Nov 23,
2018
If you’re a Conservative who opposes carbon pricing, are you really a conservative?
At last weekend’s policy conference in Toronto, Canada’s two most important Conservative leaders stood together against carbon pricing. Doug Ford and Andrew Scheer both argue that it is an ineffective tool for reducing greenhouse gas emissions and constitutes open warfare on Canadian families and businesses. Allied with Alberta’s Jason Kenney, Saskatchewan’s Scott Moe and Manitoba’s Brian Pallister, it is clear that carbon pricing has become conservatives’ favourite policy pinata.
The strange thing is that this anti-carbon-pricing coalition goes against much of what it has long meant to be a conservative: an embrace of market mechanisms, a distrust of regulations and subsidies and a preference for low income taxes
How would a traditional conservative address the problem of climate change? Surely not with inaction. As Preston Manning says, “conservation is central to conservatism” It isn’t conservative to ignore environmental damage, but rather to prevent it in a way that doesn’t threaten our economic prosperity. It was no fluke that Brian Mulroney won awards for being the greenest Canadian prime minister.
The case for effective climate policy is clear: Climate change poses significant costs for the Canadian economy – costs that are already being incurred and will only increase over time. And the case for action now is equally clear: Continued delay only results in the need for more and costlier action later.
Although it is true climate change is a global problem and that Canadian greenhouse gas emissions are only a small fraction of the total, this is no case for inaction. Would today’s conservative leaders use this same argument to avoid fighting international terrorism or military threats? Traditional conservatives are proud to do their part – they don’t wait for others to act.
Would a traditional conservative recommend the use of prescriptive regulations to address the problem? Not likely. Conservatives are suspicious of intrusive regulations dictating how businesses must operate and how individuals should conduct their lives. They also recognize that inflexible regulations work only by imposing high economic costs. In the eyes of traditional conservatives, the road to economic failure is paved with regulatory excess.
Would traditional conservatives favour government subsidies to support clean technologies? Think again. Most conservatives can’t stand the idea of governments “picking winners” – it smacks of corporate welfare and conservatives know we have too much of that. And this approach is likely to waste taxpayers’ dollars; subsidizing electric vehicles will mostly reward wealthy drivers who would have purchased one anyway.
If doing nothing isn’t a realistic option – and conservatives dislike costly regulations and subsidies – what’s left to consider? What policy approach can be effective at reducing greenhouse gas emissions while harnessing the power of markets to generate the prosperity we all desire?
The answer is carbon pricing – the only truly market-based approach to reducing emissions. The whole logic of carbon pricing is to recognize that greenhouse gas emissions impose genuine costs that aren’t reflected in market prices. When costs and prices are unaligned, Adam Smith’s famous “invisible hand” is misled. By explicitly putting a price on carbon emissions, market prices for all goods and services will reflect the true underlying costs, and the result will be an important economic adjustment. Faced with higher prices for carbon-intensive products or processes, families and businesses will modify their production and consumption behaviour in ways that reduce total emissions.
Most importantly, carbon pricing lets each of us respond to the price as we see fit, identifying our own low-cost ways to reduce emissions. Families won’t all respond the same way and neither will businesses. Some will adjust more than others, some differently than others, some later than others. But across the economy, emissions will fall – and they will fall faster as the carbon price rises. The experiences of British Columbia, Britain and California show that, even at modest levels, carbon pricing is effective at reducing emissions.
That a carbon price grants families and businesses flexibility in how and when they respond should be a huge part of its appeal for conservatives. This flexibility makes carbon pricing the polar opposite of an intrusive “command and control” regulatory approach, which tends to force the same outcomes on everyone. This flexibility also explains why carbon pricing is seen by virtually every economist as the lowest-cost way to reduce greenhouse gas emissions.
So the truth is that conservative leaders who oppose carbon pricing are, by default, advocating the use of policies that will actually cost Canadians more. These costs may be hidden, but they will surely be higher. These leaders aren’t telling us this part of the story.
