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Nice try but you've missed a rather important detail. A carbon tax won't reduce ghg emissions in any meaningful way. For example, when Mulroney put a 7% tax on consumer goods and services it didn't result in a decline in the purchase of consumer goods and services. A cap and trade system on the other hand will set real limits on ghg emissions.

In addition a carbon tax will result in additional tax increases as municipal governments are forced to raise property taxes to cover the increased costs they incur from the carbon tax.

And if the consumer is directly picking up the tab there is no incentive for industry to provide more efficient or alternative products.

You missed the point about the two approaches being essentially equivalent. In both scenarios, ghg emissions go down, and prices go up. It doesn't matter if you target the price and let the quantities adjust, or target the quantities and let the prices adjust. You'll still get the same outcome.

I don't have a problem with cap-and-trade. The problem is that Jack Layton doesn't seem to understand how the policy he's advocating will actually work.

In both scenarios, ghg emissions go down

Wrong, a carbon tax won't reduce ghg emissions. Over the past half dozen years the rise in the price of gasoline has been equivalent to a $270/tonne carbon tax. All this has resulted in is a leveling off of gasoline consumption according to the latest Statscan numbers. So while ghg emissions are no longer growing as a result of burning gasoline they aren't being reduced.

The problem is that Jack Layton doesn't seem to understand how the policy he's advocating will actually work.

Sure he does. A cap and trade system is easy to understand and implement since it's been effectively used in the past (ie. acid rain reduction).

Corporations don't pay taxes? Say what?

Last I checked, corporations were legal persons and paid taxes.

But the idea that corporations can somehow bear costs in isolation without it impacting their prices is ridiculous.

Corporations don't pay taxes? Say what?

Says Greg Mankiw in tomorrow's NY Times.

In fact to a certain extent he restated Stephen Gordon's post, along with SG's link to his previous corporate tax post.

"A carbon tax won't reduce ghg emissions in any meaningful way. For example, when Mulroney put a 7% tax on consumer goods and services it didn't result in a decline in the purchase of consumer goods and services."

Nonsense. First, the GST was deliberately so widely applied that it would be impossible to systematically avoid. And it replaced a federal excise tax that was levied only on manufacturing. Did people buy more domestically manufactured goods and imported services? Actually, yes.

Carbon taxes specifically punish waste and nothing else. There are few or no industrial or consumer processes that can't be accomplished on much less carbon. Substitutes are coming online very fast. Just in the past few years we've seen alternatives appear in lighting (LEDs, electroluminescent), displays (LEDs, SEDs) and heating (geothermal) that use half or less the energy that obsolete technologies they replace require. Carbon taxes drastically accelerate the shift to these alternatives which are in most cases better than the obsolete ones people still install out of habit. They also preclude major markets ever developing in truly wasteful technologies like the revived GM Camero or plasma TVs.

"A cap and trade system on the other hand will set real limits on ghg emissions."

Carbon taxes that are not successfully punishing carbon emissions can and should be raised, using the power of the government's taxation fiat, until emissions are at the acceptable limit. Admittedly this is a lot harder to do politically than to hand off the job to some brokers in a market, but it also makes it much easier to adjust the quotas if the caps turn out to be too low. While a government simply has to raise the carbon tax to reduce emissions, it has to go through a much more complex process to withdraw already-traded future emissions from the market. It may even have to pay those who bought them. In fact it WOULD have to pay them off. How? Probably with cash raised by interim carbon tax. Accordingly there are benefits in starting with a carbon tax and raising some funds that can be used to launch the cap and trade system (which will inevitably develop anyway as companies swap carbon liability by private contract).

The utterly bizarre statement that "if the consumer is directly picking up the tab there is no incentive for industry to provide more efficient or alternative products" seems to pretend that consumers don't care about higher prices, and that companies don't care about lost customers nor about higher margins. This may be true of many Canadian companies, who employ many of the worst managers in the entire world. At least the competent foreign companies that operate here know to cut energy waste to gain the triple benefit of lower prices to the consumer, more efficient internal operations processes that yield other benefits, and higher profit margins. I suppose one has to trade this awareness in to get an NDP membership card these days.

