A chat about carbon pricing

Below is a link to a fun podcast chat I had with the very sharp interviewer Jayme Poisson on the un-necessity of carbon pricing. My 15 minute discussion starts at minute 5:45.

Please share widely.

https://www.cbc.ca/radio/frontburner/the-political-cost-of-carbon-taxes-1.4931195

Carbon Pricing: Wasting Time We Cannot Spare on the Optimal Steering Mechanism for the Titanic

I am a climate-energy economist open to incorporating in my analysis and policy prescriptions lessons from other disciplines, in this case political science and social psychology. This is why almost 20 years ago I started studying and writing about 'market-oriented regulations’, which I now refer to as 'flex-regs.' It is also why, 14 years ago, I proposed a ‘carbon management standard’ in my book, Sustainable Fossil Fuels. And it is why I have explained for over a decade to sincere politicians and their advisors how to integrate political acceptability as a policy evaluation criterion alongside cost-effectiveness. Sadly, whenever sincere politicians get interested in climate policy, voices like mine can get drowned out by suggestions from people who have never been interested in the empirical research, especially on the challenges of carbon pricing in first-past-the-post electoral systems where victory often depends on a tiny percentage of voters in a few swing suburban ridings. Also, these people seem to naively assume that this small percentage of voters are willing to invest the necessary time and smarts to carefully assess the verity of misinformation campaigns claiming that carbon pricing is highly punitive and economically disastrous.

Is it any surprise that many in the fossil fuel industry are keen to propose carbon pricing for all emissions of domestic consumers, but only a tiny percentage of their emissions?

Much more to come in a book I have written but not yet published.

Here is a link to my article in the December 15 Globe and Mail and the text is below:

Divisive carbon pricing. Much ado about nothing.

I am a climate-energy economist. Most of us tell politicians: “You must price carbon to succeed against climate change.” Later, after an election, we say, “You opposed carbon pricing and won. That’s bad policy.” Or, we say, “You promised carbon pricing and were defeated. You would have won had I designed and explained it. My students say I’d have been a great politician.”

Fiction? Think again. This has been the economists’ narrative for decades as politicians wrestle with the unforgiving task of decarbonization.

But guess what? Carbon pricing is not essential to stop burning coal and gasoline. We economists only say it is because we prefer it. If we were honest, we would explain that decarbonization can be achieved entirely with regulations. These will cost more, but not a great deal more if policy-makers use flexible regulations, or “flex-regs,” that allow companies and individuals to determine their cheapest way to decarbonize.

Thus, policy-makers can require the phase-out of coal plants while allowing competing electricity generators to determine the cheapest mix of low-emission wind, solar, hydro, geothermal, nuclear, wood, biomethane and natural gas. Likewise, policy-makers can require the phase-out of gasoline vehicles while allowing manufacturers and consumers to determine the contributions of electric, biofuel and hydrogen vehicles.

We economists should also explain that while carbon pricing gets all the media attention, flex-regs quietly do the heavy lifting. A decade ago, I helped design British Columbia’s mix of a carbon tax and flex-regs. One flex-reg caused BC Hydro to cancel intended coal and natural gas plants and instead develop low-carbon options from competitive bids. This flex-reg is three times more effective than B.C.’s carbon tax, and it faced no opposition. Last week, the B.C. government copied Quebec in implementing a zero-emission vehicle standard, a flex-reg to eliminate the purchase of gasoline vehicles by 2040.

The California Air Resources Board acknowledges that California’s carbon-pricing policy, which Quebec shares and Ontario did briefly, accounts for only 15 per cent of recent and projected emission reductions in California. Again, the key policies are flex-regs, namely electricity’s renewable portfolio standard and transportation’s low carbon-fuel standard and zero-emission vehicle standard.

Pollsters say Alberta Premier Rachel Notley’s carbon tax contributes significantly to her dim re-election prospects. Ironically, my research team finds the new tax will cause no more than 5 per cent of her climate plan’s projected reductions. The heavy lifting is from her coal-plant phase-out, methane regulations, a pre-existing flex-reg on large industries, and a cap on oil sands emissions. I’ll bet she wishes an economist had told her she didn’t need the tax, and that it does almost nothing anyway.

According to analysis by my research team, Prime Minister Justin Trudeau’s court-challenged carbon tax contributes 15 per cent of his climate plan’s reductions. He can easily replace it by tightening the stringency of his planned clean fuel standard, a flex-reg that applies to the same fuels as the carbon price. I’ll bet he wishes an economist had told him that, as I tried to in an article in Policy Options magazine shortly after his election.

But if carbon pricing is doing little to decarbonize the economy, why does it get all the attention? The reason is obvious to political scientists.

Surveys have long shown that taxes are a toxic issue for some voters. Unless it is an obvious tax cut, any other tax change for societal benefit can easily be framed by opponents as economically harmful. A politician proposing carbon pricing presents an irresistible target, especially if political opponents only need to swing 5 per cent of voters in key suburban ridings for electoral success.