And there’s more that isn’t being said. In addition to being a low-cost approach, carbon pricing offers something else: an opportunity to change our tax system in a way that conservatives should love. Conservatives should recognize it is better to raise revenues by pricing carbon emissions, which we all agree are bad, than by taxing personal and business incomes, which we all agree are good. Using carbon-pricing revenues to finance a significant reduction in income-tax rates or perhaps to issue rebates directly to families would, therefore, achieve two desirable outcomes: reduced greenhouse gas emissions and the stronger economy that comes from lower income taxes. Just ask Gordon Campbell: The former premier did precisely this when he implemented B.C.’s carbon tax a decade ago.
There is one caveat in all of this. Any well-designed carbon price needs to pay attention to business concerns about competitiveness. Firms with high carbon emissions that actively trade in international markets are right to be concerned about a non-level playing field, especially in the face of policy inaction in the United States.
But this issue can be addressed with well-designed policy. Some part of the carbon revenues can be used to provide temporary support to these vulnerable sectors, giving them incentives to reduce emissions without reducing employment or moving production out of Canada. It is challenging to do this right, but it is certainly possible.
The bottom line is that there is a clear path forward for Canadian conservatives. They can be true to their brand by recognizing the reality of climate change, pushing for a greater reliance on carbon pricing, arguing the case for repealing high-cost regulations and subsidies and urging governments to use carbon-pricing revenues to reduce income taxes. If they do these things, they will help shape an effective and low-cost solution to climate change.
There’s an obvious in all of this. If carbon pricing is so clearly within the tradition of conservatism, why do today’s conservative leaders reject it so strongly? There are only two credible answers: Either they aren’t really conservatives or they don’t really believe climate change is a serious problem.
Originally published in the Globe and Mail on 21st October, 2018
5 comments
I used to vote conservative -thought I was conservative- until this wedge issue of carbon pricing woke me up. I found myself on the other side of the wedge. I will not vote for any party -provincial or federal- that is against broad based carbon pricing, for the reasons this blog gives.
Hypothesis: its not conservatism we’re witnessing. Its populism. People say what they don’t like, and populist politicians say it back to them. But why would voters be saying they don’t like carbon pricing, given the reasons above?
Hypothesis: The problem for the average person, their ‘gut feeling’ about carbon pricing is playing tricks. Not just here, but in polls done in US and elsewhere it shows something similar:
https://onlinelibrary.wiley.com/doi/pdf/10.1002/wcc.531
– study: overcoming public resistance to carbon tax
For example, in AB we have $30/tonne c-tax now (2018). And someone here might say “I still gas my car the same way. I still heat my home the same way. Therefore the carbon tax doesn’t work on me. And if it doesn’t work on me, it doesn’t work. And if it doesn’t work, it must be just a ‘tax grab'”.
The main confusion: short-term versus long-term price elasticity.
Let me explain. A BC study on transporation and the BC carbon tax:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2778868
found the tax did work -punching slightly above its weight as a % of the fuel price- with 42% reduction due to frugal driving, and 58% due to frugal vehicles.
For driving, a short-term price elasticity might be trip-chaining – something you can do with a bit more labor.
Long term price elasticity would be next time the driver moves, or changes jobs, or buys a new vehicle, they can re-arrange their routines and assets to be more fuel efficient.
And so our Albertan might not see a change right away -or none that are noticeable- but can do more in the long term. If you take all the things you can do to abate now and in the future, and put them on a graph starting with the cheapest easiest most immediate, economists would call it a MACC – marginal abatement cost curve. And as the above article hints, there’s too many things on the typical MACC for a regulator regulate or incentivize them all. But a broad based carbon price gets them all.
Once that is explained, then a remaining concern might be about revenue recycling. “Is the money fed to goats?”. And one hypothesis for the ‘stubborn provinces’: they can’t beat the federal backstop’s revenue recycling, and so are throwing in the towel so they get it.
I have a way for federal conservatives to walk back their carbon pricing intransigence: do a youth-wing vote in their own party.