Yes, "the idea that corporations can somehow bear costs in isolation without it impacting their prices is ridiculous." But the NDP is also becoming ridiculous at this point - as Bob Rae calls it, a "lobby group against the private sector." Their poll numbers show steep decline and irrelevance. The Green Party of Canada's positions make more sense and the public is rewarding it with polling numbers very near the NDP's. I agree with the Globe's dismissal in the very first paragraph of it's coverage of the NDP position: "alarmist pandering". Other than its laudable targets, I see no merit at all to their proposal. It may deserve the scorn it's getting from the most prominent activists.

There's a lot one could write about the relative benefits of having a carbon tax at least temporarily to ease the adjustment to a world where all carbon emissions are fairly globally priced, and the hazards thereof. It doesn't appear that the NDP has read or written any of it.

I recently gave a few papers worth of analysis on these questions to the federal Liberals and Greens. Tenative recommendations as follows:

- Don't call it a "carbon tax" to avoid the impression that paying it has transferred all liability for emissions from emitter to government; set it up as an exemption from a uniformly high sales tax or as a direct "dumping fee" for putting carbon into the atmosphere; allow Kyoto offsets in reputable European markets to count as offsetting tax or fee liability

- Integrate it with GST and provincial sales and carbon and gas taxes if possible and with other waste charges such as "e-waste" fees now being charged on consumer electronics in some provinces; Make it part of a general anti-waste pro-service scheme where ideally all services and organic local food products at 0 per cent with a few already-nearly-optimal technological devices that we should all be using (LED lights, DC pumps and fans), 5 per cent applies to carbon-neutral goods, and either a uniform 10 per cent to those not carbon-neutralized or else a varying carbon charge putting the total federal tax at 6 to 19 percent; Charge 20 per cent or more for products undesirable for biodiversity, extraction harms, and other non-carbon reasons, so that the big ugly sticker in stores steers consumers away from these things, e.g. gas lawnmowers, pesticide, old growth heartwood lumber, chemically treated wood that can't rot or burn safely, imported coffee that grown out of shade on former forests, plasma TVs, etc. No one needs these, they do great harm, and they should be charged roughly as harshly as alcohol and tobacco. Likewise the 0 signals to people to buy LED lights for instance - it's reserved for only the best performance in class. Admittedly this is an effective subsidy to the most efficient device makers, domestic or import. I have no problem with meritocracy.

- If this isn't possible immediately, cut the GST on services anyway and implement the carbon tax NOT as a percentage but an absolute fee, so that one pays for the carbon in cheap products from China pay cent for cent at exactly the same rate as expensive ones from next door; a big advantage of cap and trade is that carbon charges aren't slaved to the purchase price

- Proceed with cap-and-trade anyway and reject any "made in Canada" scheme in favour of meeting European standards. Offsets purchased in these reputable markets should be acceptable when remitted as carbon tax liability exemptions, the same as any other deduction against any other tax. The government then owns those offsets. By all means let Canadian private players into the carbon markets - the tax merely sets up the government as a 800 lb gorilla.

Some supporting policies that would also radically ease the transition and set very clear guidelines to business and banks for how to behave:

- Use the 800 lb gorilla buying power (the only good thing about the NDP proposal) to do a few major reputation-saving global projects such as buying up the entire Ecuadoran rain forest's mining rights, which are presently for sale at a very low price (under $1/tonne for the carbon emissions averted alone) and have biodiversity and aboriginal rights benefits that are profound. Alberta owes it to the world for ignoring Kyoto. Here's a good summary of the opportunity:


The post-2012 regime will recognize biodiversity and non-point sources as having SOME value. Accordingly $350M to lock this in is a great price and paying it and saying so would send a powerful global signal that Canada was back on the global scene, and punching above its weight, which would give it negotiating power in the post-2012 haggling.

Continue to buy strategic foreign offsets of all kinds that have major biodiversity benefits, make it policy to do so with up to a total 0.7% of GDP. After all, this is foreign aid until such time as the regime exists to count it as something else. More global praise for that... more bargaining power.

