Ugh! Here come negative carbon taxes - gas subsidies from the automakers

I see that automobile companies are giving out gas cards worth roughly $1000 (got a flyer from Chrysler Canada in my mailbox recently saying they were giving out cards with $750 to $1,500 in gas depending on the model you buy) in an attempt to sell their big cars. Let's do an order of magnitude calculation and see what level of subsidy that amounts to. Let's assume that this vehicle gets 10 litres/100 km and is driven for 200,000 km over its lifetime. Then, over its life, it would use 20,000 litres of fuel. A gas card worth $1000 means a subsidy of 5 cents per litre of fuel over the life of the vehicle, order of magnitude.
Hmmm... the car companies, who are the best people in the world at selling cars, think that 5 cents per litre, equivalent to a negative carbon tax of about $20/tonne, will allow them to sell their gas guzzlers, that otherwise would rust on their lots. So, couldn't a positive carbon tax of that amount (roughly what's happening in BC) do an equivalent amount of good by causing people to buy fuel-efficient vehicles?

Okay, that was a pretty simplistic and rather rhetorical statement, but the point I want to make is that consumers do respond to price signals, and businesses even more so. It is quite incorrect to claim, as some do, that a carbon tax won't do anything to reduce greenhouse gas emissions.

How old is the green tax shift idea?

I just noticed this entry on the Carbon Tax Center website:

In August 1979, Rep. John Anderson (IL) called for a 50-cent-per gallon energy conservation tax on motor vehicle fuels to reduce consumption and dependence on foreign oil. He proposed using the revenues from the tax to reduce payroll taxes by 50 percent, increase Social Security benefits, compensate those who were not on a payroll and thus not subject to the payroll tax, exempt farmers and allow tax credits for businesses "unfairly penalized."

Older folks (like me) might remember John Anderson as the Republican congressman from Illinois who was an independent candidate for U.S. president in the 1980 election. What a gutsy guy! Gasoline was about $1 a gallon back then so he was calling for a 50% increase in the price of gasoline.

The Green Tax Shift idea has been around for a while.

Canada's greenhouse gas emissions do matter to the world

A paper in Nature that has attracted some attention this week reminds me that I've been meaning to write about why it is important for Canada to reduce its greenhouse gas emissions, even though they represent only a few percent of the total world emissions. You sometimes hear critics of devoting resources to fight climate change say that reducing our emissions is not going to make any difference. However, "doing our part" to reduce emissions isn't like voting, obeying the speed limit, or playing a team sport. These examples are missing a crucial dynamic, that of competition and of a limited, public resource.

The problem of climate change caused by human emissions of greenhouse gases is an example of a tragedy of the commons. The image this term is meant to evoke is that of pastoral villagers, each with cows that graze on a shared grassy commons. What one villager's cows eat is lost to the others so every villager is tempted to use up the commons as quickly as possible. As for climate change, we all pay when someone uses the atmosphere (the commons) as a 'free' dumping ground. When a single person pays to reduce emissions, everybody else benefits. Sensible individuals might conclude that the best thing to do is to take advantage of the free dumping ground (burn fossil fuels) as much as possible. But if everybody were to think that way, everybody would lose in the end.

The way out of such a tragedy is cooperation. In the case of greenhouse gases, this might take the form of an agreement between all parties to limit emissions, or to pay for emissions. It is very important in this dynamic that everybody is seen by others to be cooperating. Nobody should be seen as 'getting ahead' by cheating because then everybody else would be encouraged to do the same and cooperation would break down.

This point is the key to why Canada must reduce its greenhouse gas emissions. Canada has one of the highest per capita emissions of greenhouse gases in the world. Cooperation can't happen when a few people are taking advantage of the commons a lot more than others. Cooperation is fostered by people providing moral leadership. In this respect the small, the weak, or the small-in-number have always, historically, had opportunities to lead.

Canadian examples of why, with high oil prices, we still need a carbon tax

A letter to the editor by one Bruce McCallum from Hunt River, PEI, in the Globe and Mail today contains two good examples of how higher oil and gas prices can cause increased emissions and pollution by shifting use to cheaper, dirtier fuels. He writes,

"the district heating plant in Charlottetown recently switched from relatively clean, but increasingly costly light oil, used for peak heating in the winter, to much dirtier, higher-carbon bunker oil, costing roughly half as much."

"Greenhouse owners from across Canada frequently contact me ... frequently mention that they are also considering switching to coal. Coal is cheap and plentiful, but it is the dirtiest, highest-carbon fuel available."

There is no federal tax on the burning of coal presently. It's enjoying a free ride at the expense of cleaner sources of energy.

Mr. McCallum's conclusion is also worth quoting, "Without carbon taxes to level the energy playing field and steer people toward green energy alternatives and efficiency, Canada's GHG emissions will to continue to rise."

PriceWaterhouse Coopers says... $40/tonne

In today's The Guardian is an article about an updated report from PriceWaterhouse Coopers that quotes John Hawksworth, PWC's head of macroeconomics, as saying that, "the carbon price that would be needed to be set to encourage the switch away from carbon towards cleaner energy sources was around $40 (£20) a tonne, close to where it is now. 'It does not need to go much higher than it is now [in Europe] to achieve the sort of carbon reductions we are talking about.'" PWC was looking at cutting long term emissions in developed countries by about 80%.

That $40 a tonne is the Green Shift's target price on carbon by the fourth year. Now these numbers are uncertain and will probably change, but the basic point I want to make is that when people say that Stephane Dion can't tell them what amount of greenhouse gas emissions reductions will result from the Green Shift, the answer perhaps should be, "If we [kick the C's out and] start now, the Green Shift may accomplish just the emissions reductions we need."

Thanks to Neil Reynolds for supporting a carbon tax

Neil Reynolds of the Globe and Mail has written another column (Pointless to Rush Carbon Emissions Plan, July 2, 2008) against doing something about climate change. He has tried to use a paper by William Nordhaus to argue against the Green Shift plan. What Reynolds has, strangely, not appreciated is that Nordhaus is in favour of a carbon tax! Nordhaus uses an economic model to try to guess the optimal carbon tax given certain assumptions about economic growth and greenhouse gas goals. Here is a quote from his paper (from the Major Results and Conclusions section):

"...the 2010 carbon prices associated with CO2 doubling and 2½ ° C cases are $40 and $42 per ton carbon"

What he is saying is that his computer model gives the result that if, by 2100 with certain assumptions, you want to limit the increase in CO2 concentration to a doubling, or the rise in temperature to 2½ ° C, not very ambitious goals according to scientists, the optimal carbon tax now should be about $40/tonne. That's coincidentally what the Green Shift proposes.

Mr. Reynolds, do you support the Green Shift's carbon tax now?