Globe and Mail columnist Jeffrey Simpson.The Globe and Mail
Pricing carbon is among the best tools to combat greenhouse gas emissions.
There is a good way to price carbon, and a less desirable way. Alas, most provincial governments are choosing the less desirable way.
The exception is British Columbia. It was the first and bravest province to introduce a carbon tax under the leadership of former premier Gordon Campbell and his outstanding finance minister, Carole Taylor.
Critics said a carbon tax would never fly politically. The NDP opposition cried, "Axe the tax." The government was re-elected, and the tax has remained in place, although further planned increases were halted by Premier Christy Clark.
The model for the B.C. tax was simple. Start with a per-tonne levy at a low price. Raise it gradually, because people and institutions need time to adjust behaviour. Of critical importance, take all the revenue from the tax and recycle it back into lower personal and corporate taxes. The net economic and fiscal effect: zero.
Recycling made the politics of the carbon tax somewhat easier. Each year, the auditor-general must determine if the amount from the tax equals lower taxes elsewhere. If not, the finance minister is embarrassed and suffers a pay cut. A double lock box, in other words.
In tax terms, the B.C. model moves the overall tax burden to consumption instead of income, a shift economists would hail. It also taxes a pollutant. The result has been a reduction in greenhouse gas emissions for the province and a better tax policy, a win all around.
Alberta, Quebec and Ontario are also pricing carbon. But – and this is the fatal flaw, as time will reveal – these governments want to take the money from carbon pricing and then decide how to spend it. They pledge to spend the revenue on "clean technologies," "green initiatives" and other environmental initiatives. Fundamentally, they don't trust the market to send signals to individuals and companies to adjust behaviour. The governments are going to do it for them, and at high cost.
The results of this approach are seen far beyond the environmental world. Whenever a government sets aside a pot of money for X – whatever X might be – lobbying begins immediately from all quarters to get a piece of the cash. Rent-seekers swarm government offices, pitching this or that project, spinning their virtues, offering up studies and opinion polls to persuade elected officials to spend money where the rent-seekers desire.
Politicians, being politicians, listen to these pitches with one ear on the pitch and the other on the political impact of the announcement they will make when a spending decision is reached. (If you doubt this, check the householder from your local provincial politician who, if in government, will be happily announcing this or that project. The announcements will be dressed up in the language of "green" or "clean" or "transformative." They will be designed for maximum political impact.)
Some of this spending will work in the sense of producing a worthwhile project, but others will fail, in whole or in part because, among other reasons, they have not been subjected to a market test or a business case, but rather to a political imperative. As critics have often noted, governments tend to be poor at picking winners but quite good at selecting losers.
To personalize this observation, perhaps unfairly: Would anyone in Ontario really trust Environment Minister Glen Murray or his boss, Premier Kathleen Wynne, to spend wisely $1.3-billion (the minimum anticipated from carbon pricing) on clean-tech projects about which neither is an expert? The same question could be asked for Alberta Premier Rachel Notley. These individuals have many talents, to be sure, but deciding where to spend money on clean technology is not among them. That Ontario is going to throw subsidies at consumers of electric cars illustrates the point.
The beauty of the B.C.-style carbon tax, unlike the models being chosen elsewhere, is that as the price rises for certain products and services that emit carbon (with the money being recycled into the pockets of individuals and companies), other energy sources and incentives, such as conservation, increasingly look attractive.
Individuals and businesses, knowing what is happening, will make the most cost-effective decisions that suit their interests. The B.C. model trusts the people and the market; the Ontario, Alberta and Quebec models mainly trust government.
You don't have to be an ideologue to understand which model will work best.