- Eliminate all subsidies to any form of energy generation - discourage provinces from setting up or continuing Feed-in-Tariffs for solar, wind or tidal so as to avoid foolish malaptive incentives to keep generating and using energy that could simply never be used with better design (round versus square buildings, earth banked insulation) or non-subsidized alternatives (passive solar, ground source / geothermal). Make it the law of the land that conservation must be on level playing fields with generation in any decision made using any public money (Nova Scotia did this properly) and force all levels of government and billing monopolies to transparently cooperate with third parties who wish to upgrade infrastructure for conserving as opposed to generating.

Put peak load shifting, smart devices, reservoirs and flow batteries and so on, higher on the priority list, by law, than generating projects. All of these have way more bang for the buck than shifting the power source. A negawatt costs maybe 1/20 a renewable watt, and a shifted watt maybe 1/4 to 1/10 as much. We'll go broke putting up wind mills to run leaky fridges.

- Eliminate all Capital Cost Allowance (CCA) deductions for destructive devices that enable activities that inherently harm ecological services - no more dragger boats, no more log skidders. You pay for these out of profits. Wipe out, at a stroke, clear cutting and bottom dragging. Eliminate one more piece of destructive infrastructure per year so it becomes an active risk management issue for companies to avoid buying any device to support any practice that is known to be deeply damaging.

- Eliminate all subsidies to any extractive or agricultural activity whatsoever - if they aren't competitive with commodity prices now they never will be - permit only risk hedging and joint marketing/pooling and force provinces into line by cutting off payments they waste on subsidies. Implement better differentiated marking on agricultural products (such as "grown in Canada", "processed in Canada", "certified organic", "no GMOs", "product of the Maritimes", etc.) with strict enforcement audits run by the cooperatives of farmers themselves, not by lobbyist lawyers. (Even Harper has figured out to start this move).

- Deal with monetary stupidity; Alter the Consumer Price Index on a fixed schedule over 15 years to eliminate over weighting of wasted energy, processed foods or wasteful eating options including most or all meat products, and other unhealthy and unsustainable consumer behaviour that the public should not subsidize. Why should a sharp rise in energy or meat prices result in a cutting-back of credit to businesses that are selling people telework software or vegan cooking courses? Why should inflation be measured in such aggregates at all? Monetary policy requires very major overhaul to reflect massive changes in the way we value biodiversity, carbon and nature's services globally. Canada should be taking the lead on this.

Politically, the above is easy to sell, if a leader has the cajones:

1. If Jean Charest and Gordon Campbell implemented carbon tax and tax shifting, that says that the centre-right finds it acceptable/credible - the Liberals can accordingly cut into at least BC and Quebec support for right-wing parties.

2. Eliminating GST on services (call it the Gross Stuff Tax maybe?) is going to appeal even to the sociopathic criminal element (law firms in Calgary, stock promoters in BC, sprawl developers in Ontario and etc.) that does nothing all day except lie and cheat and steal. Since these are part of Conservative base support at present, giving them an incentive to support the shift would be very strategic.

3. Start a revolt in the West, there's nothing to lose; Overt harsh uncompromising treatment of Alberta and Saskatchewan's planet-defying governments, ignoring whatever impact the shift has on their waste-and-filth-driven false economy, will send a strong signal to all other provinces not to openly defy Ottawa nor international laws Ottawa signs (Kyoto), and not to dare to elect NO representatives from the government in power. The ideal situation post election would be ZERO representatives from either province weakening a Liberal government's capacity to save BC, Quebec, Ontario and the Maritimes. A repeat of the "National Energy Program" and more "Western alienation" is fine. Any silly separatist whining and one would only need to point out that they're land-locked, and that joining the USA would hand all control over natural resources to Washington DC and subject them to stricter and more enforced environmental regulations - plus actions in US courts by the same people that lobby against them now when Alberta goes to lie to Congress. Revisit this policy only after a referendum on separation gets up above 50 per cent - and make sure the army is in position to enforce the Clarity Act. Needless to say Dion's the ideal guy for this policy. He only needs to learn three words: "Just watch me." Criminal administrations that defy federal laws deserve no mercy at all.

