5 Myths About Carbon Taxes, On Both Sides of the Issue

If you live in Alberta, BC, Ontario… ok… Canada, or the US or UK or Australia… ok… if you live on planet earth, you have heard about Carbon Taxes.  Those that are for them claim they will cure all environmental ills and those against claim they are just another government tax grab.

We dug into the facts and came up with 5 Myths about Carbon Taxes we thought you would find interesting:

MYTH 1 – Carbon Taxes Don’t Change Behaviour or Improve The Environment

Anyone that has completed a first year Economics course will tell you that increasing the cost of something, even slightly, will result in decreased consumption.  However, those apposed to Carbon Taxes say that because consumers NEED (as opposed to want) many of the things covered by a Carbon Tax (think fuel, transportation, home heating/cooling) that they have little effect.  In fact, those at the lower end of the economic spectrum (aka, the poor) end up taking food or social dollars into higher priced Carbon Taxed products because they just don’t have an alternative.

There has been much research on this topic and much practical experience in places like California, Canadian Provinces (like BC and Quebec) and some European countries.  The fact is that when prices rise due to carbon tax, consumption declines:

“At least five different published studies have found British Columbia’s carbon tax, introduced in 2008, has cut overall emissions, reduced per capita gasoline use by seven per cent, improved average vehicle efficiency by four per cent, cut residential natural gas use by seven per cent and diesel use by more than three per cent.  …Other jurisdictions that have successfully used carbon taxes to reduce emissions include Sweden, Finland, Denmark, the Netherlands, several U.S. states, the U.K. and the European Union.  SOURCE

It is just simply a fact that humans adjust behaviour and consumption when prices change.  Contrary to some claims, “the poor” are frequently the most active changers and in fact “the rich” are the ones least likely to change behaviour.

MYTH 2 – Carbon Taxes Will Are The Quick Fix To Environmental Problems

Carbon taxes 2 to 5 years to result in notable impacts.  As consumers need to replace their vehicles and appliances, consciously or unconsciously, they choose more efficient devices.  Further, manufacturers know that carbon taxes and/or regulation are here to stay so they constantly develop new efficiencies resulting in both consumers and corporation only having more efficient choices.

Because people and companies already own expensive, infrequently purchased carbon producing items like cars and fridges, consumption patterns will not change overnight. The fact is that fastest way to reduce carbon emissions is through regulation:

“Energy economists such as Mark Jaccard at B.C.’s Simon Fraser University argue that regulations get faster, bigger results and are politically easier to enact (as opposed to a tax). The big cuts to Canada’s carbon emissions, he said, have come from closing coal-fired power plants and clean fuel rules.  “Some people will tell you you have to have carbon pricing,” he said on a recent podcast. “That’s not true. You could do it all through regulations.”  SOURCE

The problem with this method is that regulation means that the government is picking winners and losers which they seldom get right.

It is clear that Canada’s “new right” from Jason Kenny to Scott Moe to Doug Ford prefer regulation to taxes but such direct government control is a very left wing position.  The Left wing Canadian parties have taken the traditional right wing stance of setting a tax and allowing the market figure out the best way to avoid it.  The Right surely cannot agree with the Left, so weak politicians simply take the opposite position rather than staying true to principles.

MYTH 3 – Carbon Taxes Hurt Economic Growth

Carbon taxes have long been hailed as the end of economic prosperity, but the facts, just don’t bear that out:

“The energy intensity of GDP has dropped over each successive decade between 1970 and 2010 indicating that economic growth over time is less coupled to energy consumption and thus the effect of a GDP per capita increase on CO2 emissions is partially ameliorated. SOURCE PAGE 47

By 2030, the worlds largest CO2 emitter, China, has committed to a 62.5% reduction in emissions over 2005 numbers, will still see impressive growth rates of between 4% and 8% per year.

In other places the story is much the same:

“The province (of BC) enjoyed about three per cent annual economic growth between 2012 and 2017 SOURCE

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“The  B.C. carbon tax shifted jobs to cleaner sectors such as health care. SOURCE

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“An aggressively-priced carbon tax in California, with revenue returned to the public, would actually grow the state’s economy and increase jobs.  …(California) would see a net gain of 236,000 jobs in California by 2035 with GDP up by $2.5 billion annually SOURCE

MYTH 4 – Carbon Taxes Cause Companies To Relocate to Non Carbon Tax Jurisdictions

On its face, it is obvious that companies will maximize profits by shifting production to the least cost jurisdiction.  In the world of climate economics this is known as “carbon leakage”.  However, it turns out that there are many reasons companies are located where they are and pollution cost is just one variable:

• Coal fired power plants for instance are best located near where their energy is going to be consumed because of heavy losses in long distance transmission
• Auto manufactures have long term agreements with both governments and unions to produce products in particular locations
• Commercial food production often needs to be close to the consumption market to keep products fresh and/or to avoid expensive refrigeration costs during transportation
• Owners of small and mid-sized companies usually have little desire to relocate their families to other countries, provinces or states
• Relocation costs for any business is always substantial

Further, it is very risky for a company that to relocate operations or even expand existing operations in a pollution haven because the trend toward carbon pricing in all industrialized countries is ever increasing.  You could spend millions of dollars to relocate and one or two elections later find that your new jurisdiction has the same or even more stringent regulations / taxes.

Europe is a tightly integrated set of economies with different climate regulations in each member country and it has been shown that in practice they have very little carbon leakage and the same can be said for British Columbia, Canada.

The worst polluters may relocate to so called “pollution havens” but the cost of that relocation and subsequent transportation back to the desired market will increase their costs, thereby reducing the demand for their product.

MYTH 5 – Business Does Not Like Carbon Taxes

Business does not like carbon taxes is one of he most used arguments against them.  However, it is clear that in fact businesses really like carbon taxes because they provide the one thing companies (especially large multinationals) need: certainty.  Without a carbon tax that companies (especially large multinationals) can avoid through efficiency gains, they know that they are (near) future targets of heavy handed, unexpected, politically motivated regulation that they cannot avoid.

“Exxon, GM and Pepsi plan to back carbon tax SOURCE

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“Shell urges Canada’s oil lobby group to support carbon tax…  Dutch energy giant… Shell said it is pulling out of the American Fuel and Petrochemical Manufacturers because its climate policies are too misaligned with the company. Shell might also leave nine other trade groups, including Canadian Association of Petroleum Producers (CAPP), if further changes aren’t made  SOURCE

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“Big Oil to Rachel Notley: Bring on a carbon tax.  …oil industry chieftain advocate for a carbon tax, as Suncor’s Steve Williams did in front of a downtown Calgary crowd on Friday, …I think it is a good thing when we have messages across the room echoing the same thing,” Amin Asadollahi, Pembina’s director of oilsands research, said after speaking on the panel. “It should send a clear signal to politicians that industry and environmental groups are ready to move forward on a more effective policy. – SOURCE

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“Oil giants part of U.S. group seeking carbon tax. …  Large oil companies, including Suncor Energy Inc. and Cenovus Energy Inc., as well as other major corporations in Canada, support carbon-pricing plans as preferable to more cumbersome regulatory approaches.  SOURCE