I suggest there are more than two credible answers for conservatives. Your essay doesn’t address the realities within which a conservative must work in Canada, primarily that there many other non-conservative voices, with power of decision, that reject your arguments. No clearer evidence of these realities is found in the changes that the BC NDP government, with Green Party support, made of BC’s tax on CO2 emissions, with their decision to siphon off the proceeds to pet projects — the change coming in their first budget — they couldn’t wait to make these changes. (And wavering had begun under Christie Clarke’s government.) The second reality comes from all levels of government, but particularly that of the current federal Liberal government, in the continued use of yet more regulation regarding CO2 emissions and levying of further taxes. Hardly anyone in Canada is talking about the dead-weight costs of adding these further taxes to the existing base of taxes and regulations [distortion discount]. (Someone at Guelph does write about these dead-weight costs, but so far hasn’t had traction in public discourse.) In one paper (2014), Nordhaus suggested these distortion discounts (although hard to estimate) could be more than a third.
Sorry but the big problem with climate change is the way the air quality is being effected. Putting a price on carbon does not equal reduction in the emissions. Mostly climate change provides a cover for governments to tax people more without any significant reductions. For example, GM is closing factories that produce cars because customers want SUV’s. How high do taxes have to be to discourage consumption?
There is also the matter of alternative fuels. Something I have been involved with globally for over 30 years. Countries in Asia such as China, India, Pakistan, Bangladesh, Malaysia, etc have major programs with vehicles running on natural gas. Much of the technology for this originated in Canada. For example, in Delhi, India there are no carbon taxes yet there are over 1,000,000 vehicles running on natural gas. How many do we have in Canada?
The other alternative is fuel cells. Great technology, I was involved in the deployment of fueling infrastructure of hydrogen fuel for these fuel cells. However, the cost of producing and compressing the hydrogen plus the capex to build the infrastructure is too high to be practical. So this does not present a practical solution.
Electric vehicles are all the rage, but where does the lithium and cobalt come from? South America and Africa mostly. The emissions from ships to transport the raw materials to where ever the are manufactured into batteries is huge and not likely included by anyone promoting electric vehicles. And this does not include the environmental cost of generating the electricity to fuel these vehicles. And who has 30 ++ minutes to recharge their vehicles?
At the end of the day, everything has a place and a balanced view is critical to reaching a viable solution. I find it very upsetting that the environment has been politicized to justify taxing us more. In Asia, the incentives for all alternative fuels is a lower cost. In Pakistan, natural gas is about 1/3 the cost of gasoline. When they tried to increase the cost, usage declined.
If you are serious about the evironment and prosperity, you should have a much more balanced view than is presented in the articles on your website. You have lost me as a supporter unless something changes. Carbon taxes are not a valid or viable option.
While the argument for carbon taxes may be valid, it is obvious that the author thinks Canada’s economy functions in blissful isolation, invulnerable to the dog eat dog realities of international competition. Clearly, he doesn’t care about the job losses Canada will incur if it must endure carbon taxes before the U.S. and other large polluting nations impose similar taxes. Unless and until Article 4, Clause 4 of the Paris Climate Accord is amended to replace the word, “should” with “shall”, Canada cannot afford to proceed with the imposition of carbon taxes. I suggest Mr Trudeau ask John Kerry, former U.S. Secretary of State, why the U.S. COP 21 delegation insisted that “shall” be replaced by “should” in the Accord. He will tell Mr. Trudeau that the U.S. Congress would never have approved “shall”. Mr. Kerry admitted to that in his novel, “Every Day is Extra”.
Hi Steve,
Thanks for your thoughtful comments. Studies on have shown that in BC’s carbon tax (the oldest carbon tax in Canada) didn’t kill jobs. Rather, it shifted them to lower-carbon sectors. In fact, the effect of BC’s carbon tax on jobs overall was slightly positive. There are a variety of policy tools we can use to protect business competitiveness. For Canada as a whole, we have designed an output-based pricing system for emissions-intensive, trade-exposed sectors. This system ensures firms get cleaner, not smaller. You can read more about that here.
As for international law, it is challenging, no question. But we suspect President Trump would have withdrawn either way. And chances are that Trump’s successor will take this issue more seriously.
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