Even if most voters support carbon pricing, this doesn’t matter in our first-past-the-post electoral system. What matters is small success with misinformation campaigns claiming that carbon taxes hurt middle-class suburbanites and rural residents. Some will believe it, and even if government returns carbon-tax revenue as tax cuts or dividend payments, some of these voters will still accept the untruths that carbon pricing is personally punitive.

Thus, a carbon tax puts a bulls-eye on a politician’s back, making it easier for opponents to promise to axe the tax and replace it with ineffective policies they untruthfully claim will cause decarbonization. They might even hint at regulations, without giving a timeline.

In 2008, then-Liberal leader Stéphane Dion asked to meet with me to discuss his plan to campaign on a carbon tax. I told him this was good policy, but bad politics, and that it would cost him the election. He did it anyway. Sure enough, Stephen Harper focused his campaign on “job-killing carbon taxes.” Mr. Harper’s victory ensured a lost decade of faking-it climate policies.

This time last year, I gave talks in France at the invitation of some academics trying to warn President Emmanuel Macron’s advisers that relying on carbon taxes would be a political disaster, stalling rather than advancing decarbonization. Unfortunately, their warning went unheeded, and now the violent gilets jaune protests in Paris have forced Mr. Macron to backpedal on the plan.

As long as we economists tell politicians they must price carbon, instead of admitting that flex-regs and other mechanisms can do it all, humanity will continue to flounder in the face of the decarbonization challenge. Sincere politicians cannot use carbon pricing as their lead policy. Even modest pricing efforts can help elect insincere politicians. But fortunately, we don’t need to price carbon. 

When allocating blame for humanity’s inaction on climate, it’s time for us economists to look in the mirror – instead of convincing our students what great politicians we would have been.

Canadian Carbon Pricing Confusions

The federal government (Environment and Climate Change Canada - ECCC) released on April 30, 2018 its estimate of the incremental effect of its carbon pricing initiative relative to other policies in achieving Canada’s GHG reductions – Estimated Results of the Federal Carbon Pollution Pricing System. They estimate annual reductions in 2022 of 80-90 mega-tonnes (MT) of CO2. Their numbers are dramatically higher than estimates by my research team. Why?

The approach we took to estimate the incremental effect of federal emissions pricing

At about the time the Trudeau government announced that emissions pricing would be “central” to achieving its GHG reduction targets, it also announced specific regulatory policies, including nation-wide adoption of Alberta’s coal plant phase-out and methane regulations, tightening of vehicle regulations, and (a bit later) a clean fuel standard, which is similar to BC’s low carbon fuel standard but applied to all sectors not just transport. To assess the incremental effect of the federal carbon pricing policy, we created a reference scenario which included everything that should happen absent the federal pricing initiative. 

Thus, our reference scenario included all carbon pricing and regulatory policies of the provinces and simulated their effect on emissions between 2018 and 2030. BC and Alberta had both committed to $30 /tCO2 for carbon pricing while Ontario and Quebec had committed to a price that climbs toward $20 and surpasses that threshold well before 2030. All four provinces had existing and announced regulations, such as Alberta’s announced cap on oil sands emissions, methane regulations, and coal-plant phase-out by 2030, and BC’s clean electricity standard and low carbon fuel standard. We included regulations by other provinces too, such as the electricity decarbonization policy in Nova Scotia. To these we added the existing and announced federal regulations. 

We sustained all of these provincial and federal policies through to 2030, which gave us a forecast of the evolution of Canadian emissions if Trudeau’s government had avoided carbon pricing as a policy and instead relied on existing provincial policies (pricing and regulation) and its own announced regulations. This reference scenario (without the federal pricing initiative) sees Canadian emissions fall approximately 6% from their 2005 level.

To this reference scenario, developed in early 2016, we later added the federal carbon pricing policy, which reaches $50 /tCO2 by 2022. We assumed, in the absence of a schedule beyond 2022, that the carbon price would remain constant after that. Not surprisingly, the incremental effect of the federal carbon pricing policy is very small by 2030 and even smaller by 2022. I’m getting my research associate to dig out the exact numbers for these two dates. (She now does modeling for the International Energy Agency in Paris and is awfully busy!). But my eyeball guess looking at our graphs is that the incremental effect of the federal carbon pricing policy is to reduce emissions 1-2% from their 2005 level, a reduction of 10-15 MT in 2030. That number should be smaller in 2022, far below the claim of 80-90 MT in the latest ECCC report.

The federal approach to estimate 80-90 MT of reductions from pricing by 2022.

In reading the report, I see two possible causes for the discrepancy between our estimate of a low incremental contribution from the federal carbon pricing initiative and the high estimate in this latest federal report. The first cause is that the federal government estimate takes credit for all pre-existing carbon pricing initiatives of the provinces. The second cause, more speculative on my part, is that they may not have done proper incremental policy modeling, meaning that the federal carbon pricing got recognition for emission reductions that should be attributed to non-pricing policies.

Page 3 of the report helps explain the first cause of the discrepancy. The estimated 80-90 MT attributed to federal carbon pricing is based on the assumption that there never have been provincial emissions pricing policies in Alberta, BC, Ontario and Quebec. The carbon pricing policy is “compared to a hypothetical scenario in which they [provincial governments] did not have pricing systems in place.” (p.3) In other words, the reference scenario for estimating the federal carbon pricing initiative is a hypothetical world in which there is no carbon pricing anywhere in Canada. Which of course is not true.

