Her Majesty’s Loyal Opposition, the New Democratic Party, should they form Canada’s next government (and let’s be frank here: there’s a very good chance that they will do just that), if it follows through on its policy (always a big “if” for the NDP), will establish a Cap and Trade emissions trading scheme which will see the sale of carbon offsets between various industrial emitters. Such a Cap and Trade scheme could conceivably involve about half of Canada’s emitters, in an effort to reduce greenhouse gas emissions.
The Cap and Trade approach to carbon pricing will prove to be very problematic for business and industry, and for all Canadians. With their advocacy to implement carbon trading, the NDP may have struck upon a better policy than the Conservative’s regulatory approach, but with so many uncertainties and the opportunity for exemption and fraud in new carbon market, it’s far from the best option on the table if the goal is to reduce emissions. I've previously blogged about my concerns with Cap and Trade, so I'll not go into significant detail here, as I've done so elsewhere (see: "Cap and Trade: Is this the Best that We can Come Up With?", January 15,2010)
Right away, one glaring issue with Cap and Trade becomes apparent: it does not involve all emitters. And it can’t, because a significant portion of emissions come from very small-scale sources, including agriculture, home heating and personal transportation.
But, conceivably, even with just the biggest emitters in play, Cap and Trade could still do some good to actually reduce emissions. As long as the emissions cap is set low enough, and offset purchases are going towards projects which demonstrably reduce greenhouse gases, it’s possible that it might do some good. In Europe, however, where there has been an emissions trading scheme in place since 2005, and for a host of reasons, it’s been a white elephant. It’s not even clear that emissions have actually been reduced, but what we have seen is a lot corruption and swindling, particularly through price manipulation and questionable offsets mechanisms.
Better Policy: A Carbon Tax
A carbon tax, on the other hand, is a lot less complicated to implement than establishing a Cap and Trade scheme. Our governments are pretty good at taxing things; a carbon tax is really just another form of consumption tax. It’s implementation would be relatively straight-forward, and could occur very quickly.
Here in Ontario, our provincial government has been participating in something called the Western Climate Initiative (WCI) for many years now. The WCI came out of the western United States, when states like California, Oregon and Washington got together and decided that they were going to look into establishing a common carbon market and use Cap and Trade to reduce emissions. Eventually, other jurisdictions joined, including B.C., Ontario and Quebec. Today, despite years of involvement, there remains no plan to actually get a Cap and Trade scheme up and running, at least not in Ontario. And given the urgency of the climate crisis, that’s just unacceptable.
For the mining sector, and for businesses of all sizes, a carbon tax actually represents a much lower-risk public policy, than does Cap and Trade, due to the inherent volatility of trading markets. Businesses would be able to engage in longer term planning with predictable price knowledge. While larger businesses might be ok to weather the storm of Cap and Trade market volatility, smaller businesses could be hit fairly hard, especially those businesses which are more intensive consumers of energy, such as junior miners.
A carbon tax can also be applied equitably, dependent upon emissions. This is important to the mining sector: a direct consumption tax, if implemented across the board, would not play favourites in the same way that intensity targets established through regulations would. Under a carbon tax, each industrial sector would be paying its fair share for the emissions it produces.
Reducing Personal Income Tax Contributions and Carbon Emissions
A carbon tax, if applied in the way which the Green Party of Canada currently advocates (and which the Liberals under Stephane Dion had previously contemplated), would be “revenue neutral”. Now, that doesn’t mean that it would be revenue neutral for everybody, just for government. One of the big ideas around the introduction of a carbon tax is that it can only be done if you also figure out a way to allow people to hold onto more of their own wealth. As a carbon tax is going to make a lot of things more expensive, it’s imperative that people be able to keep more of their own money. In British Columbia, when the carbon tax was introduced by the provincial Liberals, there was a corresponding reduction to personal income tax contributions. This is known as “progressive tax-shifting”, and it places the tax burden on goods and services which are more problematic for society (those with higher carbon-intensities) while removing the tax burden from those things which are good for society (personal productivity through hard work).
But there are other ways of giving people back their money. In the United States, it’s been proposed that almost all of the revenues collected by government through the imposition of a carbon tax be returned to citizens by mailing them out a cheque. This is known as “carbon fee and dividend”, and essentially it makes all citizens shareholders in the successful implementation of carbon fee collection.
Either way, though, by allowing people to keep more of their own money, people will be able to make personal choices about the goods and services which they purchase. Less carbon-intensive products will likely cost less money, which will lead to greater competition and innovation in low-carbon goods and services, which are ultimately good for the environment.
By factoring in all real costs into the price of a good or service, it’s quite realistic to expect innovation, which is good for economic activity.
Perceptions and Reality
It simply boggles my mind that the NDP hasn’t embraced the idea of a revenue neutral carbon tax. I’ve often heard the explanation given that the NDP already has a reputation of being the party of higher taxes, so for political reasons, they want to stay away from anything remotely resembling a new tax. But the reality is that those who support the NDP are actually going to be disproportionately disadvantaged should the NDP’s Cap and Trade policy ever be implemented. While Cap and Trade will require only the participation of the big emitters, who do you think the costs of purchasing those offsets are going to be absorbed by? What’s going to happen is that the costs are going to be passed on to consumers. And since the NDP is not recommending the implementation of a carbon dividend or a reduction in personal income taxes, Canadians will be faced with rising prices without the benefit of new personal revenue streams to compensate. In this scenario, it’s the richest amongst us who will be able to weather the storm, while less economically advantaged Canadians will take disproportional hits.
Many business and industry leaders have already accepted the inevitability of carbon pricing, and they’ve been publicly indicating their preference for a carbon tax over Cap and Trade. The conversation about climate change has shifted in the past decade from trying to figure out whether climate change is happening to now figure out what the best mitigation and adaptation strategies are. In 2010, the Canadian Council of Chief Executives, under the leadership of the Honourable John Manley, former Minister of Finance, and former Minister of Industry, released a policy paper, “Clean Growth 2.0: How Canada Can Be a Leader in Energy and Environmental Innovation”, which recommended a coherent national approach to carbon pricing.
Many of our leaders of business and industry are found in North America’s mining sector. There’s a growing agreement that a more direct and transparent, predictable price on carbon will be better for business. There’s also a growing understand that as other nations decide to take action to regulate emissions, that Canadian business and industry could be disadvantaged by the imposition of border adjustment fees (a.k.a. “carbon tariffs”). Canada must start taking a leadership role in addressing climate change, or else we will be placing our own economic health at risk. The implementation of sensible and sound carbon pricing policy at a national scale will demonstrate that Canada is ready to do its part to reduce emissions.
Canada’s mining sector, and those who depend on the success of the mining sector for their livelihoods, should be very wary of the NDP’s Cap and Trade policies. On the campaign trail for the NDP’s leadership, Thomas Mulcair committed himself to implementing a Cap and Trade scheme when he became Prime Minister. Mulcair and the NDP could very easily lead us to a new white elephant boondoggle which ultimately demonstrates only marginal success at reducing greenhouse gas emissions.
The continuing health of the mining sector is important for my community of Sudbury, and indeed for all Canadians. It’s essential that we implement the right public policy to address the very real issues which we are facing. When it comes to taking action on climate change, neither the Conservatives nor the NDP have landed in the right spot. Sudburians, whether directly involved with mining or not, along with all Canadians, should be concerned.
(opinions expressed in this blog are my own, and should not be interpreted as being consistent with the views of the Green Party of Canada)
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