something.” But there are costs. While media focused on the apocalyptic warnings in the latest report from the Intergovernmental Panel on Climate Change – the difference between a 1.5-degree increase in temperatures and a 2-degree increase would, for example, mean the difference between a few coral reefs surviving, and virtually none at all – there was less extensive reporting on the pain that meeting a 1.5-degree target would inflict. Nothing less than a massive 45-per-cent reduction in carbon emissions from 2010 levels over the next decade is required.
“There is no historical precedent for the scale of the necessary transitions,” the report acknowledged, “in particular in a socially and economically sustainable way.”
The Liberal solution is, along with other measures, to tax carbon emissions by businesses, assume that businesses will flow the increased costs to consumers and then offer income-tax rebates to consumers.
That is great for someone living in a downtown condominium who takes public transit everywhere – for them, that rebate is found money. But it is not so great for someone who lives in a detached home on the edge of a city and commutes to work by car.
More than two-thirds of us live in suburbs, and 75 per cent of all urban growth in the past decade took place in car-commuting communities. Voters in these places decide elections.
That is why, on the issue of carbon taxes, the Conservatives smell blood. But although they are happy to campaign against Liberal carbon taxes, they are less willing to explain how they would bend the curve on emissions.
Experience suggests the Conservative solution would be to impose restrictions on emitters while avoiding direct taxes on individual consumers. This is the approach Stephen Harper’s government took, although it never grappled with the high costs of regulating the biggest emitters.
There is irony in this. Economists agree that carbon taxes are market-friendly. People and businesses make individual choices to avoid the increased costs of carbon. Regulation could force automakers, for example, to stop manufacturing SUVs, depriving people of that option.
Regulation is less efficient than taxation “for the same reason that central planning tends to do worse than a free market,” Dr. Tombe says. On this issue, conservatives are on the side of big, inefficient government, while progressives believe in letting the market decide.
Taxing carbon reduces economic growth – one 10th of 1 per cent of GDP annually in the short term, the federal government estimates. In the long run, who knows? Who knows how quickly battery technology will advance, or when autonomous vehicles will become viable or whether someone will invent a gizmo to suck CO2 out of the air?
And, to be honest, all this could be a waste of time without action from China and the United States – by far the largest polluters – to curb emissions.
But the Chinese government is acting. In the United States, there is action at the corporate and state level, at least. So Canada must act, too. Is the carbon tax the best solution? Unquestionably, if you ask an economist. Maybe not, if you ask a savvy politician.
Either way, suburban, car-commuting voters will decide.