EnviroEconomics.ca

As soon as we start purporting that emission pricing will solve wide ranging social woes, it is time to pause and reflect (see here for a carbon tax as a snake oil cure).

A city carbon tax would also be a flexible way of addressing traffic congestion, which has almost hit the saturation point. It already costs $15 or $20 to park your car in some parts of Toronto. Why not charge a similar amount to drive it around?

While the carbon tax will “drive” some reductions in vehicle kilometers traveled, we can’t expect much from a carbon tax or emission pricing in the transport sector. Sure, high fuel prices will change some behavoiur in the transport sector, but experience has shown that folks are simply insensitive to fuel prices, especially in the short term and somewhat in the longer-term. This means that carbon prices need to be complemented with vehicle standards, California style.

In the NRTEE modelling, and indeed in most carbon abatement assessment, the transport sector is the last to respond, and one of the reasons why deep GHG reductions result in exponentially rising abatement cost curves at emission prices above $200. The insensitivity to the transport sector to high emission prices is one reason why international trading looks really good and fuel economy standards even better.

So, while a carbon tax or carbon price is a corner stone of effective climate policy, complementary vehicle fuel standards are a necessity to address our collective addiction to the car….

And if you want to address congestion, well then price congestion directly. And if you want to fund social programs, well keep it to yourself and perhaps lets talk after we implement a economy-wide carbon price, collect revenue, have effective tax shifting and revenue recycling and reduce some emissions. Then maybe lets think about diverting some revenue to other purposes.

Here is a nice tight overview of what transpired this week with the NRTEE release. A surprising shot of clarity from an obscure source in Edmonton:

Sadly, ideology and partisan bluster continues to trump meaningful action on climate change based on sound advice—even when it’s advice the Conservatives asked for.

While we really can’t expect much from politicians in the short term, the NRTEE report has done an important service for the climate policy debate…refocused the national debate from one of questioning affordability (what I call Globe and Mail climate policy) to one also focused on the risks of inaction — both economic and environmental.

And speaking of risk, no news service highlighted the benefits of reduced air pollutants with climate policy. These are real and local and well NRTEE did not have enough time or space to explore these. But, check out the report, the reductions in air pollutants are large and so too then are the associated health benefits- which occur immediately and within Canada.

So by continuing to oppose efficient policies, politicians are not just thumbing their nose at getting things done cheaply, they are also thumbing their nose at clean air and oh yes, that little thing called climate stability.

Andrew’s comments from the last post dovetail nicely with my thoughts on this report in the Financial Post (here). Essentially, the article argues that emission trading is more effective than carbon taxes. Trouble is, this preference comes from constituents who are lining up to defend their stakes in the great carbon trading game:

“This is an industry that did not exist four or five years ago — an industry that has very rapidly emerged (with) products that you take for granted in other businesses are just being developed now.”

One of the NRTEE’s recommendations included the observation that an upstream trading regime would be more effective than a downstream trading regime (see the NRTEE report and Chris and Nic’s technical report available by request from NRTEE). Essentially, if you move the regime up closer to production and importation you get a wider transmission of the carbon price across the economy, a desirable outcome since costs tend to be more evenly distributed. With a broad based upstream system there is no need for a complementary tax as in the case of the current downstream large emitter system, where only 50% of Canada’s emissions see a price signal. Problem is, Canada would need to ultimately transition the current “proposed” downstream system to an upstream system sometime near 2020. But this would alter existing rights, and notably all those free allocations, trading fees and allied services making money off the downstream system (same^2 for offsets).

And thus the transition challenge — constituents. Like it or not trading is creating vested interests that will protect the status quo and lobby accordingly. This will make change hard, especially in time.

And now the fun…you have to love an article and a quote in the National Post, that bastion of conservative thinking, that basically says that individual decision makers need to be told what to do:

“You can tax me on gas, but I still consume gas and there’s nobody to tell me how much I should consume,”

I love it. Only in Canada, Eh.

Huh? Seems somehow the NRTEE got the warriors holding hands (see here):

The report drew widespread accolades – including expressions of appreciation from both the Canadian Association of Petroleum Producers and the David Suzuki Foundation.

And then…

Pierre Alvarez, president and CEO of the Canadian Association of Petroleum Producers, lauded several of the policy principles stated in the report. “It’s very clear that this is not a shot at the oil and gas industry, or the coal industry; that it applies across the economy and across the country,”

Usually in environmental policy when you piss off industry and the ENGOs you have done something right. So, I am not quit sure what to make of all this singing around the NRTEE campfire. But before we all hold hands for another sing song, there are sobering reminders from politicians and the public that some are not prepared to pay a cent to reduce carbon emissions. This one is particularly good (here). There is a mindset here that needs more attention, and thus we may need slick advertising campaigns such as the one tonne challenge after all. Who would have thought?

But my personal favorite quote from all this is from the Minister himself:

“Every time a report comes out, you can’t change your mind.”

So its seems that all us economists and policy wonks who have been pushing this stuff for a while should step aside and make way for the spin doctors. Perhaps, it is their time.

After about a year of beavering away, the NRTEE released its final advice note today to the Minister of Environment, and more importantly all Canadians (see “>Here). This piece of work sets down some fundamental principles that Canada should follow if longer-term and deeper GHG reductions are to be pursued. While there is some great stuff in the report (and the background paper prepared by Chris Bataille and Nic Rivers and others at MKJA – contact NRTEE for a copy, it is worth it), importantly, I think the report’s greatest contribution is to bring some “street cred” to two concepts:

First, the interim report released in June introduced the concept of an emission price to the media and hence Canadians. Before the June report, the use of this term was not so widespread, but now it is more widely used by the media;

Second, with this report, the carbon tax debate is effectively launched. There is now no hiding from an economy wide carbon tax as a realistic policy choice. I suspect we will now see more discussion at the political level on this. See here for some early evidence.

I think the next important step, as I have said in the past, is to make carbon tax synonymous with “carbon tax shift”, where revenue recycling and tax shifting further other goals. But for now I am just happy the report was (finally) released and is getting such favorable press. The report has legs, and NRTEE deserves credit for having the forsight to call a spade a carbon tax.