Stéphane Dion’s recently released carbon tax proposal has brought the climate change debate roaring back to Parliament Hill and has even triggered widespread public discussion. After years of political posturing, it seems as if a Canadian politician has actually proposed a reasonable emissions reduction strategy. Oil rich Alberta has rejected the plan, and as such, it is no surprise that the Conservatives also expressed vehement opposition.
Most interesting though is the opposition from the NDP, a party that often touts itself as greener then the Green Party. In lieu of a carbon tax, the NDP has thrown its support behind cap and trade as a method of carbon pricing, causing unnecessary polarization of the climate change debate.
Though these models are not mutually exclusive, the partisan debate has degenerated into which model will achieve the 60 to 90 per cent CO2 emission reductions needed to curb the devastating effects of global warming.
Both cap and trade and carbon taxes are systems designed to utilize market forces for reduction of CO2 emissions. A carbon tax levies a fee on CO2 emitted from polluters, assigning a fixed price for every tonne of carbon emitted. Over time, government regulators increase the tax on carbon, giving consumers and businesses financial incentive to reduce emissions.
Policymakers usually design the system to be revenue neutral, meaning the revenue collected from taxation is redistributed in the form of tax cuts for income, capital and labour. Increased commodity prices caused by a carbon tax will disproportionately affect low-income families, and as such, most tax plans include relief measures for this income bracket.
Rather then relying on the price of carbon to reduce emissions, a cap and trade strategy controls the physical quantity of emissions that are released on a yearly basis. An emission cap is set for a group of polluters who are then sold or given pollution permits, whose sum collectively equals the emission cap. Companies who reduce emissions below their allocated permits can sell excess permits to companies who are emitting above their allowance level. Regulatory annual reduction of the emission cap will then reduce total emissions
over time.
As always, the devil is in the details.
Price volatility within a cap and trade market is a serious concern. Volatility is produced when outside factors, such as weather or economic conditions, cause severe fluctuations in the price of carbon. For example, an extremely cold winter will inevitably increase demand for carbon intensive energy, leading to skyrocketing energy prices as utility companies are forced to comply with an inflexible emissions cap. A carbon tax, on the other hand, has an obvious disadvantage; it is politically unpalatable to increase taxes. Even if a carbon tax is implemented, timid politicians will opt to introduce an ineffectually low tax, as is currently the case with the Quebec carbon tax. Additionally, a tax does not entail quantifiable emission reductions; rather, it relies on consumers and businesses to reduce emissions by purchasing fewer carbon-intensive goods.
Political barriers to carbon taxation have caused most jurisdictions to favour cap and trade. The European Union experimented with cap and trade from 2005 to 2007. Unfortunately, the system collapsed due to a series of factors including price volatility and an unreasonably high emissions cap. Improvements have since been made to mitigate these problems and the second phase of the European plan began in January of this year. While cap and trade can be made successful, it is clear from the European model that it still requires substantial development before becoming effective.
Environmentalists and economists from across the political spectrum have hailed carbon taxation as the most efficient method for stabilizing CO2 emissions. Supporters include environmentalist David Suzuki and world-renowned ecological economist Herman Daly. Conservative economists like Harvard Professor Greg Mankiw and the U.S. Congressional Budget Office also support the tax. Even left-leaning Greenpeace and right-wing think tanks, such as the American Enterprise Institute, see eye-to-eye in their respective support of carbon taxation.
Here in Canada, Stéphane Dion has recognized the complexity of cap and trade and has boldly introduced a carbon tax. This is uncharacteristic for any politician, especially for one within the ranks of the predominately populist Liberal party.
Sadly, by denouncing the Liberal plan, the NDP chose to politicize a global threat that is intolerant to partisan politics. Climate change poses an unprecedented challenge to all; however, responsibility for change rests largely in the hands of current politicians who have the power to implement large-scale emission reduction policies. For once in this country the leader of a mainstream political party has put good policy above votes. Dion, it might be a hard sell, but kudos nonetheless.
Tim Philpott studies environmental science and geography. Last year he was Environment Manager at the Tea Room.
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