Carbon Tax - Bad Policy - Just Stupid

 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.

NO PRICES FUNGIBILITY

No effective replacement for fossil fuels

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. 

PRICE FLUCTUATIONS EFFECTS NO CHANGE IN CONSUMPTION

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.