Climate change policy and the Conservative-NDP Axis of Dimwits

For reasons I'm going to explain shortly, the Conservatives and the NDP are unlikely allies in the debate on climate change policy. I'll be ripping into the idiocy of their positions pretty hard, so in order to balance what follows, I'm going to make  a separate point as a sort of disclaimer. For more than a decade, the Liberal position was one of rank hypocrisy: sign the Kyoto Accord, scold people who questioned the wisdom of signing the Kyoto Accord, do absolutely nothing the meet the terms of the Kyoto Accord, and - after the 2006 election - harshly criticise the Conservative government for not being able to defuse the noxious stink-bomb that the Kyoto Accord had become. Right now, the Liberals have the most sensible climate change policy of the three major parties, but their record on this file up until the past few months is nothing at all to be proud of.

There are several levels at which this debate plays out:

1. The first-order question about the relative merits of a carbon tax and a cap-and-trade model isn't really much of a debate at all: as I've explained in the Econ 101 version of the problem, the two approaches are basically equivalent. In both systems, there will be higher prices for activities that generate greenhouse gases, and in both systems, quantities  will be reduced.
2. The next issue is how to handle the redistributive effects of these higher prices. It's pretty clear that low-income households will be hit (relatively) harder by the increase in the prices of such basic goods as gasoline, natural gas, heating oil and electricity. The more concerned you are with income inequality, the harder you will argue the case for using the revenues generated - either from the carbon tax or the sale of emission permits - to offset the hardships that climate change policy will impose on low-income households.
3. Adding uncertainty to the Econ 101 model provides another source of genuine debate. If we don't know for certain just how sensitive demand is to changes in prices, then a case can be made for preferring one policy over the other. If you're less concerned about the effects on prices, then a cap-and-trade system will provide an assurance that the target for quantities will be met. If you're more concerned about the economic disruption associated with uncertainties about prices, then a carbon tax would provide more certainty on that front.

If the debate on climate change policy revolved around those last two points - that is, around differences of opinion on the importance of inequality and on whether or not we wanted to live with uncertainty about prices or about levels of emissions - then I would be proud to be living in a country where grown-ups discussed important issues in a sensible manner.

But I don't. And the reason why I don't is that significant elements in the electoral bases of both the Conservatives and the NDP have certain knee-jerk reactions that make it almost impossible to conduct a sensible dialogue:

• Those who have a visceral hatred of taxes will reject the carbon tax model, simply because the word 'tax' appears in it.
• Those who have a visceral hatred of corporations will jump at the chance of imposing caps as a way of 'Sticking It to The Man'.

Now, everyone has their irrational biases and blind spots: Liberal supporters have a tendency to be unable to recognise hypocrisy. But the problem here is that the Conservatives and the NDP are not even able to get to the point where they understand point 1) above, let alone engage in a serious discussion of points 2) and 3). The Conservatives and the NDP both attack the Liberals for making certain essential goods more expensive. They don't mention - either because they are idiots, hypocrites (or maybe they are hypocritical idiots) - the fact that their own cap-and-trade policies will also increase prices.

It's important to understand just how goofy the Conservative and NDP positions are. Both of them seem to think that their preferred variation of the cap-and-trade model will not inconvenience consumers, for really no better reason than the fact that they cannot - or will not - understand the basic economics of climate change policy.

Comments

[Rick]

I have been reading your blog for a long time...perhaps two years? I will admit that I have always sensed your Liberal party preference. Lately, however, your postings seem to focus on politcial preference rather than economics. It is time for you to come out of the closet and label your blog as LPC friendly. To deny this would be dishonest, IMHO. Now on to the topic...

What I think is missing from this discussion is the redistribution of goodies. A Carbon Tax or Cap'n Trade :-) merely redistributes money from one group to another. This is socialism. Feel free to tell me I am missing the point. Some may say it's about saving the planet, but I must firmly disagree. The "climate change / global warming / Al Gore will be my next child's father" hysteria seems to have encouraged some very learned folks to extend their hand expecting cash to magically appear. These opportunists will be discovered for what they are soon enough. The PhD's getting research grants to study this nonsense will not fare well after everyone returns to reality and sees the dishonesty of this game.

