A new year's chorus calling for a revenue neutral carbon tax

I hear a chorus. Is something up? Some sort of conspiracy or liberal-conservative-economist-environmentalist coalition?

Or just an effort to put a good idea in front of Barack Obama?

Dec. 26, New York Times lead editorial: A call for a revenue neutral gas tax
Dec. 27, New York Times Op-Ed: Republicans Bob Inglis and (economist) Arthur Laffer call for a revenue neutral carbon tax, writing, "We need to impose a tax on the thing we want less of (carbon dioxide) and reduce taxes on the things we want more of (income and jobs)."
Dec. 27th Thomas Friedman calls on Obama to implement a gas tax: A gasoline tax “is not just win-win; it’s win, win, win, win, win,” says the Johns Hopkins author and foreign policy specialist Michael Mandelbaum. “A gasoline tax would do more for American prosperity and strength than any other measure Obama could propose.”
Dec. 29, 2008: NASA's James Hansen calls on Obama to implement a revenue neutral carbon tax at Guardian.co.uk
Jan 1, 2009: Financial Times of London uses its first issue of the new year to call on Obama to implement a revenue-neutral carbon tax.
Jan 1, 2009: Whoa, so does the Boston Globe in its New Year's wishes.
Jan 5, 2009: neo-conservative journal, The Weekly Standard cover story by Charles Krauthammer calling for a revenue-neutral gas tax.

U.S. Neo-Con calls for revenue-neutral gasoline tax

I can't resist bringing attention to this article appearing next week in the neo-conservative journal, "The Weekly Standard". Columnist Charles Krauthammer calls for a "net-zero gas tax", in a rather detailed piece subtitled, "a once-in-a-generation chance". It's ironic, but utterly unsurprising to me, how neo-conservatives (albeit thinking neo-cons) are favouring a policy so close to what Stephen Harper and his supporters tried so hard to trash (Stéphane Dion's Green Shift) this past summer in Canada and during the Canadian election campaign.

When conservatives, liberals, economists, and environmentalists are all pushing for the same thing, you gotta believe there's some validity to it.

Update Dec. 29, 2008: James Hansen calls on Obama to implement a revenue neutral carbon tax at Guardian.co.uk
Update Jan 1, 2009: Financial Times of London uses its first issue of the new year to call on Obama to implement a revenue-neutral carbon tax.
Update Jan 1, 2009: Whoa, so does the Boston Globe in its New Year's wishes.
And even this from an AP story today:

Charles Whittington, chairman of the American Trucking Associations, which supports a fuel tax increase as long as the money goes to highway projects, said Congress may decide to disguise a fuel tax hike as a surcharge to combat climate change.

Transportation is responsible for about a third of all U.S. carbon emissions created by burning fossil fuels. Traffic congestion wastes an estimated 2.9 billion gallons of fuel a year. Less congestion would reduce greenhouse gases and dependence on foreign oil.

"Instead of calling it a gas tax, call it a carbon tax," Whittington said. "As long as we label it as something else we may have the momentum and acceptance to move forward."

Wow - this coming from truckers, the same people who, in Canada, opposed the Green Shift, even with some special provisions for the industry.

Lifting the ban on offshore oil drilling in the US: another reason why the high price of oil isn't a great way to reduce greenhouse gas emissions

In the news today is a report that George Bush, supported by Republican presidential candidate John McCain, is urging the US congress to the repeal the ban on new off-shore drilling for oil. John McCain previously opposed offshore drilling, but now he and others have been changing their minds and supporting some off-shore drilling.

I'm not going to debate the merits of off-shore drilling here, but it's fair to say that the ban was in place to curtail an environmentally risky way to search for oil.

What I will say is that this is a further illustration of why a high price of oil is no substitute for a carbon tax. High prices for oil mean more money paid to suppliers of oil, and more incentive to produce oil in environmentally or socially risky ways. In the US that means more incentives to drill in the environmentally sensitive Arctic National Wildlife Refuge, or off-shore. Here in Canada we are well aware of the environmental and social stresses caused by the boom in the oil-sands industry.

