CANADA’S CARBON TAX: SUICIDE? GOOD SENSE? A DREAM?

In his effort to unseat Canada’s Conservative Party Prime Minister Stephan Harper, Liberal Party leader Stephane Dion has proposed Canada take the bold step of instituting a carbon tax to meet its global climate change responsibilities. According to voices from around the political left, right and center, the idea is either “suicidal” or “good sense” or a “dream.”

Compared to a cap-and-trade system, the only other substantial idea around which nations can organize to cut greenhouse gas (GhG) emissions and turn global climate change around, a carbon tax seems simple and straightforward. Economists who do not make political considerations favor it.

As Canada’s electioneering demonstrates, the question has a political dimension. James Travers, Toronto Star: “First there's the inconvenient truth that a tax is always more difficult to defend than attack.”

But maybe Travers is wrong and that’s not the FIRST thing. Editorial, Montreal Gazette: “First of all, introducing this policy means that Canadians, or at least the chattering classes, are talking about a Liberal policy idea, not about the leader's problems...”

Unsurprisingly, Dion is not a perfect human being and has flaws that his opponents have exploited to the detriment of the political debate. The Gazette very much likes Dion’s policy idea of “a revenue-neutral carbon tax” and calls it “the best thing he has done in months.”

But remember what the Toronto Star said about the tax being easy to attack? Lorrie Goldstein, London (Ontario) Free Press: “When politicians talk about a "revenue neutral" tax, they don't mean its impact on individual taxpayers will be "revenue neutral" for them. They don't mean no new bureaucracy will be created to administer it. They don't mean it's guaranteed not to have a negative economic impact…all a promise of "revenue neutral" means [is] easily manipulated bookkeeping.”

Even Travers, who essentially likes the idea of what he calls a politically suicidal carbon tax, admits the attack has substance: "Inevitable and necessary as carbon taxes are, in the here and now of daily life they are manifestly unfair. Even if willing, not everyone is able to shift behaviour fast enough to escape save-the-planet penalties…inequities lead to one thing: government intervention…”

Government intervention is even less popular in Canada than in the U.S.

Montreal, ever contrary, thinks a case might be made for the tax, despite the difficulty: “The governing Conservatives can hardly believe their luck, it seems: Right at the start of summer driving season, and with gasoline prices at record highs, Dion is proposing a carbon tax. There won't be a Liberal voter left anywhere, they seem to reckon…We're not so sure.”

Montreal believes in the power of an idea, the good sense of the voters: “…here's an environmental policy which makes sense. If he sticks with this concept, and if he gets the details right, Dion has a chance here to challenge Canadians to live up to their best image of themselves…”

But even as Montreal praises Dion, it recognizes the risk: “…Dion is betting his leadership on this issue…But he has already succeeded, by going even this far with the notion, in setting the Liberal Party on the road to standing for something positive…”

Positive, yes. Doable? They are, at best, hopeful.

There is little hopeful expectation in the Free Press attack: “Whether a carbon tax is "revenue neutral" for individual taxpayers will depend on whether they are given realistic ways by government to lower carbon emissions, as well as the degree to which they are willing to tolerate government attempts to socially engineer their lifestyles…”

The truth is that both a tax and a cap-and-trade system have complexities and government interventions. Both could impose higher costs, especially on those least able to bear them. And both offer remedies to their shortcomings.

Cap-and-trade worked in the fight against acid rain. It has had middling success in the EU but the process is still unfolding.

Taxes are heavy-handed, often effective and revenues are often misspent.

Will the U.S. ever consider a carbon tax? If so, it will likely come from the Democratic side of the aisle. The Bush administration’s slow response to climate change is the same kind of opening the conservative Harper government gave Dion and his Liberal party. Travers: “Stephen Harper and friends would be more credible if they took global warming more seriously. Serial Conservative stabs at green policy fall well short of the heart of the matter…”

Sound familiar?

But Travers quickly adds a caveat: “…even if the ruling party is on the wrong side of history it's on the safe side of politics.”

So far, the only mainstream Democrat to move from the safe side of politics and talk about a carbon tax was Senator Chris Dodd (D-Conn), one of the first presidential hopefuls to fall out of the race.

Senator McCain is the kind of maverick who might see the wisdom in a carbon tax if his economic insight was adequately astute. But he could never touch a new tax in this campaign with this Republican Party. He has firmly identified his candidacy with the cap-and-trade idea.

Both Democratic leaders hace endorsed cap-and-trade. Senator Obama, with that extraordinary ability to say true things and get away with it, might be able to bring up the carbon tax but remains focused on cap-and-trade.

The carbon tax is perhaps a good idea whose time has not come and may never.

A proposal from the Carbon Tax center for the U.S. (click to enlarge)

The suicidal allure of a carbon tax
James Travers, May 17, 2008 (Toronto Star)
and
Dion’s carbon-tax proposal shows courage, good sense
May 19, 2008 (Montreal Gazette)
and
Revenue neutral? Dream on
Lorrie Goldstein, May 19, 2008 (London Free Press)

WHO
Stephen Harper, Canadian Prime Minister, Conservative Party; Stéphane Dion, leader/candidate for Canadian Prime Minister, Liberal Party

click to enlarge

WHAT
Dion has proposed Canada institute a “carbon tax” as a means of cutting the nations GhG emissions and acting against global climate change. Harper rejects the idea.

WHEN
A Canadian election has not been called but with the economic downturn Prime Minister Harper’s unpopularity is growing and the Liberals want an election in Spring 2009. Harper’s government is aiming for Fall 2009.

Canada must act to cut its emissions. (click to enlarge)

WHERE
The election will be national.

WHY
- Canada has a particular concern with GhGs because a big part of its national economy is based in the GhG-intensive development of the oil sands in Alberta and the western Provinces.
- Canada is committed to meeting Kyoto-style emissions reductions but its national GhG production continues to increase.
- For more on the carbon tax: Carbon Tax Center
- For more on making a cap-and-trade system work: MAKING CAP-AND-TRADE FAIR
- For a different kind of cap-and-trade: cap and share

cap-and-share: A more equitable kind of cap-and-trade? (click to enlarge)

QUOTES
- Travers: "Perhaps the overwhelming scientific consensus has done for the environment what experts couldn't do for early childhood education. Perhaps the public is now far enough ahead of politicians on the broad climate change issue to let Dion lead from behind. But there's no doubt that a specific carbon tax is a political accident waiting to happen."
- Travers: "Whatever his motives, [Dion] deserves full marks for identifying the threat and challenging the conventional wisdom that it's suicidal to engage voters in a serious campaign debate."
- Goldstein: "The two most dangerous words in the English language when a politician wants to impose a new tax is his promise it will be 'revenue neutral.'"