More importantly: The working and non-working poor don't give a damn about climate change. BUT... if the "solution" includes taxing the "haves" to provide more goodies to the "have-nots", then I would guess that most in the less wealthy group will welcome climate change. As wealth is redistributed, from citizens who can afford cleaner/greener technology (but choose not to due to high prices), to citizens who struggle to afford owning a car, will these less wealthy people be encouraged, financially, to spend their new tax breaks wisely? Sure. Whatever. If I were a person struggling to make ends meet, and the governement gave me tax breaks, then I would spend this new-found cash, sure enough. And you can bet I would not spend it on expensive green crap. I would spend my money on the most affordable option available. I might buy more groceries, clothes, or maybe buy an old/inexpensive automobile. One that spews CO2. 'Cause these cars are less expensive.

Please explain what has been accomplished. I already understand that wealthy people will be handing money to the government who will then give it to non-wealthy people. Pray tell, how have we saved the planet?

[Declan]

Heh, you seem to be reaching my own level of irritability on the topic of carbon taxes, Stephen. Just read Rick's comment and accept the fact that we are all screwed - it will help you relax.

[Stephen Gordon]

Rick, I'm resolutely non-partisan; indeed, I'm anti-partisan. Back when the Liberals were being hypocritical on the file, I wasn't gentle.

But since then, the Liberals changed their policy, and in a sensible way. There are several points where it can be improved (do we really need income tax cuts for those making $90k/yr?), but at least they've demonstrated an understanding of of the basic economics of the issue. Credit where credit is due, and all that.

[geoff]

I'm with you Stephan I want a real debate by adults on this country's approach to global warming. I really don't want to talk about the past, either far distance or more recent. I want some sensible discussion about the present and the future. I don't even want to discuss, yet, strategy relative to the next international meeting on global warming and our actions relative to the RoW. Let's have a variation of the separation theorem, we'll settle internally how we want to reduce carbon consumption then see how it fits with others. Unfortunately there, both here and other places, seems to be a lingering "concern" that the whole matter of carbon and "warming" really isn't an issue. This, I think, allows so-called leaders or potential leaders to be political in a very non-useful way.

[Glen]

Stephen,
I'm new to your blog and find it quite refreshingly non-partisan (thank you for that), contrary to Rick's assertion. In fact, Rick has demonstrated through his earlier post that it is he who wears the badge of a partisan (CPC anyone?).

In any case, Rick did ask a question that I think deserves an answer. I agree with him when he states that lower income folks will likely continue to spend their money on less-than-green purchases simply because those goods are more affordable (why and if that is true is another topic worthy of economic debate). So, as Rick asks, how will putting this money in the hands of lower income people save the planet? Well, a very important point was left out of the analysis Rick provided. When you look at the entire Green Shift plan, there are items in there that are designed to encourage investment in developing and implementing greener technologies through tax breaks to business and corporations and the establishment of a $1 billion AMP fund to stimulate investment in green manufacturing.

In fact Rick, had you bothered to even visit the website (www.thegreenshift.ca), you would have found this statement on the very first page of the site!

"But putting money back in the hands of Canadians is only part of the solution. Investing in renewable energy and conservation – helping families to use less and pay less – is also key to our plan."

See Rick, a little education will usually lead to answers for most of your questions. Don't continue to let Stephen Harper tell you how it is. Open your partisan mind and embrace knowledge - find out the truth on these important issues. It will help you make an informed decision come October 14th.

And Stephen is correct - at this point the Green Shift Plan is our best option.

[Stephen Gordon]

At least, of the three discussed here. Someday I'll get around to looking at the Green Party's plan.

[Glen]

With all due respect to the Green Party, they won't be forming the next government (nor likely will the NDP for that matter). So while their plan may be interesting, it has little chance of being implemented. On the other hand, the Green Shift does have a chance of being implemented, and should be the plan getting the most promotion. Which is why I suppose Harper is vehemently attacking it.

[Manny]

What's wrong with you guys? The following graph shows that Canadian emissions have decreased between 2004 and 2006 (the latest data point). That was before the current oil prices; emissions are expected to decrease even more.

http://www.ec.gc.ca/pdb/ghg/inventory_report/2006/som-sum_eng.pdf

Now, this decrease was the result of market forces (remember offer and demand?), without cap nor carbon tax. Why do we need them? All they'll do is create internal conflict and distract us from the real problem: preparing for life without oil.

