Two words: revenue neutral

National action on carbon emissions is coming. It’s expected, it’s needed and rather than fight it, smart businesses should weigh in on the discussion to help create the best outcome
By Ian McGugan

Let’s be clear: Resisting a carbon tax in Canada by pointing to emissions in China is ethical nonsense

Should Ottawa tax carbon emissions? British Columbia already imposes a levy on greenhouse gas emitters and Alberta will begin doing so next year. Meanwhile, Quebec forms part of a cap-and-trade system with California, and will soon be joined by Ontario and Manitoba. But while support is clearly building for national action, opposition is intense.

Right-wingers such as Saskatchewan Premier Brad Wall and Yukon Premier Darrell Pasloski claim a carbon tax would kill jobs. At the other end of the political spectrum, even staunch NDPers are struggling with exactly how far they’re willing to go to rein in carbon emissions. The brawl over the Leap Manifesto at the NDP convention in April revealed a nasty split between those who want to accelerate the shift to a green economy and those who worry about what that might mean to the many workers who earn a living from the oilsands.

Dismissing such debates as old-time posturing would be a big misjudgment. As the evidence mounts of the potential damage from climate change and international pressure grows, a federal carbon plan looks increasingly likely. Smart companies should enter into the debate now while there’s still a chance to help shape the policy.

A good place for them to start would be by acknowledging that, yes, the global climate is heating up and the rise in temperature is the result of human activities. A literature survey published this spring in Environmental Research Letters found roughly 97% of climate scientists agree that humans have caused recent global warming. While the opinion pages of certain newspapers still strive to make it sound as if climate change is in doubt, it’s not—at least not among people who know the science.

The rout of the denialists leaves those who oppose action with few excuses for doing nothing. Diehards are reduced to arguing that any Canadian attempt to impose constraints on carbon emissions is useless so long as much larger polluters, like China, continue to spew greenhouse gasses. But that position is ethical nonsense once you acknowledge the potential damage from climate change. It’s like saying you should be free to lie and cheat until everyone else becomes indisputably honest.

Morality aside, the China excuse no longer reflects reality. Last year, the Asian giant pledged to halt its growth in greenhouse gas emissions by 2030. Earlier this year, it introduced a five-year plan that aims, in part, to end its dependence on coal, and it’s already the world’s largest producer of solar power. While China’s moves on the environment may not be as fast as many of us would like, they are substantial and they have gutted any alibi for Canadian inaction.

Meanwhile, U.S. opposition to the Keystone pipeline and “dirty” Alberta crude has made it clear that potential buyers of our oil aren’t going to be satisfied with a Canada that does nothing to address the environmental issues around the oil patch. Like it or not, oil producers now have a vested interest in reducing carbon emissions.

Rather than fighting action on climate change, many businesses are now hoping to shape exactly how carbon emissions might be trimmed. Suncor, Canada’s largest energy company, has stated its support for a broad-based, gradually imposed carbon tax. So has the Mining Association of Canada. They are doing the smart thing and trying to steer the debate.

They are also recognizing the growing evidence that a carbon tax doesn’t have to kill jobs. Theory says such a tax can deter pollution by putting a price on the environmental damage done by those who burn fossil fuels. So long as the money raised by such a tax is recycled in ways that encourage growth—B.C., for instance, uses the added revenue to cut income taxes—the net effect is likely to be neutral.

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Experience backs up the theory. British Columbia implemented the first substantial carbon tax in North America in 2008. Since then emissions in the province have been reduced by 5% to 15% with “negligible effects on the aggregate economy,” according to a review by Brian Murray of Duke University and Nicholas Rivers of the University of Ottawa. Another study by Akio Yamazaki, a PhD student at the University of Calgary, found employment in B.C. has actually increased versus other provinces since the carbon tax began (see sidebar).

Despite the screeches from certain quarters, a carbon tax would be highly unlikely to kill the oilsands, so long as the amount of the levy wasn’t punitive. Economist Andrew Leach of the University of the Calgary (and adviser to the current provincial government) says the value derived per unit of emissions is high enough to justify producing bitumen even with the cost of a $30-per-tonne carbon tax factored in.

So where should companies throw their support? For starters, they could express their backing for a carbon tax rather than a bureaucratic cap-and-trade system that relies upon companies buying and selling pollution quotas. Carbon taxes are simpler to implement and also fairer because they avoid complicated and highly political decisions about emission limits and how initial rights to pollution quotas are assigned. For many of the same reasons, a national carbon tax also seems preferable to our current balkanized scheme of provincial plans. A national plan would ensure companies are treated the same anywhere in Canada.

To make all of this work, companies should press for revenue neutrality—in other words, a pledge that Ottawa won’t use a carbon tax as a piggy bank for other projects. Using the sums raised from a carbon tax for general revenue purposes is inefficient and distorts the economy, according to a recent paper by Kenneth McKenzie of the University of Calgary.

What does make sense is returning the revenue raised by carbon taxes to ordinary citizens through a reduction in their income taxes. Done right, a national carbon tax could be at once effective, popular and economically benign.

Ian McGugan is an award-winning business journalist in Toronto and the founding editor of MoneySense magazine. E-mail: imcgugan4@ gmail.com.

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