Canada and by extension the Canadian government faces a number of challenges. There are two in particular I find fascinating:
- A shortfall in federal government revenue to finance policy changes. Some of us are advocating corporate tax cuts. Some advocate pharmacare programs and early childhood education initiatives, while others advocate eliminating the deficit as quickly as possible. Plus we need stadiums - lots and lots of stadiums. But where will the money come from? We can't both raise and lower corporate income taxes at the same time. Raising personal income taxes will lead to slower economic growth (relative to raising other taxes) and raising payroll taxes on firms would deter hiring. Economically speaking raising the GST would make the most sense, but we're told it's politically infeasible since when you raise the GST you raise taxes with Hitler (or something like that). So where is the money going to come from?
- We need to reduce various types of emissions. Whether it be toxic (and often carcinogenic) pollutants from London, Ontario or greenhouse gases linked to anthropogenic climate change there is near universal agreement that we ought to investigate ways to reduce these emissions. But how to do so in a cost-effective way with minimal economic damage?
You probably see where I'm going with this. The solution is simple - we can use Pigovian taxes or cap-and-trade with auctionable permits to reduce emissions (problem 2) and the revenue can be used to fund the initiatives we like (problem 1). As a pollution control measure, the solution is rather elegant. We don't need an army of bureaucrats to try to figure out which emissions can be reduced most cost-effectively.
Sounds great in theory, but would a cap-and-trade system really be a low-cost way to reduce emissions in the "real world"? Fortunately cap-and-trade isn't just some textbook theory - it's been used to great success in North America:
"Cap and trade" harnesses the forces of markets to achieve cost-effective environmental protection. Markets can achieve superior environmental protection by giving businesses both flexibility and a direct financial incentive to find faster, cheaper and more innovative ways to reduce pollution.
Cap and trade was designed, tested and proven here in the United States, as a program within the 1990 Clean Air Act Amendments. The success of this program led The Economist magazine to crown it "probably the greatest green success story of the past decade." (July 6, 2002).
As an aside, I've often wondered if the Clean Air Act's cap-and-trade was almost too successful, in the sense that people seem to have concluded not that "cap and trade does wonders" but "boy, that whole Acid Rain thing was overblown".
Of course, since this policy would be straight forward and effective and help boost government revenues, it has no chance of happening. As Dan Gardner points out, the Conservatives have decided to take their policy cue not from Arthur Pigou, but rather from Karl Marx:
“Climate change is one of the most serious environmental issues facing the world today,” declared Peter Kent, the new environment minister, in a recent speech before the Economic Club of Canada. Kent didn’t wink when he spoke those words. He didn’t smirk. He was emphatic and, apparently, sincere. The Conservative government “is determined to do our part for the planet,” he said....
“Achieving our objectives requires a systematic approach of regulating GHG emissions sector by sector,” said Peter Kent. Translation: Some bureaucrat in Ottawa will decide who will reduce emissions and how they will do it.
This is old school command-and-control regulation. Order the Vladivostok Power Plant to install a new type of scrubber. Direct the October Revolution Factory to retrofit with pipe insulation of a particular specification. This Kremlin-knows-best approach is what made the Soviet Union such a model of efficient production. Left shoes? We have eight for every person in the Motherland. Right shoes? Maybe in the next Five Year Plan.
And it’s not just inefficient. It also opens the way to abuse, even corruption. Say you’re the boss of People’s Shoe Factory #17 and you really want to screw People’s Shoe Factory #18. You could try to out-produce them. Or you could try to convince the Kremlin that #18 should be subjected to a burdensome new directive that you, naturally, would be exempt from. In the old Moscow, that sort of thing was done with party connections. It’s much easier in Ottawa. Look under “L” for lobbyist. Just be sure to pick one with party connections.
If the Conservatives are uncomfortable with taking policy advice from Arthur Pigou, they could always choose Milton Friedman instead. From Free to Choose (1980):
Most economists agree that a far better way to control pollution than the present method of specific regulation and supervision is to introduce market discipline by imposing effluent charges. For example, instead of requiring firms to erect specific kinds of waste disposal plants or to achieve a specified water quality in water discharged into a lake of river, impose a tax of a specified amount per unit of effluent discharged. That way, the firm would have an incentive to use the cheapest way to keep down the effluent. (pg. 217)
He goes on to add:
Fuel from shale, tar sands, and so on, makes sense if and only if that way to produce energy is cheaper than alternatives - account being taken of all costs. The most effective mechanism to determine whether it is cheaper is the market. If it is cheaper, it will be in the self-interest of private enterprises to exploit these alternatives - provided they reap the benefits and bear the cost...
Private enterprises will bear all the cost only if they are required to pay for environmental damage. The way to do that is to impose effluent charges - not to have one government agency impose arbitrary standards and then set up another to cut through the first's red tape. (pg. 221)
If "have one government agency impose arbitrary standards and then set up another to cut through the first's red tape" isn't an accurate description of the Conservative position on the matter, I don't know what is.
So we can agree the Conservative position on this issue is, well, dumb. And the Liberal position?
Liberal environment critic Gerard Kennedy said the Harper government’s failure to regulate the oil industry’s emissions has left the sector subject to international criticism and rising concerns among institutional investors.
“It does seem that the government is tethered to the oil sands in a way that even the operators of the oil sands understand is dangerous,” Mr. Kennedy said. “They’re getting international criticism … simply because there isn’t a credible government regulating and setting up the predictable environment from them.
In other words, the Conservative position isn't dumb enough.
I am quite certain the response to this post will be a litany of political reasons why the Liberals and Conservatives cannot propose sensible policies. I understand but I don't care. My hope is that if enough of us keep advocating sensible public policy it may become popular enough to become politically feasible. I want to be part of the solution rather than part of the problem.