This is clearly not an accurate way to represent the incremental effect of the carbon pricing initiative of the federal government. While it makes a lot of sense to have better federal coordination and consistency of climate policies across the country, and the federal backstop carbon price does that, it is nonetheless grossly misleading to suggest that current provincial pricing can be attributable to federal policy any more than that the phase-out of coal plants in Ontario in 2004-2014, the policy-driven cancellation of coal plants in BC in 2007, and Alberta’s announced phase-out of coal plants in 2015, can be attributed to the federal coal plant policy announced in 2016.

While this is likely to be the dominant cause of the discrepancy in our estimates, I also could not find an explanation in the report of the method the federal policy modelers used to estimate the incremental effect of the federal carbon pricing initiative and federal regulations. As I noted above, this entails first simulating all of the provincial and federal non-carbon pricing policies and the provincial pricing policies to 2022 and 2030. And then to run a second simulation with only the addition of the federal carbon pricing initiative. The change in emissions between these two simulations indicates the incremental contribution of that policy. This contribution of the federal carbon pricing policy will be very small, as we found with our modeling research. But you actually don’t need a model to see what is obvious by surveying the portfolio of provincial and federal regulatory policies, past and present.

Take-Away

In 2016 I and two research associates produced a report entitled Is Win-Win Possible? Can Canada’s Government Achieve Its Paris Commitment . . . and Get Re-Elected? In which we explained that a rapidly rising carbon emissions price was needed to achieve the Paris commitment. We noted that while all climate policies are politically difficult, there is considerable evidence from real-world GHG policy experience and political science surveys to suggest that carbon pricing is far more politically challenging than some regulatory policies. We also noted that flexible regulations can be designed to approach carbon pricing in economic efficiency, if designed with that purpose in mind.

Some economists, including some at Canada’s carbon pricing advocacy entity, the Ecofiscal Commission, dismissed our assessment. They presented studies constructed to show a deliberately big economic efficiency gap between regulations and carbon pricing, instead of testing the likely long-run cost of using flexible regulations like the low carbon fuel standard over several decades to decarbonize transport. And they dismissed as naïve any research showing the visceral antagonism to pricing policies by significant segments of the population – and therefore the risks to politicians of relying on such policies. 

None seemed willing to even discuss the importance of comparing GHG policies using a criterion such as political cost per tonne reduced in order to compare this to economic cost per tonne reduced. This is unfortunate, because research by ourselves and others shows that carbon pricing has an enormous political cost per tonne in comparison to flexible regulations. This helps explain why many of these flexible regulations have played a much bigger role in GHG emission reductions thus far in Canada, California and Europe, including Scandinavia where there has been some form of carbon pricing for years.

A decade ago, Canada had a federal election dominated by the issue of carbon pricing. Voter rejection of carbon pricing enabled Stephen Harper to defeat Stephan Dion and win power for a decade, a decade in which he deliberately stalled on implementing effective GHG reducing policies. That was not an economically efficient outcome.

Because carbon pricing advocates have convinced the Trudeau government to take a large political risk for only a small incremental GHG reduction, history may soon repeat. Studies that are distorted to show an artificially large reduction from the federal pricing initiative are not going to save the day. Trudeau may win re-election and sustain the federal carbon pricing. But if so, this will occur in spite of carbon pricing, not because of it. One must ask if the risk is worth it, especially when the impacts of coal-plant phase out, methane regulations, and a clean fuel standard (that fairly efficiently decarbonizes transport) dominate our GHG reductions and yet are much less difficult politically – as polling continuously shows.

Ironically, our incremental modeling of various GHG reduction policies in Alberta shows a similar outcome. We estimate the incremental effect of Alberta’s carbon pricing policy (at its stringency level of $30 and different application in various economic sectors) is less than 5% of the GHG reductions caused by the other regulatory policies (excluding subsidy policies) in its Climate Leadership Plan. The vast majority of reductions are caused, again, by the coal plant phase-out, the methane regulation, the oil sands emissions cap (which varies depending on forecasts of future oil sands output), and various efficiency regulations. Yet some polls suggest that while the Notley government’s popularity is little affected by its introduction of regulations (most Albertans support coal plant phase-out), it has been greatly affected by the strong and ongoing opposition to her carbon tax.

Climate policy advisers need to take into account the real world trade-off between economic efficiency and political acceptability

Here is my response to fellow economists who seem unwilling to take into account this trade-off when giving climate policy advice. It appeared in Policy Options on October 11, 2016. The text is also given below:

Last week, the House of Commons endorsed the Paris climate agreement, under which Canada commits to reduce greenhouse gases by 30 percent below 2005 levels by 2030. Simultaneously, Prime Minister Justin Trudeau abandoned hope that each province would voluntarily implement policies to achieve the national target. He said the federal government would, if necessary, impose a national charge of $10 per tonne of carbon dioxide in 2018, rising to $50 by 2022. After a year of niceties, realpolitikhas arrived.

