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.

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.

Canadian Climate Policy Report Card: 2015

Executive Summary

Over the past three decades, governments in developed countries have made many commitments to reduce a specific quantity or percentage of greenhouse gases by a specific date, but often they have failed to implement effective climate policies that would achieve their commitment. Fortunately, energy-economy analysts can determine well in advance of the target date if a government is keeping its promise. In this 2015 climate policy report card, I evaluate the Canadian government’s emission commitments and policy actions. I find that in the nine years since its promise to reduce Canadian emissions 20% by 2020 and 65% by 2050, the Canadian government has implemented virtually no polices that would materially reduce emissions. The 2020 target is now unachievable without great harm to the Canadian economy. And this may also be the case for the 2050 target, this latter requiring an almost complete transformation of the Canadian energy system in the remaining 35 years after almost a decade of inaction.

Canadian Climate Policy Report Card: 2015

Background
A critical challenge to preventing the harms from human-produced greenhouse gas emissions, especially CO2 from burning fossil fuels, is that elected representatives face weak incentives to implement effective climate policies and strong incentives to implement no or ineffective policies. There are several reasons.

First, significant CO2 emissions reductions require ‘compulsory policies’ – regulation of technologies and energy forms and/or pricing of CO2 emissions – and these are seen to cause immediate costs for some even though the long-term benefits for society exceed these costs. These immediate costs would begin during the mandate of current politicians, and have significant political risks, while the benefits of avoiding climate change will mostly occur after the career of current political leaders.

Vancouver’s municipal election and pipelines

It seems ironic that people who argue vaguely that we should all do our part against accelerating carbon pollution will then react to specific efforts by saying “sorry, wrong jurisdiction.” The Canadian government cannot act because climate change is a global problem, so we must wait for all countries to act simultaneously. Nice. And even though we know that carbon pollution goes up as we expand fossil fuel infrastructure, like oil pipelines, the government of B.C. should not try to stop the Kinder Morgan oil pipeline because this is federal jurisdiction. Ditto municipal governments, like that of Vancouver and Burnaby.

We know where this leads. Everyone shirks their responsibility, and we stay on course for a catastrophe.

This is why the municipal elections in Vancouver and Burnaby are important. In both cities, we have municipal governments that understand their responsibility. In both cities, these governments are challenged by opponents who are saying “sorry, not our jurisdiction.”

If you want to stop oil pipeline expansion to metro Vancouver as part of the climate effort we must have, remember to blame yourself next Saturday if you waste your vote so that the pro-pipeline parties attain power.

Energy: Consider the global impacts of oil pipelines

Please follow the link to get free access to our Commentary in Nature calling for a moratorium on new oil-sands development and transportation projects until better policies and processes are in place. 

Canadians deserve honest climate talk

Contributed to The Globe and Mail

Published Tuesday, Aug. 05 2014

In 2007, Prime Minister Stephen Harper’s government asked me and four other economists if we agreed with its study showing huge costs for Canada to meet its Kyoto commitment to reduce greenhouse gas emissions by 2010. We all publicly agreed, much to the chagrin of the Liberals, NDP and Greens, who argued that Kyoto was still achievable without crashing the economy. It wasn’t.

As economists, we knew that the Liberal government of Jean Chrétien should have implemented effective policies right after signing Kyoto in 1997. It takes at least a decade to significantly reduce emissions via energy efficiency, switching to renewables, and perhaps capturing carbon dioxide from coal plants and oil sands. Each year of delay jacks up costs.

Mr. Harper’s government knew this too. Years later, when environment minister Peter Kent formally withdrew Canada from Kyoto, he charged the previous Liberal government with “incompetence” for not enacting necessary policies in time to meet their target.

