Carbon Tax, they say, has the approval of 600 expert economists – I’ve yet to speak to one; regardless of how many say it makes sense, it makes no sense. Carbon Tax is either completely ineffective or is an inferior policy choice.
When you
look at a graph of oil consumption and you look at a graph of oil price you
discover a very interesting fact, the price has little or no effect on consumption.
If you think I am being unreasonable, go to British Petroleum’s website where
they have generously provided 100 years or more of price sensitivity analysis.
Once discretionary consumption is curtailed – the Sunday drive etc. – demand becomes
inelastic, and consumption holds steady regardless of price. So, Carbon Tax is
ineffective as a price signal. So, a revenue-neutral carbon tax is silly, unless
you think regressive taxes make sense unless you think attacking marginal
businesses like agriculture makes sense or, unless you think it makes sense for
a single mom to pay $2.50 a litre for gas to drive her kids to daycare and work
– she must, she has no choice now – leadership has failed to give her a choice.
Carbon Tax could be marginally effective if it were collected and kept by the government and earmarked for transition. The challenge of course is, we never know where the government is spending money and once they get it, it is rare that it is directed appropriately.
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It can be said then that revenue-neutral carbon tax is just stupid because it does nothing and carbon tax that stays in government hands could be useful for transition if it were directed properly, that is one big if. What Carbon Tax does do, however, is retard the economy because the increase in fuel cost acts as a serious drag on the economy. What Carbon Tax does do is ensure that every ton of carbon emitted costs a given amount, say $120 / ton, it punishes use rather than provide the incentive to reduce carbon emissions.
What Cap
and Trade does is provide an incentive to reduce carbon and most importantly,
it puts in place market mechanisms that will drive down the cost per ton of
carbon reduction. By way of example, an oilsands company exceeds its cap by X
number of tons, it posts the X number of tons on an exchange – at that point, there is a biding process effected, various actors will offer the price/ton
for which they will capture (offset) said carbon. This reality effects a market
force, or downward pressure and efficiencies on carbon capture – so rather that
every ton of carbon being emitted costing $120, the cost of capturing carbon
will be reduced and therefore, be less of a drag on society. Further, Cap and Trade takes the cost to one actor and transfers that cost as a benefit to another
actor in an immediate way – so the net affect on the overall economy is
neutral.
The world
was agreed on Cap and Trade at Kyoto – there was consensus on the merit of its
functionality relative to other methods. It would have been accepted at Kyoto had
people stopped worrying about social engineering and focused on the challenge
of the environment. The largest inhibiting factor or factor confounding environment
solution is that the legitimate environment cause has been highjacked by
people who are more interested in “social change” rather than climate change.