It is encouraging that Canadian governments increasingly acknowledge that effective climate policy requires a carbon price or equivalent regulations to reduce our use of coal, oil and natural gas. But this does not make the task easier. In September, I and my co-researchers Tiffany Vass and Mikela Hein released a report in which we estimate that Canada’s carbon price must reach $200 by 2030, if it is to be the dominant policy for achieving the Paris target. (This week we analyzed Trudeau’s proposed carbon price. If the price remained at $50 from 2022 to 2030, emissions would fall 12 percent. If it rose to $100 by 2030, they would fall by 17 percent.)

Relying entirely on emissions-pricing to reach our targets is a tough sell, because a $200 carbon price would increase the price of gasoline 45 cents per litre in just over a decade. Many people won’t grasp that as they switch to already-available electric, plug-in hybrid and biofuel vehicles, they will not be paying the high carbon price. And while economic impacts can be minimized if the government returns carbon revenues through income tax cuts, many people won’t see the correlation. Hence the political challenge.

This explains why, in our September report, we suggested that economists could help real-world climate policy implementation if they analyzed the costs of other policies that have successfully reduced emissions, especially the flexible regulations that have been dominant in activist jurisdictions like California. But in a recent article, members of Canada’s Ecofiscal Commission Don Drummond, Nancy Olewiler and Chris Ragan rejected our proposal.

First, they claimed that I and my colleagues don’t see the higher costs associated with carbon emissions regulations “as much of a problem.” This misrepresents our challenge to economists to estimate how flexible regulations like clean electricity standards, low carbon fuel standards and vehicle emission standards — compared with carbon pricing — will hurt the economy. If the economic penalty is small, flexible regulations should be considered where they have a much higher chance of being politically acceptable. Former Liberal leader Stéphane Dion’s failed electoral bid, which was based on a carbon tax, ensured a decade of climate inaction by former prime minister Stephen Harper. If we agree that a continued failure to act on climate will have a large cost, then not incorporating political acceptability into the policy calculus is penny wise and pound foolish.

Second, they argued that carbon pricing is now politically acceptable. But academic surveys and real-world evidence show the opposite. Carbon prices are everywhere still at such low levels that their effect in places like California, British Columbia, Quebec, and Ontario is negligible relative to regulatory actions that have also been introduced in those jurisdictions. Flexible regulations are projected to account for 90 percent of California’s reductions between 2005 and 2025.

Third, they argued that everyone can see the benefits of using carbon revenues to lower income taxes. Stating unequivocally, and without evidence, that “nobody should believe the claims of political infeasibility,” they explain that whenever the public complains that carbon taxes are too high, an easy solution is to explain that income taxes will go down.

Maybe this works with the students in their economics classes, but it certainly didn’t work for Stéphane Dion, and nor did it work for former BC premier Gordon Campbell, whose supposedly revenue-neutral carbon tax is the poster child for emissions-pricing. Government, climate activists, business leaders, and academics like Nancy Olewiler and myself made this case for revenue neutrality via income tax cuts repeatedly in the 2008-09 BC climate debate, to no effect. During the opposition’s “axe the tax” campaign, Campbell’s government dropped 20 points in the polls and would have lost the 2009 election, but it was saved by the bell when the global recession and resulting collapse in oil prices shifted voter concerns from gasoline to jobs. In a recent survey on the public’s relative views on climate policies in BC, I and co-researchers Katya Rhodes and Jonn Axsen found that strong opposition to the carbon tax was 7 to 10 times greater than strong opposition to flexible regulations.

We repeat our appeal that economists learn from other social sciences. Effective climate policies are politically difficult. Being unwilling to consider trade-offs that are at the margin between purist economic efficiency and political acceptability is to risk continuing along the path of climate inaction, which itself is economically inefficient.

Is Win-Win Possible? Can Canada’s Government Achieve Its Paris Commitment . . . and Get Re-elected?

For the past 6 months, I and co-researchers Mikela Hein and Tiffany Vass have been developing our national energy-economy model (CIMS) to simulate climate policy scenarios that explore the effect of current Canadian policies, and contrast this with (1) the must-price-emissions approach that some are advocating, and (2) an alternative approach that emphasizes a significant role for flexible regulations, similar to what California is doing with regulations on electricity, vehicles, fuels, etc. Available on this link, our report is called “Is Win-Win Possible? Can Canada’s Government Achieve Its Paris Commitment . . .  and Get Re-elected?"

If policy advisors and policy makers are to learn anything from the past 30 years of ineffective climate policies, they would hopefully see that climate policy is very difficult politically and emissions pricing is especially difficult. Canada intends to achieve its Paris commitment. To do so by emphasizing emissions pricing would require a price that climbs by about $15 per year to reach $200 per tonne of CO2 by 2030. It is highly unlikely that federal or provincial politicians will pursue this approach. Fortunately, they don’t have to. As noted, California is especially relying on flexible regulations. Such an approach is likely to be less economically efficient than emissions pricing. But researchers can help policy makers by estimating the magnitude of the economic efficiency trade-off for political acceptance. Our report attempts to start that process.