The National Energy Plan as Environmentalist Holy Grail

Every few years, some Canadian environmentalists campaign vigorously for a national energy plan in the mistaken belief that it is not only achievable, but will reduce carbon pollution. Since this pursuit deflects their focus from Canada’s ineffective climate policies, it is a welcome gift to carbon polluters and their political operatives. And, amazingly, decades of failure have failed to dampen enthusiasm for this Holy Grail quest.

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.

We cannot expand carbon polluting infrastructure and meet targets

Here is a link to my interview with Bloomberg TV's Michael Crumpton on The Bottom Line, explaining that long-lived infrastructure to increase carbon pollution, like the Keystone XL pipeline, is inconsistent with political promises to do what is needed to avoid a greater than 2 C increase in global average temperatures - and explaining that where we shift away from carbon pollution we can create just as many jobs as has been occurring with good news stories around the world.

Webcast of Keystone XL Hearing in Washington: testimony now online

I was invited by Rep. Henry Waxman  (of the former Waxman-Markey bill) to speak as a witness at the Congressional Hearing on Keystone, the "Northern Route Approval Act,” Subcommittee (April 10, 2013) which discussed approval of the Keystone pipeline.  My testimony and that of the other witnesses is now available for viewing as a webcast.  If you just want to hear my 5 minute testimony, skip to minutes 31:11 - 36:40.  This is followed by a question period and statements from the members of the Congressional Subcommittee on Energy and Power.

PM's Unintentions Exposed: Carbon pricing report reveals the fiction behind Harper's climate promises

By Mark Jaccard
Originally published in Alternatives Journal, 2011

In 1997, then-prime-minister Jean Chrétien committed Canada to dramatically reduce its greenhouse gas (GHG) emissions by 2010 by signing the Kyoto Protocol. This helped him win re-election in 2000. It mattered little that most independent policy experts claimed Chrétien’s modest climate policies would not stem the growth of Canada’s emissions. Their arguments proved true, but since Chrétien was no longer in office in 2010, there was little interest by then in learning from his failed climate policies.

Or maybe someone was learning.

In 2007, Prime Minister Stephen Harper committed Canada to dramatically reduce its GHG emissions by 2020. This helped him win re-election twice, including a majority government this year. It mattered little that most independent policy experts claimed Harper’s modest climate policies would not stem the growth of Canada’s emissions. Harper is unlikely to still be in office in 2020 should he fail to fulfill his promise to reduce emissions by 17 per cent. And, barring a miracle in human and political longevity, he is definitely not at political risk for his promise to reduce Canadian emissions 65 per cent by 2050. 

The parallels are uncanny. But is the comparison fair? Perhaps Harper is not a Chrétien disciple, carefully learning the master’s recipe for a successful climate politics that matches do-little policies with a heroic commitment to a safely distant deadline. So how can we know, in the case of climate politics, if Harper is Chrétien redux?

Actually, the question is easily answered. When governments are faced with skepticism about their commitments and policies, they can commission independent assessments. This is a frequent practice. In 2007, for example, the Harper government asked me, as well as four other independent economists, if we agreed with its analysis that a last-ditch effort to reach Chrétien’s 2010 Kyoto target would be devastating to the Canadian economy. We all concurred, an assessment the Harper government quickly made public. 

Thus, the Harper government could commission independent analysts or the National Roundtable on the Environment and the Economy to assess its climate policies for their likelihood of achieving the government’s 2020 promise. In fact, it did just that, albeit inadvertently, when it asked the roundtable to explain how to achieve its 2050 target. This analysis led to the 2009 report, Achieving 2050: A Carbon Pricing Policy for Canada. I say inadvertently because, while the government did not ask the roundtable to analyze the 2020 target, that date is on the path to 2050, making it a trivial task to extract from the report the approximate emission pricing and regulatory policies needed to achieve Harper’s 2020 promise. One can easily see that the government’s current policies will not achieve the 2020 target.

