EnviroEconomics.ca

Jack Mintz provides an nice overview of the key issues facing Canada with respect to carbon taxation (see here). I like the article because it is somewhat boring…it reveals some key issues, nestles carbon taxation within existing tax structures in Canada and generally points to why a carbon tax is likely the way to go – it works within existing structures.

Assignment of taxing powers in a federation is an old question that Canadians have endlessly debated. …As a rule, the taxes best assigned to the provinces are those that do not interfere much with the free flow of goods and services within Canada, are relatively easy for provinces to collect and are related to their spending powers, such as regarding health, education and infrastructure. Gasoline excise taxes, for example, have been viewed as a relatively good tax to assign to provinces since their payment is (albeit imperfectly) related to the use of roads and highways, and does not disrupt much the integration of the Canadian economy…A carbon tax, such as the one recently imposed in British Columbia, is a typical excise tax, as it is applied to carbon emissions generated by fossil fuels consumed by consumers and businesses within the province.

Broadly, economic instruments can be transitional, that is work within existing structures such as taxation or resource (water) pricing or transformational, which requires a wholesale change in how governments manage, say to a cap and trade system with new administrative functions.

Administrative simplicity is important since governments have limited budgets, and well adding new administrative functions generally means that other priorities such as toxics or water management are left cannibalized. This is particularly the case for municipalities and provinces, but if one speaks with folks managing the environment at the national level, and designing climate policy in particular, it is clear that there is a real lack of resources to get the job done.

So, with Canada’s new soft cap and rule program, the transformation required for implementation can’t be overstated – it will continue to chew up resources from Environment Canada and other priorities will suffer. Toxics management, species at risk and water issues all come to mind. In all policy there are trade-offs, and it is important that we recognize these. In Canada’s emerging jungle of carbon pricing and regulations, many will get eaten.