Friday, May 30, 2008

The time to discuss a carbon tax

It is “Bike to Work week" here in Vancouver. The timing, you might argue, is perfect, and not only because the infamous Pacific Northwest rains have petered out for the summer. Evidence is mounting that we are approaching the elastic part of the gas price equation.

The increase in gas and oil prices – and especially the threat of a continued increase – is beginning to impact North American driving habits. Americans drove 11 billion fewer miles this March, than the previous March, a drop of 4.3%. Trucking companies are telling drivers to slow down and to reduce idling. Auto dealers are selling fewer SUVs and trucks than cars for the first time in years. last March. SUV and truck sales are plummeting. Public transit use is increasing. And, yes, there is anecdotal evidence that more North Americans are cycling to work, though I attribute the large number of cyclists trudging up the hill to the UBC campus this week to the sunny weather and the promise of a free cup of coffee, not to gas prices (nothing motivates people in the Pacific Northwest more than a sunny day or a coffee).

These are the sort of behavioural shifts that may be encouraged by a tax on the carbon content of fuels. That does not mean that anyone should celebrate the current rise in gas prices. The problem right now is that the proceeds from the gas price increase is going almost entirely to the oil companies (see Salon's Andrew Leonard for a terrific breakdown of the cost of gasoline). This is essentially subsidizing exploration in regions previously deemed unprofitable, in effect opposing the very initiatives necessary to reduce our reliance on oil. If, on the other hand, gas prices had increased because of taxation, the proceeds could go towards public transit, increasing fleet fuel efficiency and alternative fuel development, initiatives that could reduce our reliance on oil and relieve the burden on the public.

Adding a tax based on carbon content of fuels, even a revenue neutral one like that suggested by Canada's Liberal Party, is politically challenging at a time when oil prices are already high. But if we do not add a tax, then the oil companies remain the sole beneficiaries. That's just one reason the time is right to seriously consider a federal tax on carbon as the key part of a carbon pricing policy.

The Liberals floated a trial balloon, presumably to test public opinion and the response of the other parties. The discussion since then has been dominated by politics. There are serious arguments one could make against a carbon tax: you will not find them in the blatantly manipulative Conservative response or, for that matter, the surprisingly negative NDP response. The signs suggest the public is ready to accept a carbon pricing policy. Is it naive to hope the choice - a tax, a cap-and-trade system, or a combination of the two - is based on the policy itself, not the politics?

4 comments:

Mike said...

This blog is great

TokyoTom said...

Simon, why no mention of the BC carbon tax, that was approved before this post and took effect July 1?

FWIW, I have a summary of support for/research on carbon taxes here:
http://mises.org/Community/blogs/tokyotom/archive/2008/06/28/top-demagogues-jim-hansen-florida-power-exxon-aei-margo-thoring-major-economists-george-will-prefer-rebated-carbon-taxes.aspx

Simon Donner said...

More on taxes later, as we get close to a federal election here. I'd guess the furor in BC will die down as people simply get used to the carbon tax, much as happens with "controversial" government initiatives (like wearing seatbelts, like no smoking in bars and restaurants, etc.).

Carlos said...

Good Job! :)