# 19 Canada's carbon tax problems

It may be over- simplification but after reading a lot about carbon tax and the problems in Canada, the US and Australia I see that Canada has an external problem while it shares an internal problem with those two other countries. The external problem is that we have vast oil reserves and by not taxing our output or extraction energy sufficiently, other countries get upset. They oppose additional pipelines in the hope that it will curtail our oil sands production. This won’t happen because rail transport will take over. They also try to get local environmentalists on their side by proclaiming that we contribute to the world’s greenhouse gas emission. Until a global carbon tax has been established, demand for oil will keep rising and if we don’t sell the oil, other countries will and the world’s GHG emissions will rise just as much.

The internal problem is that in all 3 countries the word “tax” is interpreted as a tax grab by the government rather than a tax shift to make green energy more competitive. Neither the parties in power nor the opposition have been able to convince the public that a revenue neutral carbon tax system returns all the money to those who paid the tax and that people who buy below average fossil fuel actually gain money. Some government officials still claim that the tax hurts the economy and the poor while the opposite has been proven over and over again. US president Harry Truman is known to have expressed, on occasions, a wish for a few one-armed economists. It seems the president was sick of hearing from advisors of that trade who would tell him, "On the one hand--but on the other hand. That is the problem which politicians are facing. They have to base their policies on one hand or the other. Our policies were established years ago based on the one hand  when “Prime Minister Stephen Harper and several members of his cabinet and caucus had previously questioned the scientific evidence linking human activity to global warming, describing the Kyoto Protocol as a “socialist scheme.” Now that the other hand becomes more pronounced it will require serious discussions to change course.  For years we have been exposed to negative slogans and it will take time to change the public attitude.

 Shell, BP, Exxon Mobil, Statoil and Cathay Pacific demand a global carbon tax because they will profit from it. Other major multinationals in the petrochemical, food processing, insurance, construction and computer industries demand it as well. When you read the pro carbon tax speeches by    Rex Tillerson, CEO, ExxonMobil,    Jamie Dimon, Chairman and CEO JPMorgan Chase & Co.    Donald E. Felsinger, Chairman and CEO, Sempra Energy,  Jim Gordon, CEO, Energy Management, Inc,    Bruce Williamson, CEO, Dynegy,   Robert Olsen, Chairman, ExxonMobil International Ltd., you see that they all envisage a global carbon tax, which is essential to stay competitive. Carbon tax causes the cost of all fossil fuels to rise. That does not only cause higher transportations costs but also the cost of many goods made from fossil fuels. That is why it is essential to refund all carbon tax collected to those who paid it so they can afford to pay for the higher priced goods.

 Many manufacturers are against taxing carbon because unless we go global we will need complicated import duty arrangements between countries. The coal industry is dead against it because even when a global agreements has been reached they will lose. At the BC rate of $ 30 per tonne of CO₂ the cost of thermal coal will rise 70% compared to 9% for crude oil. Even at $ 20 per ton as recommended in the US Sanders Boxer bill they will suffer. Australia and the US are major coal suppliers and their governments are under high pressure from the coal industry not to tax. Due to all this political wrangling  carbon tax has become such a dirty word that even environmentalists appear to shy away from it. They should realize that it is the most effective tool to combat climate change and bring it up at every pipeline demonstration.

 

Apart from a few flaws affecting institutions the BC carbon tax system seems ideal. It has been praised abroad as being effective, easy to implement and administer. While the details are shown in posts 1 and 10 it is worthwhile to stress once more that by law the government has to list each year how much tax has been collected and how it all was refunded. As can be seen in http://www.fin.gov.bc.ca/tbs/tp/climate/Carbon_Tax_Report_and_Plan_Topic_Box.pdf   there are at the moment 17 refund categories. Note that the 5% reduction of personal income tax at $ 264 million ( 22% of all tax collected)  is a fair deal for the 2 lower income groups. The low Income tax credit for people who pay no income tax but have to live with the higher costs also seems fair, 194 million ( 16% of all tax collected) . Many people are not aware of these refunds because it is not specifically mentioned on the income tax forms. Some people complain that the business taxes have been lowered, not realizing that this is a result of the carbon tax. They can also see that the refunds to businesses have been reduced over the years while those for individuals and families stayed the same.

To emphasize once more how far behind we are in taxing carbon here is another summary:

In Canada quite some people still believe that a carbon tax will hurt the economy and the poor, the opposite is true.  73% of the 103 studies analysed by the World Bank showed that carbon pricing has a positive impact on employment. Extensive studies for many European countries showed that England broke even while the rest gained from carbon pricing. 10 US states have experienced carbon pricing for years and report dramatic gains.(Post 1). BC experienced a 17% reduction in the use of fossil fuel without loss of GDP while the consumption in the rest of Canada rose by 1 ½ %. The poor don’t suffer. Low income people receive 16 % of all carbon tax collected. In October 2013 Washington and Oregon signed the Pacific Coast Collaborative and will start taxing carbon based on the BC model. Together with carbon pricing in California and Alaska carbon pricing will come to four states and one province which have a combined population of 53 million people, with a gross domestic product of $2.8-trillion.

For quite a while the government has proclaimed that we are already half way through in meeting our Copenhagen agreement. In one of my 2013 emails I asked Mr Harper to consider publishing figures showing how we will meet the other half. I did not see it but in a recent article by Mr Jeffrey Simpson of the Globe and Mail I see that we at best we will see 7% reduction rather than the 17%. This is not an off the cuff estimate but the findings based on an annual report by Ms Gelfand, who is the Commissioner of Environmental Development, an offshoot of the Auditor General’s office.  The US has an identical agreement which could have been met by accepting the Waxman Markey bill. It was voted down in part due to the complex political system but also following publications by the powerful Heritage Foundation. It claimed that it would cost $ 1500 per household while the Congressional Budget Office, the EPO and several others put the cost at $ 150 per family. The Heritage Foundation just ignored how the tax proceed are refunded to those who paid the tax. In June 2014 the EPA introduced strict new regulations forcing coal fired power plants to switch to natural gas, which emits only half the amount of CO₂. Those regulations or the present revenue neutral carbon tax bill introduced by senators Sanders and Boxer will in all likelihood allow the US to meet their 17% reduction target.

The US has introduced and debated at least 5 carbon pricing bills and we have not tabled a single one. No wonder the French president told us in his speech on November 3^d that we are far behind on fighting climate change.