Carbon Pricing and Environmental Federalism

This weekend I attended the Carbon Pricing and Environmental Federalism conference in Kingston, Ontario. This meeting, organized by Queen's University's Institute of Intergovernmental Relations, brought together many of Canada's experts in the field of public policy on climate change.

Needless to say, Stephane Dion, the Green Shift and the recent election were not far from everybody's thoughts. The mood was a bit somber in this respect as exemplified by Prof. Kathryn Harrison of UBC, a political scientist, who said that with last week's vote, optimistically, action in Canada on climate change will be pushed back by at least ten years. Various people had unkind words for the NDP and the Conservatives for campaigning against the Green Shift with misinformation and scare tactics. More than one person told me that the best use of my time now, as an activist, would be to talk to kids, with the sad implication that changing the minds of older generations, as a whole, was a lost cause (although as a younger person and somewhat of a kid-at-heart, I am not willing to give up so quickly).

Economist Nancy Olewiler (an organizer of the letter signed by 250 economists during the election campaign supporting a carbon tax) of SFU, however, amid her own observations of the difficulties that the fight against climate change faces, did say that we should celebrate one thing: that the recent federal election in Canada was the first Canadian election where pricing policy (as opposed to voluntary initiative or incentives) for carbon emissions was a major issue.

Climate change will be challenging us for a long long time. How to reduce greenhouse gas emissions will be a political issue for a long long time. As long as we have a market economy, the price of emissions, however it is generated, will also be a political issue. And so I think that Canadians will be talking about Stephane Dion and the Green Shift for many years to come.

Stephane Dion put a clear policy forward for carbon pricing as a first step to combat climate change. It was supported by environmentalists and economists. It was roughly in line with the Green Party's proposal, and it was based an old idea going back in the political arena at least as far as a policy proposal by a US Republican party presidential candidate in 1979, John Anderson, and implemented in one form or another in many countries since then.

In my opinion we are indebted to Stephane Dion for bringing some intellectual honesty to Canadian politics. Perhaps his mistake was to be so honest as to call a tax a tax. One of the conclusions of this conference was that, politically, Canadians are not ready for that. Conference participants concluded that we should never again associate carbon emissions pricing with the word "tax", and simply disguise it with names such as, "cap and trade", "public benefit funds", "renewable portfolio standard", or "foreign oil security fee".

I believe that history will show that Mr. Dion should be accorded more respect than he has been receiving from certain (close) quarters in the last week. We need more people like him in Canadian politics.

Why a mandatory cap and trade system would take time

Jack Layton claimed recently that his cap and trade proposal for limiting greenhouse gas emissions would not take a long time to set up. This claim is important to rebut because the reason Stephane Dion decided to change his mind and to go with both a carbon tax and cap and trade, is because a mandatory cap and trade system would take a long time (a few years) and lots of resources to set up.

First, let's show Mr. Layton's quote from the Globe and Mail:
“The forcing of big polluters to pay, taking that money and investing it in solutions which is the cap-and-trade system, has already happened. It's already going on in Canada on a voluntary basis.”

The crucial point is the difference between a voluntary cap-and-trade system and a mandatory one. In a mandatory system, here are some of the headaches you are going to have to deal with, and find answers that everybody across the country can agree to:

1. Who is in and who is out? Where are you going to set the boundary between large emitters and small emitters? Everybody is going to try to be exempted, either partially or wholly (lots of people/institutions will feel it's unfair to them). What's your plan to 'consult with the public'? Are you going to include non CO2 greenhouse gases? What are the standards you are going to apply to offset projects?
2. What new regulatory and operational body are you going to construct to oversee the mandatory emissions market?
   
3. How is the auction going to be conducted? How many emissions credits are you going to auction? If you try to limit the supply of credits and push down the total cap on emissions, the price for credits might go up. Is there no limit on the price for emissions credits? If there is a limit or safety valve, what is it? (notice that in this case the cap-and-trade system becomes a hybrid cap-and-trade/tax system without the hard limit on absolute emissions that Mr. Layton wants.)
   
4. What do you do about early action? How, exactly, do you reward, or at least not penalize those who have already taken action to reduce emissions? How do you set baseline levels for offset projects in a way that people will agree is fair?
   
5. Are you going to harmonize with the various US markets and/or the European emissions market? Are you going to allow CDM or JI projects to sell offsets? How long will negotiations with them take?

Mr. Layton is picking a fight between a cap-and-trade proposal and a carbon tax proposal that is not going to help Canada deal with climate change. Splitting the non-Conservative Party vote is bad enough, let's not have an unproductive fight about climate change policy that will distract Canadian voters from the critical point that a Conservative Party government will not do anything substantial to fight climate change.

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.

Green/Carbon tax shifts or Cap and Trade systems are not Tyrannical!

Neil Reynolds wrote in today's Globe and Mail Report on Business (superheading "environment") about the costs of greenhouse gas mitigation ("Obama's Climate Change Solution: Tyranny"). Basically he was presenting and spinning some work put out by the George C. Marshall Institute which he claims is a "science policy think tank". Reynolds is where most of the "climate change deniers" have retreated to right now: saying that it's going to be too expensive to do much about greenhouse gas emissions. Only he's putting a new little twist, saying that it's going to be too costly in terms of freedom and democracy for governments to do anything but let technology and the market try to solve the problem.

Whoa!!

1) The well-known climate-change denier and tobacco and oil industry lobbyist, Frederick Seitz, helped found the George C. Marshall Institute. The Marshall Institute's work was, apparently, even too much for Exxon, who cut their funding last month, and explained that "In 2008 we will discontinue contributions to several public policy research groups whose position on climate change could divert attention from the important discussion on how the world will secure the energy required for economic growth in an environmentally responsible manner."

2) Reynold's doesn't seem to understand that technology plus a market economy that had a crucial price - the price of pollution (zero) - wrong, got us to our present dire situation. Two ways to try to solve the problem are the carbon tax, which puts a proper price on pollution and lets the market take over, and a cap and trade system, which is also a market solution to a pollution problem. These are the farthest you could get from tyrannical solutions to the greenhouse gas problem.

Tyranny, in my view, is leaving the price of pollution at zero. The subjects of our tyranny are those that will live, could have lived, or could have lived more productively in the future.

NDP's cap and trade plan: details?

I tried to find out details about the NDP's cap and trade plan from www.ndp.ca today, but all that site did was refer to Bill C-377. I read though Bill C-377 and all it seems to require is setting emissions targets, including long, medium and short term (5 year) targets (good in my opinion), and gives the government the authority to regulate emissions. But that's all. What about the details? Am I missing a document that somebody can point me to?

www.ndp.ca says that the "projected" price for credits when they are auctioned off will be more than $35/tonne. I'd be interested in how they get that figure. How certain can you be of it? If you are planning to spend the auction proceeds on new government 'green' programs, what's your budget?

Will the different provinces be upset and want to interfere (a very big political headache) because the auction process will be sending hundreds of millions of dollars from Alberta (where almost all electricity is generated from coal and other fossil fuels plus they have the oil sands projects) to, say, Quebec (where almost all electricity is generated from Hydro)?