Because 2020 is nine years away, Harper benefits from an assumption that we cannot yet know if his policies will or will not achieve his promises. As the case above illustrates, however, independent climate-policy experts actually can tell well in advance if a target will be achieved. This is because many of our GHG emissions are associated with long-lived investments in energy supply, industrial facilities, buildings, vehicles and equipment. We know what needs to happen today for an emissions outcome 10 years hence. We already know that if government was serious about its 2020 promise, there would be no new investment today in oil sands development and oil pipelines, industries would face a rising price for GHG emissions, and regulations would be forcing a rapid transition to zero- and low-emission vehicles. But none of this is happening. While Jean Chrétien cannot be blamed for the actions of politicians who follow him, it appears that in the art of climate politics, he was a great teacher – and Stephen Harper an excellent student.

Let's Get Serious: Focusing on behavioural change is an easy excuse for politicians to avoid implementing greenhouse-gas-cutting laws

By Mark Jaccard
Originally published in Alternatives Journal, 2011

"We must change our behaviour to avert climate change.” Almost every day I hear this – from environmentalists, politicians, business leaders, educators, journalists, almost anyone who cares. The assumption is pervasive: without behavioural change, we cannot avoid climate change. Ironically, however, I hear this everywhere except in my job – which involves collaborating internationally with researchers who design and test models that simulate the impacts of policies meant to reduce greenhouse gas (GHG) emissions. When we test against past environmental-policy successes, we find that behavioural change did not reduce the emissions that cause acid rain, urban air pollution, depletion of the ozone layer, lead contamination and so on. Technologies changed, not behaviour.

My dictionary defines behaviour as “how one acts or conducts oneself.” For over two decades, governments have begged us to change behaviour in order to reduce GHG emissions: drive less, turn off lights and electronic devices when leaving a room, lower home temperatures when absent or sleeping, dry clothes outside, take shorter showers, fly less and so on. These are behavioural changes because they involve acting differently on a regular basis, usually requiring our conscious attention to do so.

Behavioural change is not, therefore, a one-time decision to purchase a different device: a high-efficiency fridge, a hybrid-electric vehicle, a compact fluorescent light bulb. Such a decision requires no behavioural change, no conscious effort to conduct oneself differently. Similarly, behavioural change is not a one-time decision by energy companies (usually forced by policy) to generate electricity with renewables, increase biofuel content of gasoline and jet fuel, or manufacture and market electric vehicles.

You might not think that this distinction between behavioural change and technological change is critical. Think again. Rigorous research consistently shows that getting people to acquire a different technology is dramatically easier than getting them to sustain the conscious effort needed to act differently on a regular basis. We usually require compulsory policies such as regulations and taxes to induce technological change because the effect is more significant and enduring.

Ask a friend how they changed their behaviour to help reduce acid-gas emissions, lead emissions, urban smog and ozone-depleting chlorofluorocarbons, and you’ll get a confused look. They didn’t change their behaviour. Instead, governments implemented compulsory policies that either banned environmentally unfriendly technologies and fuels or made them increasingly more expensive. 

We must do the same with GHG emissions, but this will happen only after we stop deluding ourselves about the necessity and ease of behavioural change. Figuring out why this delusion has continued for more than two decades is a challenge. My guess is that people don’t readily give up on their favourite myths, regardless of the evidence. Many environmentalists believe that once they get everyone to see the world as they do, then people will change their behaviour as they have. Politicians like to agree with environmentalists on this because it lets them off the hook. They get to fund ads asking people to change their behaviour (Remember the One-Tonne Challenge?), which is a lot easier than implementing regulations and putting a price on GHG emissions. (Remember Stéphane Dion?) Even climate skeptics and those who make money producing our current technologies and fuels enjoy the behavioural-change myth because, as long as it prevails, humanity will do very little to reduce emissions.

Trying to change one’s own behaviour and that of others in order to use less energy or a less-polluting form of energy is certainly a good thing. But it is harmful if it diverts our attention and efforts from the more fundamental change that is very difficult yet absolutely essential: changing our laws and our fiscal system.

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.