If oil companies interfere in politics even in the slightest, consider also nationalizing all oil companies' assets as was done in some South Americna countries recently. The NDP will get behind that. Where else are they going to go? What part of "sovereignty" didn't they understand? Even many people in Alberta would support this move given the grumbling about how little of the fossil fuel pie they get.

4. Business is already asking for a carbon tax, even some Oil Patch players. They certainly will like paying that more than a dictated nationalization. Keep pointing out the profit margin Bay Street and Wall Street can make by cutting energy use by say 2 per cent and keeping another 2 per cent in corporate income tax - that's four per cent, plus one more since no one cuts energy use without finding other effiiencies. Five per cent more profit, and 2 per cent less paid to Big Oil. The stock markets aren't so stupid as to ignore the implications of these numbers.

5. Europe is already making loud noises about slapping excise taxes on any non-carbon-neutral products. Make sure they make the noise louder and at election time so that Canadians understand that if they do not implement a green shift domestically with the tax system they will have it done for them by outsiders via the global trade system. Then even more sharply and harshly by shifts in global credit regulation to cut off investment in destructive activities that compromise ecological services and ultimately by a shift in the basis of value recognized by the monetary system. Hedges such as buying up Ecuador's rainforest rights and then bargaining for IMF Special Drawing Rights to recognize the biodiversity and ecological services and carbon never moved out of the ground, ensure Canada at least has early warning of these changes.

6. If John Baird, Jack Layton, Peggy Nash and Ed Stelmach are the best the loony right and left can bring to the table to argue against carbon taxes, encourage them. They're so stupid they'll contradict themselves and alienate their base almost daily - so keep them talking. Baird says the carbon tax is lousy because Bay Street and some of Big Oil both want it. ?!?!?! What kind of position is this for a Conservative to take? Perfect fodder for a Bay Street talk. Nash is arguing for the market-centric solution and to set up a vast bureaucracy of price controls to "ensure costs aren't passed on" to consumers, ensuring no behavioural change. Since when do NDP supporters prefer strictly market based solutions? And none of them have a clue about monetary issues and inflation measures or the deeper changes in trade and money regimes. It should be dead easy to alienate the left and right bases.

7. Municipal government is the best ally the Liberals could hope for. They already have all the big cities, but making it easy for smaller ones to fund transit and rail would make them very popular in ridings that are now voting Conservative and NDP.

Read the December 2005 World Mayors and Municipal Leaders declaration on climate change. Then read how many Canadian and US Mayors signed it. It calls for change to "tax, trade, credit and banking reserve rules". Those are deep changes. The Mayors will get what they want.

8. California Republicans, Nova Scotia Progressive Conservatives, BC and Quebec Liberals, UK Conservatives, none of these found any way past the green economic reality other than to embrace it. Keep reading their press releases and policy statements and undermine Harper's base by quoting figures that are getting praise from environmental activists.

9. Then undermine his base some more by emphasizing that excess carbon emission is a sin, according to the Orthodox and Catholic churches and an increasing number of others. Moral leadership belongs to the greens it seems.

10. Jim Prentice is the only hope the Conservatives have to stay viable after Harper is ousted. He's convertible. Especially if he becomes the Finance Minister. Flaherty has become a liability and whoever replaces him can probably be forced into writing a 2009 budget that reads almost like the 2005 Goodale budget which was as green as any Canada ever had. All of the above policy moves could just as easily be made by a Conservative government if they wanted a legacy like Mulroney's on acid rain. Isolate Harper within his own Cabinet. It's now possible. A revolt is even possible. He's such a liability given the Cadman bribe, the Bernier botches, and the loss of his ideological allies Bush and Cheney, that good Conservatives must be looking beyond.

The biggest problem with the carbon tax is that it shifts public focus from reducing pollution and smog to CO2 (which of course doesn't cause smog).

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