EnviroEconomics.ca

Ok, I have been traveling and talking climate policy for over a week now, and in talking (ok too much for some) and reading and thinking about this post-election phase, I have just one thing to say….

Tax, tax tax tax tax tax tax tax tax taaaaaaaaaaaaaaaaaaaaaaax

There I said it. And boy it feels good. So, folks, and you know who you are, lets stop backsliding on carbon tax and hiding its intent with new labels (the benevolent grandma’s benefits fund) or fuzzy instruments (upstream cap and trade anyone?). Lets call a tax a tax and get back to advocating the need for cost-effective climate policy over the long term.

Governments, political will and stakeholder perceptions all change but policy fundamentals don’t. So, while taxing carbon has experienced a set back (or a resurgence depending on if you can remember the carbon tax wilderness of only a few short years ago), us folks talking and influencing climate policy should not overly weigh the political and stakeholder acceptability criterion. That is not our job – sound climate policy guidance is. So, while some see the death of carbon taxes post-election, I am still toasting to its health and planning for the long-term. Although I am drinking just a tad more. Cheers.

Retail politics is about selling multi-colored sweaters (or targeted policies) to all kinds of folks, given wide-ranging preferences. Some had said that this election was the death of retail politics in Canada, especially when the Prime Minister started to slip in the polls due to his non-response to the financial meltdown. The logic was that he was not able to move away from his scripted day-to-day retail policy agenda in the face of the mounting uncertainty.

Well, I think retail politics are alive and well thank you very much, and in fact this election shows that heavily weighted single issue platforms can bite, and bite hard. Take the Liberal Leader’s exclusive focus on the carbon tax with recycling. While this balanced economic and environmental policy was supported by climate policy intelligentsia, it failed to resonate with a broad enough electoral base. And without other planks in the platform, the Liberals died a slow death.

So many commentaries in today’s press (see here and here) miss the point somewhat. Canadians still support environmental action, but importantly they also care about a whole host of other issues:

“it’s the economy stupid, and oh yes health care, and what about…..” says Joe Canadian.

And if one is unable to convey a range of policy ideas, then one is perceived as myopic, out of touch and subsequently penalized at the polls. So while retail politics did seem to cost the Prime Minister his majority through his inability to react to the financial crisis (Ontario anyone?), platform myopia hurt Mr. Dion more.

So, while Mr. Dion’s single vision was a good one, and would have worked best for Canada on the climate issue, the vision was incomplete, and so did not reach a wide-enough retail audience. Blaming the election loss on the carbon tax is therefore as myopic as the Liberal Party’s platform. The key to electoral success seems to be selling the sweater-vest after all.

The Economist has an article on why Prime Minister Harper deserves a second mandate, but not a majority (here). Two ideas support this:

One a majority is not warranted for his stand on climate policy:

Simply to rubbish this [Dion’s carbon tax] as a “crazy” idea that would “screw everybody”, as Mr. Harper has done, shows a disappointing lack of leadership, and is grounds enough to deny the Conservatives a majority.

Two, the Prime Minister should not lose the election over his measured response to a possible recession that is most likely a non-event:

But it is his seeming non-reaction to what is so far a non-crisis that looks likely to deny him the majority he was seeking, and could even let in the opposition. In what is the first credit-crunch election in a big Western country, Mr. Harper’s ejection would set a dispiriting precedent that panic plays better politically than prudence.

Well, spreading economic panic cuts both ways, and selling the carbon tax as a recession waiting to happen makes the probability of a financial crisis induced recession all the more believable. After all, our energy costs pale in comparison to our savings, loans and investments. Indeed, my carbon exposure looks a lot more contained than my financial exposure. So, the Economist may argue that the Prime Minister is being penalized for a non-crisis, but when you tell folks a recession is possible, you better be prepared when they believe you.

Ok, so the Conservative Plan is good for oil sands and the Liberal plan is not. This must be the case because the National Post says so:

..his (Dion) “Green Shift” carbon-tax scheme is, by itself, enough to persuade us that he is the wrong man to be running this country. As our banking and financial-services sectors become strained by the worldwide credit crunch, this country is increasingly dependant on our oil and gas sector to sustain us through rough waters. Yet these are exactly the industries Mr. Dion wants to soak.

Huh?

