Notes from north of 49ºN

While the Vancouver Canucks advance in their bid for the Stanley Cup, the British Columbia provincial election is heating up, as the NDP has pulled within 2 points (39/41 +/- 3.4) of the not-so-liberal BC Liberal Party.  The Green Party is running a distant third at 13%.

One of the big election issues is the Carbon Tax, which is a tax on pollution.  It puts a price on the social costs of environmental degradation {negative externalities}.  The carbon tax was initiated last year in BC, which should give Obama insights into his plans to address carbon reduction.  {Obama’s already talking of a nationwide “cap and trade” policy.}

BC Carbon Tax & The Economic Sociology of the Environment

The BC carbon tax claims to be revenue neutral, meaning it returns the tax in the form of lower personal and corporate income tax.  The tax shuffles funds around in the following manner where one-third of the carbon tax revenues are paid by individuals and two-thirds by industry, while two-thirds of the tax reductions benefit individuals and one-third benefit business.  A fairness issue arises, as some businesses can pass the tax along to consumers, depending on the elasticity of demand.  The carbon tax is initially (effective 7/1/08) $10 per tonne of carbon dioxide equivalent (CO2e) emissions (2.41¢ per litre on gasoline), but will increase each year after until 2012 to a final price of $30 per tonne (7.2¢ per litre).  For US readers, this is currently 7.68¢ US per gallon of gasoline and will go up to 22.9¢ in 2012 (4/30/2009 exchange rate).

One of the issues brought up is that while the BC Liberal Party is imposing a tax on pollution, it’s allowing the export of carbon-producing fuels to leave the province untaxed.  In addition, the government is allowing offshore drilling for oil as part of their energy policy.  This is opening up the BC Liberals to charges of hypocrisy.

So, in the past 10 months, what has been the effect?  I think it’s impossible to gauge the results, given that gasoline prices have gone down and the BC economy is in a recession, although with lower unemployment than Washington, Oregon, and California.  I have to admit I am skeptical that the BC Liberal’s  carbon tax policy will actually reduce carbon emissions.  Why?  This Canadian Dimension editorial introduces a paradox::

“By way of comparison, the average retail price of gas in Canada, adjusted for inflation, has risen forty percent in the past five years. The increase is the equivalent of $120 per tonne of emissions — four times as much as the maximum tax proposed in B.C.

But consumption did not decline. In fact, during the same period both gasoline sales and greenhouse-gas emissions rose to record levels…

In short, the B.C. carbon tax is regressive, shifting ever more of the province’s tax burden onto working people, while reducing taxes on corporations. It will do nothing to cut emissions or slow global warming.”–“B.C.’s Carbon Tax: A Regressive Hoax” from Canadian Dimension (4/30/2008)

How can this be?  Are the economists that off-base?

As an economic sociologist, with a BA in the dismal science, I know at least some of the answers.  Increasing prices through a Pigouvian tax without consumption/production alternatives offers no incentives to alter behaviour away from carbon emitting activities.

A Northwestern sociologist, Monica Prasad, offered this interesting observation::

“The one country in which carbon taxes have led to a large decrease in emissions is Denmark, whose per capita carbon dioxide emissions were nearly 15 percent lower in 2005 than in 1990. And Denmark accomplished this while posting a remarkably strong economic record and without relying on nuclear power.”

—“On Carbon, Tax and Don’t Spend,” NYT (3/25/08)

How did Denmark do it?  According to Prasad, Danish policymakers subsidized environmental innovation by businesses and investing heavily in alternatives.  The idea here is to give incentives to move consumers and businesses away from carbon emission generating technologies towards renewable ones.  As a sociologist, I’m wary of talk of “pricing” carbon, as it attempts to reduce natural capital (i.e., the environment) with financial capital and the assignment of property rights, politicizing economic activity along the lines of power and wealth.  I’d much rather see policy aimed at moving towards a different technological curve, away from carbon, along with an increase in investments in public infrastructure (e.g., mass transit in cities/suburbs) that offers alternatives to carbon-heavy practices.

The Politics of Carbon: “Axe the Tax”

Carole James, leader of the NDP, has been advocating dumping the carbon tax in favour of a “cap and trade” approach, the direction Obama is leaning towards.  The NDP “axe the tax” stance was costing them politically, despite the tax being unpopular, as environmental groups criticized the move.  In this election, there are 85 seats up for grabs.  While the Green Party may siphon off votes from the NDP, it is very unlikely that a single seat will go to the Greens.  Given the overall BC Liberal Party stance on the environment, environmentalists may have a tough choice on May 12.  The carbon tax may fade away as a key issue, as the economy and issues of ethics and integrity might come front and center, but perhaps the economy and the environment will become an intertwined issue.

I’d like to see policies in BC and elsewhere move towards weaning citizens away from carbon.  A recent Wired Magazine article  goes over many of the issues involved in green technologies, including who will pay for the costs of innovation.  I think the BC Liberal carbon tax isn’t the best policy, as I don’t see it reducing carbon emissions and is mute on carbon-emitting fuels being exported and untaxed.  Whichever party wins, I see the BC government as playing a key role in spurring behavior changes through investments and incentives, but who will foot the bill, particularly given a tight budget?

• What are your thoughts on a carbon tax?  (In BC or even in the US)
• What are your thoughts on policies that create incentives for businesses & residences to adopt new greener technologies or retrofit carbon-based ones?
• Should policy focus on investing in new green technologies?  How much should government foot the bill? Should green be linked to economic recovery plans?
• What would the candidates & the “Fake Tweeple” candidates say?