A detailed (and appreciated) comment from ydzabelishensky on my post, When faced with efficiency, Go BIGGER?, prompted me to write a new post in response, rather than just a comment as I needed to get a bit long winded.
First off, I agree with the assessment that the Cap & Trade system is proven to work in the example of Acid Rain. This is an excellent real world example for people of how such a system can work and the rapidity of it working when the world’s nations come together on such an agreement.
As for a working example of a successful Carbon Tax, it’ll be hard to come up with as it has been proposed by many jurisdictions and then not followed through. A Europe wide Carbon Tax was proposed in the 90′s and then abandoned. As far as I can tell, New Zealand was the first country to follow through in 2005 and I can’t say how well it’s working as far as climate change goes. I’ll have to inquire to Steve at the VoteforMMP campaign as he is from New Zealand. I’m not sure about other countries following suit as yet.
Most of Europe have Energy Taxes, but these are applied closer to the consumer than the producer. As a result, their cost of gasoline is 2.5 times ours and voila, they drive less, have better transit systems, and have generally a lower energy per capita usage. And when they do drive there is a huge market of fuel efficient cars (some offered, incidentally, by the same Ford and GM who say they can’t do it here.)
Having no precedent is no reason to avoid moving in this direction, but I will agree that a thorough analysis be conducted (which is what the Green Party is doing prior to releasing our new platform this fall.) And there are plenty of people, including economists working and large banks, who are on record as saying that a Carbon Tax would be the most efficient method of addressing Climate Change. Heck, even Stephen Harper’s government had a report that indicated that a $50 per tonne Carbon Tax would not hurt the economy.
To your point about the governments vanishing revenue base, I’d have to say, “Thank you for acknowledging that the proposed Carbon Tax would work!”
I’ve had this discussion many times in the past. As I’ve described the Green Party’s Tax Shifting philosophy, tax the things we want to decrease, remove the tax from things we want to encourage (and yes, it is more of a philosophy than just one specific policy), my audience invariably reaches this conclusion of diminishing government revenue and they think, “Aha! Gotcha!”.
Um, yeah. That means it’s working. And what will be wrong with THEN shifting the tax burden to the next thing that society wants to discourage?
Generally, if we stop subsidizing energy and start taxing pollution, we should have less of it and the overall tax burden for things like say, health care, should decrease over time, requiring less tax to be collected.
The point is that governments will always find a way to raise taxes to pay for social programs or cut social programs to avoid raising taxes, but this has NOTHING to do with how those taxes are sourced. That’s why we say our Tax Shift is revenue neutral. Because it is about sourcing, and has NOTHING to do with higher or lower total tax revenues.
Currently our governments tax things we say we want to encourage, like jobs through payroll and income taxes, or like investment through taxes on profits and capital gains. And then, on the premise of increasing jobs and investment, we subsidize industries which are doing things we say we want to discourage, like the CO2 releasing tar sands or car plants building SUV’s.
In effect, we are sending the opposite economic signal from what we want to happen!
Is a Carbon Tax regressive, inequitably costing the poorer members of our society? Perhaps, though an argument could be made that more affluent people consume more and would be more affected by the tax. This is true to a point, though more affluent people can better afford the increase, and there is a certain basic minimum of consumption below which it’s going to hurt the poor.
But we already have this problem now! Just ask the 1.2 million children and their families who still live in poverty in this country. These are people who are in dire need of assistance to break the cycle and our governments have not helped them as it is. So even if, as you say, the problem will be slightly increased by implementing a Carbon Tax, it was a problem that was already there and being ignored! Our government’s history of ignoring the poverty stricken in this country is a travesty and a completely different discussion and yes, we ought to be ashamed.
So, are there things to be worked out as a Carbon Tax is implemented? Of course. But a Cap & Trade system is also not without it’s flaws. I would argue that it is decidedly NOT simple.
Some businesses (and governments) have argued against the Cap & Trade as it penalizes the early movers, is extremely difficult to negotiate, and is prone to political lobbying as certain industries argue that theirs should have higher caps or not decrease as quickly. All very true criticisms and some of that lobbying may be legitimate concerns. A Carbon Tax addresses these concerns as the early movers are rewarded immediately, and the tax is spread across the board.