BC’s ‘New’ Climate Plan Scales Olympian Heights of Political Cynicism

This blog was first published as an Op-Ed piece in The Globe and Mail Aug. 21, 2016

In 30 years of evaluating government climate plans, I have learned to classify them into three categories: somewhat effective, naively ineffective and cynically ineffective. BC’s new climate plan fits perfectly into one of these categories. Can you guess which?

Let me help. The thing about ‘effective’ climate policy is that it is never a political winner. Effective policies would start immediately to reduce carbon dioxide emissions by either pricing these or regulating fuels and technologies. The price can be achieved by a carbon tax, as in BC and Alberta, or an emissions cap with tradable permits, as in Ontario and Quebec. Alternatively, regulations, which dominate in California, would require a growing market share for zero-emission vehicles, furnaces, electricity generation, and industrial equipment. In every case, the stringency of these effective policies must be increasing – a rising carbon tax, a falling emissions cap, tightening regulations. Everything else is bogus.

Politicians know that effective climate policy is not a political winner because these effective policies cause gasoline prices to rise immediately, while the benefits from slowing climate change and sea level rise occur after the politician’s career is over. Only a politician willing to show ethical leadership would take effective action on this difficult global challenge. Politicians who are not leaders but seem to care would gravitate to ineffective policies. Politicians who are cynical and don’t care would deliberately fake it, implementing a long list of ineffective policies, engaging in endless ‘public consultation’ and dismantling the effective policies implemented by previous climate leaders.

Which brings us to BC Premier Christy Clark and her new climate plan. From 2007 to 2011, her predecessor, Gordon Campbell, led the world in implementing effective climate policies, out-muscling even Arnold Schwarzenegger’s efforts in California. He banned the use of coal and natural gas to generate electricity. He implemented a rising carbon tax. He established the legislative framework for an emissions cap, and for tightening regulations on fuels, vehicles, buildings and equipment. He not only set a climate target for 2020, but also interim targets for 2012 and 2016 to enable real-time monitoring of the effectiveness of his efforts.

But when Clark replaced Campbell in 2011, one of her first acts was to freeze the tax at its 2012 level. Because of inflation, this means the tax has been declining in real value for the last four years. She also undermined his zero-emission electricity requirement and his emissions-cap legislation, and she has done nothing to tighten any of his other regulations. At the same time, she has vigorously promoted expansion of the natural gas industry which, if successful, would dramatically increase emissions. And last year, she launched yet another public consultation.

In refusing to serve on her consultative panel, I pointed out that this was the last thing BC needed, and that anyone joining the panel was legitimizing a strategy of inaction. In BC, we already had effective policies, and Clark would know from her advisors that only by increasing their stringency would emissions fall. But endless public consultation is a convenient way of appearing to care without taking action. And the panel did not help by naively calling for an increase in the carbon tax. This played directly into Clark’s populist posture as defender of overtaxed car and truck drivers, and was unnecessary, as California’s smart regulations have proven.

Last week, Clark finally released her climate policy. Predictably, it perfectly fits the ‘cynically ineffective’ category. First, there is no immediate tightening of the stringency of any effective policies to achieve emissions targets in, say, 2020 and 2025. Second, consistent with the cynical category, the plan includes a list of innocuous policies that are known to be ineffective – subsidies to industry to electrify some processes, information programs for consumers, and statements about the government’s good intentions. And taking cynicism to a new level, the plan’s so-called emissions reductions are dominated by tree planting on lands that are already allocated to forestry, an action that does not decrease emissions in the long run.

If there were an Olympic event for political cynicism on the climate challenge, BC’s new climate plan would be a strong contender for the gold medal.

Want an effective climate policy? Heed the evidence

This article appeared in Policy Options in February 2016.

Want an effective climate policy? Heed the evidence

Carbon taxes and caps may be most effective in economic theory, but smart regulation will produce better climate policy for our political reality.

Wisely, Prime Minister Justin Trudeau resisted the temptation at the Paris climate summit in December to double down on Stephen Harper’s 2030 target for Canadian carbon dioxide (CO2) emissions. While future emissions promises are easily made, effective climate policy is devilishly difficult. To have any chance, Trudeau needs to stay wise — which starts by avoiding advice from technology and policy advocates who themselves avoid inconvenient evidence from leading climate policy research and real-world experience. What does this evidence tell us?

For one thing, it’s a mistake to expect a big contribution from energy efficiency. For three decades, governments and utilities have made efficiency the focus of their emissions reduction efforts, with negligible results. Yes, energy efficiency is always improving, and we can slightly accelerate that trend. But humans require energy for basic needs and, more important, we keep inventing frivolous devices that use more. (Need evidence? Stroll through your local big-box store.)

The right use of carbon tax revenue? Sorry, there isn’t one

It never ceases to amaze me that some people can be so utterly certain about the right answer to questions that don’t have simple answers. The answer to “What is one plus one?” is simple. The answer to “How should we use carbon tax revenue?” is not. And for good reason.

To reduce carbon pollution we need to price it or regulate the technologies and fuels that cause it. We could just regulate. We could just price. But we know we have to do one or both to seriously reduce the pollution that causes global warming. After that, the certainty dissipates rapidly as each jurisdiction tries to mesh its carbon pollution policies with its other policy goals, the preferences of its voters, and the actions of its major trading partners.

