A (second) Permanent Tax on Everything
The carbon tax having been — for now, at least — discredited in Canada, it has I suppose become de rigueur to embrace emissions trading schemes. This is the policy currently favoured by the federal New Democratic Party. While most supporters of cap and trade schemes, like the advocates of a carbon tax before them, believe that they are helping the environment by using market mechanisms and price signals to correct a market failure, Mr. Sinclair persuasively argues that their preferred emissions trading schemes will harm the economy by raising the price of everything, including taxes, and make families worse off.
As Mr. Sinclair observes, compared to a carbon tax, “emission trading is more complex and less direct. As a result, it is easier to obscure the connection between the emissions trading scheme and higher prices. But emission trading does make things more expensive. If it isn’t a tax on everything, it is at least a tax on everything it touches, particularly electricity. It also presents some significant opportunities for companies to profit at the expense of their consumers…Cap and trade has the potential to be a tax on almost everything, because fossil fuels are so important to modern industrialized economies.”
To their credit, Prime Minister Harper’s Conservatives, during the 2011 election campaign, closed the door on a cap and trade scheme. At a time when economic growth is slow and the unemployment rate a significant concern, raising taxes through an emissions trading scheme would inevitably lead to a drop in aggregate demand for goods and services as well as put Canada at a competitive disadvantage relative to the United States, which has no such tax. As long as the economic recovery remains fragile, and resources idle, for the Canadian government to pursue a cap and trade policy, especially unilaterally, would be more than just foolish; it would be downright reckless.
In addition to the economics of emissions trading schemes, the politics of it are also quite interesting. In the 2011 federal election campaign the New Democratic Party loudly proclaimed its support for a cap and trade scheme (while also advancing a contradictory — at least if reducing carbon emissions was their goal — policy of tax breaks on home heating fuel). While the NDP’s support for cap and trade may have helped it push the Green Party to its lowest share of the popular vote since the 2000 federal election, as well as win over environmentally-conscious Liberal Party and Bloc Quebecois supporters, does this mean cap and trade was a net vote-winner for the NDP? Will it be in the future? Or do the champions of cap and trade risk polarizing the electorate around an issue where the other side’s half is bigger?
There are no clear answers, at this point, to these questions. Nevertheless, I do think we ought not to dismiss the Conservatives’ success, particularly in western Canada, in branding the NDP’s cap and trade scheme as a policy that would raise the price of gasoline, and that this is why, as one Conservative cabinet minister explained after the election, “the Orange Wave could not displace a Blue Sea of support for Conservatives in areas that had historically been represented by the NDP” – among, that is to say, the many Conservative-NDP swing voters who live in Saskatchewan and British Columbia.
Let Them Eat Carbon makes a persuasive case that the public is right to be skeptical about the effectiveness of various green schemes from politicians and bureaucrats. Canadians should read Mr. Sinclair’s book, the better to arm themselves with sound arguments to counter the next dubious scheme when, inevitably, some politician proposes it; and, just as important, to identify those common sense solutions that might actually help the environment without doing violence to the economy.
Alykhan Velshi is on the Board of Directors of the Toronto Atmospheric Fund, a City of Toronto agency. The views expressed are his own.