Globe and Mail columnist Jeffrey Simpson.The Globe and Mail
Finally, after years of delay, Canada seems ready to place a price on carbon that contributes to global warming.
Holdouts remain, as in Saskatchewan Premier Brad Wall. There are still pockets of resistance on the right in the media and politically, although Ontario Progressive Conservative Leader Patrick Brown recently endorsed a carbon tax.
The issues surrounding pricing carbon are complex and no national consensus yet exists about how to do it. The Trudeau government campaigned on placing a price on carbon, but did not say how, and it remains unclear how it will fulfill that promise.
Nonetheless, some provinces have moved or are moving forward, and in their actions can be discerned two ways of proceeding.
The first might be described as pricing through the market, whereby higher prices for carbon influence the decisions made by businesses and individuals. Government imposes a carbon tax, then lets the market do the rest as society adjusts in a thousand ways to the higher prices.
The money raised from the carbon tax is recycled back into the economy through lower business and income taxes. This is the model in British Columbia, the first jurisdiction in North America to price carbon.
The second approach involves governments taking the money from the carbon price and spending it on specific programs to reduce emissions. Alberta's NDP government and the Liberal governments in Ontario and Quebec favour this approach. The money will come from a cap-and-trade system, whereby a price is set on carbon emissions and companies adjust through their own actions and/or trading emission credits.
In this approach, government doesn't recycle the money; it keeps and spends it to encourage or subsidize activities that will reduce emissions. Fundamentally, governments that adopt this approach think they can do a better job than the market in driving change.
They prefer a cap-and-trade system among companies, rather than a carbon tax, because the carbon price is hidden, as opposed to being evident at the pump. Of course, consumers will eventually pay as companies pass along the costs of the cap-and-trade system, but consumers won't find it easy to trace the price increase, which suits politicians.
In the emerging outlines of what the "spend the money" provinces have in mind, the shape of future troubles can be seen. For example, governments of all stripes, when given a large source of new revenue, will inevitably allow partisan considerations to influence how it's spent. Ministers will listen to entreaties from their caucus, each member of which will want money spent locally. They will also want to spread the spending around geographically.
Government-as-spender will, by definition, subsidize activities of all kinds that it believes are in the public interest. What that will mean, in part, is that people will be subsidized for doing what they are already doing, or would do if a carbon price drove up prices.
A few examples. Consider the Harper government's tax credit (subsidy) for people buying public-transit passes, ostensibly to encourage them to leave their cars at home. Instead, a finance department study found that more than 90 per cent of those who got the credit were already using public transit.
Biofuels: Their subsidization was justified as a climate-change policy, but the subsidy was also an agricultural support program for corn farmers. The substitution of corn-based ethanol for gasoline, when calculated on a life-cycle basis (from growing the corn to producing the end product), is a very expensive climate-change measure.
Subsidizing electric cars, something that Ontario has done in the past and seems determined to do again: Rather than letting consumers shift to electric because of a carbon price that makes gasoline more costly, governments want to subsidize the purchase of cars that are among the most expensive on the market. Consumers who receive the subsidy will be disproportionately the better off. Perverse social policy meets ineffective climate policy.
Subsidies will be sprayed across a range of companies. Seeing pots of new money, companies will lobby like mad for a piece of the action. The money will be successful in some cases and go down the drain in others. If you trust governments to pick winners with your money, you will like this approach.
The government-as-spender approach is social engineering – the pursuit of a cause with your money, assuming government knows best how to spend it to achieve lower emissions.
A carbon tax, rising over time with its revenue recycled, is clearer, more transparent, less politically manipulated and more effective.