Have not the smart folks on the Editorial Board read the Conservative Plan? Here are a few tidbits that show why the Conservative Plan, which is heavily based on regulations, could impose higher costs on the sector:

– The current biofuel standard requires 5% of all gasoline to come from ethanol, which will reduce refining output correspondingly (lost profits anyone?). With the price differential between ethanol and fossil fuel supplied gasoline running at about 15% to 50% higher, the biofuel standard could raise gasoline prices 3 to 5 cents per litre thereby further suppressing demand somewhat (and recall the Liberals are exempting gasoline from the Carbon Tax);

– CCS requirement on all new facilities will impose costs upwards of $100/tonne on new facilities, compared to the $40 liberal tax, before recycling to income tax;

– It is not clear what the permit costs will be for the intensity trading system but the Technology Fund is capped at about $23 in 2017. So, these costs are not far off the Liberal $40 tax rate and when compared with CCS for new projects, and the recycling under the Liberal Plan, it is not clear the Conservative Plan is a clear cost winner;

– And while the China and India ban on oil sands related exports would not cost producing facilities since there are no exports, it will distort investment decisions, and therefore lead to higher costs. That is, folks were planning pipelines to Vancouver to ship oil.

And this is a straight up comparison on economic impacts and not emission reductions – that is, what do we get for all this spending? Well, I am not in a position to say, but lots of smart folks think the Conservative Plan will be less effective. I am not so sure since the coverage of the Liberal Plan is limited, and so may deliver a limited set of reductions.

But perhaps I will let the National Post have the last word on the inherent contradiction that permeates the election coverage on carbon policy (here):

What regulators never tell anybody is that regulatory regimes, in practice, are always going to be wrong in the long run — mainly because they undermine and destroy markets.

Now for those of you who have spent anytime at a University know, the best definition for the institution is a group of anarchists who share a common parking lot. Generally, these are the folks who eviscerate first and argue points of fact later. This is why an open letter supporting a carbon tax and revenue recycling from 230 of these intellectual knife wielders matters – they all agree on the basic points. They buried their respective hatchets as it were and sent a message to the electorate (see coverage here). Indeed, as they themselves recognize:

That’s an astonishing number for academics not typically inclined to act collectively and quickly on policy issues.

The open letter can be found here:

But here are the main points:

1. Canada needs to act on climate change now.
2. Any substantive action will involve economic costs.
3. These economic impacts cannot be an excuse for inaction.
4. Pricing carbon is the best approach from an economic perspective.
1. Pricing allows each business and family to choose the response that is best and most efficient for them.
2. Pricing induces innovation.
3. Carbon is almost certainly under-priced right now.
5. Regulation is the most expensive way to meet a given climate change goal.
6. A carbon tax has the advantage of providing certainty in the price of carbon.
7. A cap and trade system provides certainty on the quantity of carbon emitted, but not on the price of carbon and can be a highly complex policy to implement.
8. Although carbon taxes have the most obvious effects on consumers, all carbon reduction policies increase the prices individuals face.
9. Price mechanisms can be regressive and our policy should address this.
10. A pricing mechanism can allow other taxes to be reduced and provide an opportunity to improve the tax system.

I particularly like point seven that follows point six – it basically reads: yes cap and trade can send a carbon price, but it is administratively ugly to implement, so why go there when a simple tax is available. And point five is directed at the Conservative Plan.

While the economists don’t fully support the Liberal plan:

“You can say that the Liberals have a carbon tax. Is it a good carbon tax? That’s a whole other question…This is not about influencing the election, it’s about clarifying debate.”

Make so mistake, by “clarifying the debate”, these 230 academics stealthily eviscerate the Conservative Plan.

A neat little piece of climate policy work was just released, albeit quietly, during the federal election. Nic Rivers and Mark Jaccard have been taking analytical jabs at various climate policies for a very long time. Their central theme has been to compare, from an analytical perspective, what government’s say they will achieve and what their policies will most likely deliver. Their latest contribution, with Jotham Peters, can be found here and provides this nice conclusion:

We conclude that, as currently designed, it is highly unlikely that the policies of the government of Canada will achieve the target of reducing national emissions 20% below 2006 levels by 2020. The lack of an economy-wide emissions price and the allowance for 100% offsets for industrial emitters make it highly likely that emissions will be significantly higher than target levels in 2020 and indeed might even be close to today’s levels. Since the government claims that it is intent on achieving its 2020 emissions reduction target, it is difficult to understand why it does not immediately convert the intensity cap to an absolute cap and eliminate or severely reduce the offset provision. It also needs to extend its cap to cover all emissions in the economy.

The bottom line is that politicians have been promising to save the world for a very very long time but have instead been burning our cash while getting very little done (see Nic and Marks other paper here: Burning Our Money to Warm the Planet).

All climate policy by addressing energy use and production can have wide-ranging and long-term effects in the economy, touching virtually everyone as costs get passed through prices. This is why the election climate policy “debate” , and I use this term loosely, deserves more serious attention. But then again in politics, and especially in this campaign, thoughtfulness is in short supply — “Says who… and your Mom wears Army Boots”. Too bad, cause their political gain is our economic and environmental loss.