Tax the "bads" not the "goods"

The proposal is to tax wholesale fossil fuels (which covers about 75% of Canada’s emissions) and return the revenues as income and corporate tax cuts and special credits. The tax rate starts at $10 per tonne of carbon (the higher the carbon content of the fuel, the higher the tax, which means coal highest, natural gas lowest, wind, solar, hydro free). It escalates to $20, $30, and $40 in the next years. Given the political hot-potato of rapidly rising gasoline prices, they’ve counted current taxes as part of the tax, meaning no new tax on gasoline until the fourth year.

The rate is relatively low – too low — considering that it probably takes $50 or more to prompt high-reduction investments, and the point should be to feel it. A smart part of the package it to put the Auditor General in charge of ensuring revenue-neutrality.

There is no question that a stiff price on carbon is essential – but not sufficient — to reduce emissions. It will be especially effective at changing behaviour of large energy consumers including industry and power producers, but less effective (or ineffective) where there aren’t options, like getting to work or heating your house.

Carbon pricing should be complemented with a legally-binding cap on emissions from major sources to ensure predictable reductions. And given that Canadians waste more energy than any other developed nation, it is bordering on ridiculous that the tax is not complemented by specific requirements to improve the energy efficiency of everything from cars to appliances to buildings. That, even more than tax cuts, will offset the impact of a carbon tax, and is a serious gap so far.

Canada’s economy and environment is in a challenging and precarious situation with both climate change impacts and rising fuel costs. That’s why it is impressive to see some thoughtful, specific and even brave commitments to ending fossil fuel addiction, not prolong it, in a way that will engage all sectors of society in the transition to low-carbon economy. We must have full-coverage, escalating carbon constraints or face a global meltdown.

by Julia Langer