A carbon tax is different from a high oil price because with a tax, although the buyer pays more money, the seller receives less money. A tax would not increase the incentive to produce more and more oil and to thereby take more social and environmental risks.

Finally, a carbon tax produces revenues for our government, and not for unfriendly foreign governments. None of that tax money would go to the Taliban or to Al-Qaeda. I can't say the same for all the money that North Americans spend on crude oil.

Picking a fight between cap and trade and carbon taxes is not going to help Canada move forward

Here is my letter to the editor that was published in the Kingston Whig-Standard on June 12, 2008. It is in response to a letter that can be found here

Reponse to Letter to the Editor of the Whig-Standard, "NDP has best policy to cut greenhouse gases", June 7, 2008.

In criticizing the Liberal or Green Party's green/carbon tax shifts, Jamie Masse and the NDP are picking a fight that is not going to help move Canada and the Canadian economy forward to meet the challenges of the 21st century. A carbon tax shift (rebates and lower income taxes financed by increased taxes on pollution and greenhouse gas emissions) can co-exist with a cap and trade system (which is used for managing greenhouse gas emissions from large emitters). For example, British Columbia has a carbon tax that starts on July 1, and has also joined the Western Regional Climate Action Initiative, a group that aims to establish an international carbon trading mechanism. Quebec, which just announced its intention to work with Ontario to set up a
cap-and-trade market, brought in a carbon tax on motor fuel.

Mr. Masse and the NDP seem to imply that businesses that pay a carbon tax could pass on the cost to the consumer, whereas that could not happen if they had pay for the credits that are auctioned off in a cap and trade scheme. That's clearly false. Either way a business will have a cost and some of that cost may be passed on to their customers. The "shift" part of
the green tax shift recognizes this and cuts or rebates income tax for both businesses and individuals, particularly low income individuals.

Vilifying "big, corporate polluters" and trying to put the cost of cutting greenhouse gases entirely on them, does not help to support a culture of energy conservation and efficiency. Any solution to the problem of our dependence on fossil fuels must involve efforts by every business and every individual to use energy in a sustainable manner. The participants in cap and trade schemes are so-called "Large Final Emitters" that account for only 50% of Canada's emissions. What about the other 50% of emissions that come from small emitters? As for making the 'big bad corporate polluters' pay, I would simply note that the biggest single greenhouse gas emitter in Canada
is the Nanticoke generating station, owned by us, the good people of Ontario.

Why should a carbon tax shift be considered in addition to a cap and trade scheme, or before a cap and trade scheme? One reason is that cap and trade schemes take time to set up. The 1990 U.S. Clean Air Act authorized emissions trading to control sulphur dioxide, but trading did not commence until five years later, in 1995. In 2002 the European parliament voted to endorse a cap and trade scheme for greenhouse gases but not until 2005 was the E.U. carbon market launched. A carbon tax shift, on the other hand, can be implemented much more quickly using the existing revenue infrastructure. The clock is ticking on climate change and that is why we should start moving now, beginning with a carbon tax shift. We can also start the preparatory work needed for a cap and trade scheme that would begin operating some time in the future.

Finally, the way Mr. Masse and the NDP look at things is that we need an environmental policy that respects "the needs of a fragile economy". The truth is probably closer to our needing to restructure our economy, with the environment foremost in mind, in preparation for the challenges of the 21st century. We must "energy-proof" our economy so that can withstand volatile fossil fuel prices. We must change how we live today, in order to preserve our natural environment and create a sustainable economy for future generations. A good step would be to remove the perverse incentives that we have now (pollution for free), to put a price on pollution, waste, and greenhouse gas emissions, to rebate taxes to low income Canadians, and to reduce taxes on income, investment, and innovation. A cap and trade scheme for greenhouse gas emissions also has its place, and I'm sure the NDP would be very welcome to work together with the Liberal and Green parties in this endeavour.

How a phased-in carbon tax shift could temporarily reduce gasoline taxes

I've seen a number of blog posts and op-eds saying something like, "How could a carbon tax not increase gas prices?" Well, here is a way to phase in a carbon tax and actually reduce gas taxes temporarily.