BC’s carbon tax after 5 years

In 5 years, debates about BC’s carbon tax have generated much heat and little light, but Stewart Elgie and Jessica McClay of the University of Ottawa have just released a good effort to rectify this situation. Comparing fuel consumption (gasoline, diesel, propane, fuel oil, etc.) in BC with the rest of Canada, before and after the imposition of the carbon tax, they detect a significant change. Prior to 2008, BC’s petroleum fuel use changed in lock-step with the rest of Canada. But afterwards it fell 17.4% per capita in BC while rising 1.5% in the rest of the country. They also noted that BC’s economy performed as well or better than other provincial economies, a partial response to the much-touted argument that BC’s economy would suffer terribly because of the tax. (Stephen Harper repeatedly claims that carbon taxes destroy economies, with zero evidence in support – which some people would call lying.)

Alberta’s (Non)-Carbon Tax and Our Threatened Climate

Why is Alberta’s policy a regulation and not a tax?

Alberta’s government officially says it doesn’t have a carbon tax, and I agree. But if I had a dollar for every time I’ve heard someone claim it does, I could buy a lot of anti-oil sands ads, and maybe a politician along the way.

I hear about Alberta’s so-called carbon tax from business people, politicians, journalists, environmentalists, sometimes even economists (who should know better). But the policy in question is, in fact, a “performance regulation,” that sets a maximum “emissions-intensity” for industries, and fines them $15 for each tonne of CO₂ emissions in excess of that maximum.

US politicians should reject the Keystone pipeline

By Mark Jaccard
Originally published in The Hill on March 13, 2013

As a Canadian energy and climate economist, I have first-hand experience with the magician-like techniques of the Canadian government and petroleum industry as they try to double the output of our highly polluting tar sands. Politicians in Washington should be wary, especially if they are sincere in wanting to spare us and our children from an increasing barrage of Katrinas, Sandys and droughts.

Magicians use slight-of-hand to distract us from what they are really doing. The fossil fuel industry and its allies have spent a lot of money to bombard us with messages about the jobs and tax benefits of increasing carbon pollution via this or that fossil fuel project. Count how many times they explain how this carbon pollution is consistent with what scientists say and politicians promise in terms of avoiding devastating climate change. Of course, they don’t explain. That is the art of deception on which magic is based: to get you looking the wrong way. If you were to look the right way, you would see that we cannot be expanding fossil fuel infrastructure today and keep global temperature increases below 2 degrees Celsius (3.7 Fahrenheit). That infrastructure – all of it – must be stable or contracting.

But my Canadian government and the tar sands industries who want Keystone argue that somehow, miraculously, increasing carbon polluting infrastructure will not increase carbon pollution. (George Orwell’s Ministry of Truth has nothing on these guys.) They argue that even without Keystone Alberta tar sands would be developed to the same extent. So you might as well approve Keystone – so the argument goes.

But this is simply not true. Tar sands production is currently about 2 million barrels per day. At this level it already has trouble getting to market, which is why tar sands producers must accept a lower price for their oil – which is good news for U.S. gasoline purchasers, but not for investors hoping to expand tar sands.

Keystone would help tar sands producers expand output by 50 to 100 percent. Without it, output would stay constant. But this is where the magicians offer their next deception. They claim that even without Keystone tar sands production would increase because the oil would simply be shipped to China via a Northern Gateway pipeline through British Columbia. You might as well build Keystone and keep the oil from going to China, so the magicians argue.

In fact, the likelihood of this is slim – and getting slimmer every day. The reason is British Columbia. My province is the Canadian, and perhaps the North American, epicenter of two important social movements – environmentalism and rights activism by aboriginal peoples.

British Columbia has North America’s only real carbon tax, with all of its revenues returned as income and corporate tax cuts. And our electricity policy is the toughest in North America, allowing no fossil fuel power without carbon capture and storage. It is no surprise that polls consistently show that a majority of British Columbians oppose Northern Gateway.
Our provincial election is in May, and the opposition party, which is well ahead in the polls, has promised to prevent the project if it forms the next government.

British Columbia’s aboriginal peoples are proud, organized and active in defending their land and coast. Court rulings have made it extremely difficult to develop resource and infrastructure projects without their support, and almost all the tribes along the proposed pipeline route and on the coast are adamantly opposed to Northern Gateway. They have promised lengthy court battles and even civil disobedience should anyone try to build it.

The odds against Northern Gateway are huge. Without it and Keystone, there is no tar sands expansion, no increase in carbon pollution. Stopping Keystone will hinder tar sands expansion; believing otherwise is nothing more than a magician’s delusion.

If U.S. policy makers don’t want to lock-in a Sandy-Katrina future for our children, rejecting Keystone is one of the most obvious and easiest steps.

(Link to original article)

The Case of Carbon Neutrality

By Mark Jaccard

Originally published in Alternatives Journal, 2011

Starting with a commitment at a G7 meeting in 1988, the world’s most powerful political leaders have frequently acknowledged the urgency of reducing greenhouse gas emissions, yet over two decades later, an effective global effort has not materialized. Political leaders talk about the need for an international agreement, but have failed to achieve it. They have set ambitious targets and implemented long policy lists, but these have been largely ineffective. 