So does the Cap & Trade system work? Well, it did for Acid Rain. But for Climate Change, the jury is still out.
And if it works, why go the route of Carbon Taxes? Because CO2 is something we want to decrease, and Tax Shifting just makes sense.
I still advocate using both of these economic tools, along with as many more as we can figure, to address Climate Change as quickly as possible.
Everyone can read ydzabelishensky’s blog over at climatechangecdn.blogspot.com
show hide 5 comments
If revenue does decrease because a carbon tax did it’s job it would be fair to assume we would have less cars and more transit than we do now. Less cars and more transit means less demand for new roads, existing roads would last longer due to less wear. If you take it to the point that efficient rail would return, trucks which do a disproportionate amount of road damage would also decline.
So While a carbon tax may eventually lower tax revenue(it will take a while because the tax will rise over a number of years, and it would take a full 10-15 year business cycle to flush older cars, appliances and technolgy out of the market). but when the revenue did begin to drop it should be accompanied by less demand for new roads and longer maintainence cycles for existing roads lowering costs.
I’m sure the numbers won’t match but should mitigate a portion of the revenue shortfall.
Oil and gas are also going to increase in cost indefinately and considering gasoline taxes are a percentage of the pump price this revenue stream will continue to grow for some time before efficiencies in vehicles begin to decrease demand faster than the cost goes up.
All this said the Gov will always find new ways to raise revenue if it needs to but for the time being if it pays to save people and the market will learn to save.
Glenn, thanks for your detailed and thoughtful reply (and for linking to the blog that I co-author!). While I agree that actually implementing cap-and-trade — and policing it — might not be easy (the Acid Rain system was not easy to set up, either), a Carbon Tax is often presented as a simpler alternative. I’ve been trying to show that it would not be simple at all. Five quick points:
I never suggested it would be easy. Merely that it would be effective. –Glenn
1. Poverty in our wealthy society is not “a completely different discussion”. It is an argument _against_ adding even more regressive taxes — and _for_ having a more progressive tax system. Guaranteed Annual Income (reverse income tax for the poor) may be the surest solution. But would you be able to find and reach the poorest people, who live in a hand-to-mouth cash economy and file no tax returns? How would you compensate them for a Carbon Tax?
Touche. Poverty should not be a completely different discussion from any of our policy discussions. But I still contend that we have all these problems now with people falling through the cracks now, unable to find and help them, etc. and that the true meaning of regressive is to have tax policy acting in the opposite direction of where we want society to move. –Glenn
2. You still haven’t said what, exactly, you would tax to replace the revenue from a Carbon Tax if it works and eliminates its own subject matter. What bad things are not subject to a “sin tax” yet? Junk food? Violent media products? Supermarket tabloids?
Would any of it be enough to replace Carbon Tax revenue? How long before these taxes self-eliminate, in turn? Eventually, you will run out of bad things to tax — unless you keep some of the more lucrative bad things around for the revenue.
No, I have not. It is intentional only in the same way that the Liberal Party is intentionally not telling you what their policy will be in 10 years time. They don’t know yet! And I think it’s unreasonable to ask any party to do so. A Carbon Tax makes sense to address climate change quickly and effectively today. The statement that taxes would shift to other things we want to discourage in society is a Green Party philosophy, not a specific policy or platform. It is meant as a guide to indicate the direction of future policy.
Will we eventually run out of bad things to tax? Really? What an excellent society that will be to live in! But seriously, as much as I’ve been a fan of science fiction over the years, I can’t envision such a society. We will always have a list of things that society would prefer to discourage that should carry a tax burden. And consider the fact that reducing CO2, smog, waste, pesticides, herbicides, industrial chemicals, energy, etc. will all serve to make society healthier and more able to weather economic cycles, thus lowering the overall tax burden. –Glenn
3. In fact, what incentive would a Government have to set a Carbon Tax high enough to really work, i.e. to phase out Carbon emissions? Governments can be “hooked” on sin tax revenues: look at gambling revenues in Ontario now, for example. No amount of public criticism can dislodge this “cash cow”. In the end, Carbon Tax levels might be set based on revenue needs, not climate change targets.