Suppose you replaced the federal excise tax on gasoline with a carbon tax and phased it in according to the following schedule:
Year 1 $10/tonne CO2
Year 2 $20/tonne CO2
Year 3 $30/tonne CO2
Year 4 $40/tonne CO2
Year 5 $50/tonne CO2

Then the carbon tax on gasoline would be roughly
Year 1 2.5 cents/litre
Year 2 5.0 cents/litre
Year 3 7.5 cents/litre
Year 4 10 cents/litre
Year 5 12.5 cents/litre

But the federal excise tax is 10 cents per litre! So there you go: replace the excise tax with this phased-in carbon tax and you get three years of some gas tax relief for voters, repeat, voters.

From what I've read it seems that at the $10/tonne CO2 level, what the federal government would lose from motor fuel taxes would be roughly balanced by revenue from taxes on other fossil fuels. That seems like a good place to start.

You may ask, why introduce the carbon tax if you're just going to decrease gas prices and incent gasoline consumption? Well the point is that there is a lot of other fossil fuel consumption that is not taxed: coal in particular. Globally, high oil prices may be reducing demand for oil somewhat, but it's not reducing greenhouse gas emissions so much because people are being driven to burn more and more coal (not in Canada, in other countries). Coal shouldn't be getting that free ride.

An unlikely place to get an idea about elasticity of demand for motor fuel in Canada

The Canadian Taxpayers Federation website contains an online poll
that, at the moment, contains the following results:




Two thirds of respondents are either driving less or purchasing a more fuel efficient vehicle. It's no surprise that Canadians are responding to price signals which is the motivation behind introducing a tax shift in the first place.

Now if only the CTF could be convinced that using less motor fuel is a good thing, or that the tax rebate part of a carbon tax shift plan would also be a good thing...but alas who knows what they think since the same webpage shows that they are getting their information about climate change from Friends of Science, the oil industry funded organization that may be in trouble with Elections Canada over un-registered election spending during the last Federal election.

Liberals and Conservatives agree on a carbon tax...

From the Conservative Party website, George Osborne, Monday November 27, 2006 in a speech to the CBI conference in London: "We want to shift the tax burden away from income and investment and onto pollution. Pay as you burn, not pay as you earn."

From Liberal MP Garth Turner's blog, May 19, 2008: "The idea is to shift taxes, not raise them...Tax what you burn, not what you earn."

The only problem is that Mr. Osborne is Shadow Chancellor of the Exchequer and a member of the British Conservative Party.

Dear Mr. Layton: Don't wait for the debate over how to implement a carbon tax shift before planning to help the poor with spiking energy prices

Letter to the Editor of the Toronto Star

Re: Carbon Tax Would Hurt Poor, NDP Says May 23, 2008

We need to protect the poor from spikes in energy prices right now. I think that the NDP should concentrate on that issue instead of fear-mongering about the Liberal Party's carbon tax shift. The reason is that when we come up with a good plan to deal with that issue, a plan which does not contain a subsidy for fossil fuel use, we will also have produced a plan to help the poor adjust to the carbon tax. I suspect that the Liberal's carbon tax shift plan will contain just that.

We're used to tipping fees for garbage

David Suzuki made a point yesterday on CTV's Question Period that I think is worth re-iterating. All of us are already paying a tax on pollution: the tipping fee that we pay to landfills in order to dump our garbage. For the most part, that tax is built into our overall property tax bill or rent, instead of being a line item, so we just don't see it. But you can see it if you have extra waste and you have to haul it to the waste disposal site yourself. In the City of Kingston, you get your vehicle weighed when you enter and exit the site and you pay $71.23 per tonne of garbage that you leave.

It looks like the new Federal Liberal green tax shift plan may be leaving the tax on gasoline unchanged (the 10 cent federal excise tax) but instead using it as a benchmark to define an equivalent price on CO2 emissions of $42 per tonne, and to apply that benchmark on other forms of fossil fuels. It's hard to argue that a $42/tonne fee for CO2 emissions is so unreasonable compared to the tipping fee ($71.23 for Kingston, Ontario) that we already pay for our garbage.