Putting a Price on CarbonOctober 10, 2012
Canadian International Council
By: David Runnalls
Bravo for the CIC. It has always struck me that Canada has neglected the foreign-policy advantages of the resource-based part of its economy. In an era of increasing shortages of, and pressures on, such critical items as food, energy, and water, Canada is virtually the only country in the world that is not only self-sufficient in these areas, but is also capable of generating exportable surpluses of these commodities if it chooses to do so. Yet, we have no coherent domestic- or foreign-policy approach other than to declaim that we are open for business. We produce few industrial products that are designed to add value to basic commodities. The Finnish forestry equipment example is perhaps the best known, but in any Canadian mine, forestry operation, or energy installation, virtually all of the equipment is imported. And our ports are full of semi-processed, or even unprocessed, raw materials. The proposed export of unrefined bitumen via the Northern Gateway pipeline is but the latest example of our “hewers and drawers” economy.
Nowhere is this lack of strategy more obvious than in the case of climate change. From Jean Chrétien to Stephen Harper, successive governments have fumbled and stumbled to the point that Canada is now the pariah of international climate discussions. How do we escape this trap and begin to restore some lustre to “brand Canada”? The CIC report wisely points to the price of carbon as the key to any successful climate policy. It is right in demonstrating that the experience of other countries with carbon pricing has been almost universally successful in stimulating innovation and controlling carbon emissions in ways that the private sector finds acceptable.
While the political wisdom in Ottawa’s Conservative circles seems to be that a tax is a political no-no and will drive up the price of “everything,” we have a domestic experiment that demonstrates the opposite. British Columbia has had a significant carbon tax for four years. Gordon Campbell fought an election against the NDP at least partially on the carbon tax and won. Five years later, the NDP opposition has announced that it now supports the continuation of the tax.
Evidence shows that the tax works. According to research from Sustainable Prosperity, a national research network and think tank where I spend part of my time:
B.C. now has the lowest per capita fuel use of any province in Canada, passing Ontario, which was consistently ahead of B.C. for low fuel use before the introduction of the carbon tax… The SP report, which examines the impact of the policy as it marks its four year “anniversary” on July 1st, found that between 2008 and 2011, per capita use of petroleum products, such as gasoline and propane, dropped 15.1% in B. C. During the same period, there was a 1.3% increase in fuel use across the rest of the country.
Moreover, other research by Sustainable Prosperity indicates that the reduction in fuel consumption exceeds what the models predicted. It would seem that the discussion around the tax, and climate change in general, has helped raise the environmental awareness of B.C. residents so that they have taken other measures to reduce their consumption.
Furthermore, the adverse political effects of the tax seem to have been overcome by the decision to make the tax “revenue neutral.” This has resulted in decreases in both individual and small-business income taxes. In fact, B.C. now has some of the lowest income taxes in the country. Other policies that accompany the carbon tax, such as requiring governments to construct energy-efficient buildings, have resulted in a growth of innovation in a sector that is responsible for much of Canada’s CO2 emissions.
So, a carbon price (not necessarily a carbon tax) now has surprisingly broad support among environmental non-governmental organizations, and in a surprisingly large number of the C-suites in Canadian industry. The B.C. experience has demonstrated that it is possible not only to impose such a price, but also to do it in such a way that it does not result in political death. The CIC is right to urge the prime minister to gradually shift his ground to support what is essentially a very conservative approach to the use of markets to promote natural-resource efficiency.
BY: David Runnalls