Over these past two decades, political scientists and economists, among others, have offered explanations for our inability to take effective action to avert climate change. I have focused on our propensity to implement policies that are less effective in reducing emissions than we tell ourselves. In particular, we frequently rely on voluntary approaches, such as information programs and subsidies that try to convince firms and individuals to change technologies or behaviour. Canada’s Voluntary Challenge and Registry, for example, asked industry to record all of its voluntary actions to reduce greenhouse gas emissions. Since firms frequently take actions that inadvertently reduce emissions, such as acquiring more efficient devices, it is no surprise that industry produced long lists of emissions reductions. Governments happily trotted them out for the media, downplaying the fact that, at an aggregate level, emissions were still rapidly rising.

The latest fad is “carbon neutrality” – paying someone to reduce their emissions by an amount that equals your emissions. Since their emissions reduction “offsets” your emissions, you become “carbon neutral.” Carbon neutrality is now big business, with millions of dollars in subsidies passing from individuals, firms and governments to companies that claim to cause emissions reductions that would otherwise not have occurred. Offset companies, which make a commission on the exchange between offset buyers and sellers, are highly motivated to ensure that everyone sees carbon offsetting as an effective means of reducing emissions.

Buying your way to innocence sounds too good to be true. It probably is.

The offset industry tells us it provides emissions reductions that would not otherwise have occurred – in essence, “verified additionality.” But we cannot be certain what would have occurred in the absence of an offset subsidy. Since we cannot run history twice, the best we can do is examine past subsidy programs. 

This has led researchers such as me to focus on the subsidies for energy efficiency and fuel switching offered by some utilities and governments. This hindsight research has generally found that many of these subsidies, sometimes more than half, went to individuals and firms that would have acquired the more efficient devices anyway. Even subsidies to plant trees on agricultural land (to store carbon) are suspect, since analysts assessed that shifting land away from agriculture can increase the price of agricultural land, thereby inducing some forest owners to switch their land back to agriculture – in effect offsetting the offset.

So if carbon neutrality is one more policy delusion, what should we do instead? It is not a surprise that the answer is simple, albeit one we prefer to avoid. We need to prohibit emitting greenhouse gases or make it expensive. This requires pricing emissions (carbon tax or cap-and-trade) and/or strict regulations on technologies such as cars and electricity plants. And we need to apply these policies to activities that are now the focus of offset activities, such as energy efficiency, fuel switching, afforestation, agriculture, and capturing emissions from urban landfills and industrial processes.

Will we do this? Maybe. But if the past two decades are a guide, we are more likely to stick with policies such as offsets, which have minimal impact and cause little offense. This is a key reason why it is a long shot that humans will act in time to avert serious disruption to the planet. 

Campbell's hidden $200-million tax cut

By Mark Jaccard
Originally published in the Vancouver Sun June 9, 2011

British Columbia politics in 2010 were dominated by accusations that Gordon Campbell
used the HST tax reform, which he claimed was "revenue-neutral," as a sneaky way to
increase taxes. Few believed his claim, and plummeting public opinion forced him to
resign. In 2008-09, B.C. politics were dominated by accusations that Campbell used the
carbon tax reform, which he also claimed was revenue-neutral, as a sneaky way to
increase taxes. His party's 20-point lead in the polls evaporated, and he almost lost the
provincial election in May 2009.

By now, Gordon Campbell must detest the term revenue-neutral. As it turns out, with the
carbon tax, he shouldn't have used it anyway. He should have said "revenue-negative," or
just plain old "tax cut."

That's right. The evidence now shows that because of B.C.'s carbon tax reform, at least
three-quarters of us now pay less taxes to the B.C. government. But one never hears this.
Instead, people still complain about Campbell's punitive carbon tax. To Campbell, the
world must sometimes seem awfully cruel.

Recall, when introducing the carbon tax, the Campbell government committed in
legislation to offset all tax revenue it received with cuts to personal and corporate income
taxes, along with cash payments to lowincome earners who pay little or no taxes. It also
gives back to municipal governments most of the carbon tax revenues they pay.
The B.C. finance ministry's records for the first two years of carbon tax reform (July
2008 to July 2010) show that the government collected $848 million in carbon taxes and
gave up $1.042 billion via income tax reductions and payments to low-income people and
municipal governments. Thus, in its first two years, the revenue-neutral carbon tax was
actually a $200-million tax cut. (And this is not even including the $100 cheques from
general revenue the government sent everyone just as the tax kicked in.)

In theory, a revenue-neutral carbon tax reform should have left about half of British
Columbians paying less tax and half paying more than before, although for a large
percentage the net effect might have been close to zero. In other words, benefits from the
tax cuts would be roughly equal to the higher payments for more expensive fuels. But
because the carbon tax reform ended up reducing net taxes by $200 million, the
percentage of net winners is likely to be somewhat greater than 50 per cent of taxpayers.