Hmmm, this is a pretty cynical view, though well deserved I must admit. But I think it’s fair to say that the larger problem is that our governments are hooked on tax revenue, not just those from “sin” taxes. if we find a way to address the larger problem, perhaps the lesser problem goes away or is minimized. Food for thought. –Glenn
4. On the other hand, assume that you do tax all the bad things away, after all. But would people who got used to consumption taxes be willing to go back to paying higher income taxes? The “tax on jobs” rhetoric is all too familiar: this is how business interests often portray progressive income taxes in general. Having legitimized this rhetoric, would you ever be able to raise income taxes again? –Or would we get another “no income tax hikes, we want tax cuts” movement that would wipe out more public services?
Again, government will always find a way to balance tax revenue with services, whether it means raising taxes or cutting services. And I feel confident that the debate over the appropriate method will continue long after I have shuffled off. –Glenn
5. If (and that’s a big “if” – see above) all the significant “sins” are taxed away, there will be no such thing as a “the best” tax system. Aside from a lump-sum “poll tax” where everyone pays equally, regardless of income or other factors (politically unacceptable due to severe regressive effects), any other taxes will discourage something good. Economists call the inevitable result “second best optimum” taxation – for a fairly readable summary, see e.g. “A brief introduction to tax distortions and optimum tax theory – Lecture notes 220806 Vidar Christiansen” [MS-Word Document] ( http://www.uio.no/studier/emner/sv/oekonomi/ECON4620/h06/undervisningsmateriale/Lecture_notes_220806.doc ). Since we cannot avoid taxing something “good”, other factors like equity and income (re-)distribution will always remain important.
So this is reason to maintain the status quo? I guess what I’m looking for is for people to grasp the pilosophy of shifting the tax burden from things we want to encourage to things we want to discourage. I have never portrayed it as perfect, as I think that there’d be about 33 million opinions in Canada about what constitutes perfect. But I think it’s a better philosophy than the opposite.
And besides this philosophical discussion, we still have a need to address CO2, and to do so quickly. and many leading economists see a Carbon Tax as a best ingredient to achieving that goal. What bothers me about cap & trade is that it sends the message, “polluting this much is OK, but any more and you’ll have to pay.” No, any pollution above zero is still pollution. It carries a cost to society which is currently treated as an externality, and should carry a tax burden to account for that. –Glenn
I appreciate the opportunity to raise these issues on your blog. I will read any replies with care. Then, I’ll need to go away, think, and write an entry summarizing my views on the blog that I co-author at http://climatechangecdn.blogspot.com (really, this time
I’ll link to your blog, of course.
In any event, all the best, and please keep up the good work.
Quite frankly I’m surprised that as a Professional Engineer you would join a party that advocates meeting the Kyoto 2012 deadline knowing full well it is not possible without some major punitive action against industry. All the reports I have read indicate that the Oil Sands would not be carbon neutral until 2020 – 8 years after 2012. Biofuels have been proven to damage the environment even more than fossil fuels and a carbon tax will definitely hurt the poor more than the rich. Britain implemented a similar measure back in 95 and saw 25% of it’s manufacturing base disappear. They also coined a new term for poverty caused by the tax – fuel poverty. So far I’m not impressed. Why do the poor always have to be the guinea pigs for new taxes until the kinks are worked out?
PS I’m also opposed to cap and trade. If you are putting a price on carbon via a carbon tax then a cap and trade system becomes irrelevant. Why would you have industries weasel out of paying a carbon tax by buying lower priced carbon credits? It doesn’t make sense. Emission markets are bureaucratic and political – from the negotiation targets to the lobbying/awarding of permits. Countries that take on ambitious targets and fail pay countries with more modest targets even though their overall emission reductions may be greater. It’s silly. Also, there is no proof that cap and trade actually was responsible for the reducing acid rain. The majority of the reductions
came as a result of REGULATION over a nine year period.
[...] received a couple of comments from reader KPK which call into question my ethics as a Professional Engineer vs my affiliation to the Green Party, [...]