And this is only half the story. Energy consumption data show that B.C. businesses pay
about two-thirds of the carbon tax, with individual consumers paying the other third. This
would be equitable if businesses also received about two-thirds of the benefits from
cutting corporate and personal income taxes. However, the Campbell government
selected income tax cuts for businesses and individuals such that the latter receive about
two-thirds of the "recycled" carbon tax revenue. With B.C. households paying about one third of the carbon tax and receiving two-thirds of the income tax cut, the carbon tax
reform is, in effect, a transfer from B.C. businesses to B.C. individuals. It's a great deal
for individual taxpayers and even most small businesses, but not for some large,
emission-intensive industries.

Reviewing data on fuel consumption by different levels of taxable income in B.C., my
crude estimate is that the combined effects of the transfer from industry to households
and the carbon tax cut mean that at least 75 per cent of British Columbian households are
paying less taxes today because of the carbon tax. The much smaller minority who are
paying more are mostly the very well-off for whom the income tax cuts cannot offset
their high fuel use.

When one contemplates the past three years of invective in the media against Campbell's
"carbon tax grab," it is quite a shock to contrast this with clear evidence that the carbon
tax reform reduced taxes for a substantial majority of British Columbian households. But,
having researched environmental policies for over 25 years, I have come to learn that it is
not what politicians do to us that is shocking, it is what we falsely accuse them of doing -
and then what we do to them in revenge. Gordon Campbell's trying carbon tax experience
only reinforces that lesson.

Who knows what we might learn about the HST's net effect two years from now -
assuming it's given a chance to last that long. Too late for Gordon Campbell in any case.

Carbon neutral public sector: a myth B.C. cannot afford

By Mark Jaccard
Originally published in the Vancouver Sun July, 2011

On June 30, the B.C. government announced it had become “carbon neutral.” Do you know
what this means?

If you’re unsure, you’re not alone. Pollsters find most people are. But some vaguely understand that being carbon neutral absolves them from guilt because, by paying someone else to reduce their greenhouse gas emissions (especially carbon dioxide), they are somehow no longer causing climate change when taking an airplane. Like paying someone else to do penance, you still emit carbon, but no longer feel guilty about your impact on the Earth’s climate, ecosystems and people.

The carbon neutral industry is growing. There are the guilty parties: individuals and companies who want or must become carbon neutral. They pay money to people who reduce their emissions: “carbon offset providers.” The two parties find each other thanks to “offset brokers,” companies that verify the emission reductions and get a commission from each transaction. Finally, there is government, which sanctions the offset industry and may, as in the case of B.C., even set its own goals for being carbon neutral.

Saving the planet by paying money instead of reducing your emissions sounds too good to be true. Experts say it is, but no one is listening.

The reasons are quite simple. The people who are paid to reduce emissions do things like switch from fossil fuels to renewable energy, invest in energy efficiency and plant trees. The problem is that all these activities have been occurring before. In some locations and circumstances, investments in renewable energy, energy efficiency, tree planting and other offsets are profitable, and would occur without the offset payment.

The carbon neutral industry claims to have a foolproof system to ensure that all offsets would not otherwise have occurred. But they have a conflict of interest. Independent researchers are much more circumspect. By looking at past subsidy programs that are similar to offsets, and increasingly at existing offset programs, they tend to find that while some offsets are indeed bona fide, others are not. The big message is that even more vigorous verification schemes will not solve this. It is simply impossible for third party verifiers to ever know all the internal factors that will determine the long-run profitability of a particular investment by a so-called offsetter.

This evidence is conveniently ignored by the carbon neutral industry and governments. This in itself is of interest to researchers who, like me, are trying to find out why our societies have been implementing climate policy after climate policy for almost three decades now without hitting any of our greenhouse gas reduction targets. Those who research the ability of humans to self-delude may have something to contribute.

A myth like carbon neutral would be relatively harmless if it were just something that businesses and individuals did on their own. But when adopted as official government policy, it can be harmful. In his climate policy frenzy of 2007-2008, former B.C. Liberal premier Gordon Campbell implemented some policies – like our carbon tax and our zero-emission electricity requirement – that are now recognized among the best climate policies in the world. Unfortunately, he also bought into the idea that government should be carbon neutral.

An excellent recent Sun commentary by Bob Simpson pointed out that B.C.’s policy of a carbon neutral public sector has the perverse effect of diverting our tax dollars from schools and hospitals to purchase offsets from profitable companies like EnCana in order to subsidize their investments to reduce greenhouse gases (“Taxing the public for a private good is a bad idea,” July 4). This is both economically inefficient and unfair. Unlike the rest of us, EnCana does not have to pay the carbon tax on these particular emissions. Instead, our schools and hospitals pay the $25 carbon tax for each tonne of carbon dioxide emissions and then pay an additional $25 per tonne as an offset payment to be carbon neutral, money which goes to EnCana to subsidize its emissions reductions.

Wouldn’t it be nice if your furnace was exempt from the carbon tax, and then a local hospital sent you money to upgrade to a more efficient model? That’s not likely to happen. But, hopefully, what does happen is that the B.C. government abandons the myth of carbon neutrality and gets on with the important task of pricing or regulating all emissions in the province.