[Glen]

Manny, actually implementing something like the Green Shift will help us on our way to preparing for a life without oil. Investing in energy conservation and alternative energy source technologies one of cornerstones of the Green Shift. It addresses two issues with one plan - reducing pollution, and reducing our dependency on oil (and all fossil fuels for that matter). We need something more than relying simply on 'market forces' to get us going in the right direction.

Do yourself a favour - rent the documentary "The 11th Hour". It makes some very salient points.

[Stephen Gordon]

With all due respect to the Green Party, they won't be forming the next government (nor likely will the NDP for that matter).

You could probably add the Liberals to that list as well. Doesn't mean their policy proposals aren't worth taking seriously.

[Andrew F]

Stephen,

What do you think about the implementation timeframe? I've heard concerns that four years is way too sudden, but it seems to me that the price increase is actually pretty gradual (my back of the napkin suggests something like 3.8% annualized over four years for oil) when compared to the massive swings in oil prices we've seen lately.

Also, what do you think of the plan if you leave out the somewhat controversial premise that continued carbon emissions are a problem?

[Style]

"If you're less concerned about the effects on prices, then a cap-and-trade system will provide an assurance that the target for quantities will be met."

This suggests the Tory/NDP approach is more focused on the goal of reducing carbon emissions and reversing climate change. Which directly contradicts the way the Liberals and Greens characterize these approaches, suggesting that they are struggling to master point one as well.

I don't see how point two even enters into the debate. Is there a reason to believe that the NDP are less concerned with income equality in Canada than the Liberals?

Going through your checklist, I would give the advantage to the Tories/NDP right now. And this is before we get into the sector-specific exemptions Dion has in his Green Plan.

[Stephen Gordon]

Two points, both based on the Conservative-NDP ignorance of how their own plans would work:

1) The Conservatives and the NDP both attack the Liberals for making certain essential goods more expensive. They don't mention - either because they are idiots, hypocrites (or maybe they are hypocritical idiots) - that their own cap-and-trade policies will also increase prices. [ETA: This point is not as clear as it should be in the original post. I've added it at the end of the second-last paragraph.]

2) The Liberals have a long list of programs designed to transfer money to low-income households as a way to attenuate the regressive effects of their policy. Since it pleases the Conservatives and the NDP to pretend that their plans won't affect the consumer, they haven't given any thought to redistributional issues.

[Manny, in Moncton]

Glen, you wrote: "We need something more than relying simply on 'market forces'"

First, I dislike your quotation marks. Do you consider market forces illegitimate?

Second, free market is the only mechanism that will not create conflict between Canadians. We do not need additional measures that will steal from Alberta and Saskatchewan to give to Ontario and Quebec.

Third, the Earth has been cooling over the past 10 years. (see graph below, updated July 2008)

There is no emergency. We humans are at our best when fighting nature together. Let us not turn this huge challenge ahead of us, the result of limited natural resources, turn into a conflict among us.

No cap, no tax, just supply and demand. It will be hard enough.

http://www.cru.uea.ac.uk/cru/climon/data/themi/g17.htm

[Style]

I'm not sure why the presentational flaws of the NDP/Tories tactics undermine their policies the way you suggest or reflect hypocrisy/ignorance. I also don't hear the Liberals explainingthat their plan puts economic and revenue concerns first while leaving the environmental effect less certain than the NDP/Tory plans. Which should interest you given your past concern over the Liberals Kyoto stance: promises of big reductions, not so many reductions. Now they are proposing a plan they promise will have big reductions, but the actual reductions depend on price elasticities that we don't yet know. And a chunk of the reductions have to come from the tar sands - where producers cannot realistically switch to cleaner production in the medium term, so either production falls in the sector or tax revenues rise. Likely outcome: big promises , few reductions.

As far as the Liberals tying their social spendng to the Green Plan, what difference does it make what chapter of the party platform has the spending measures? THe NDP also propose a host of measures to transfer money to low-income households. If the platforms overall are equal on the income transfer front (or if the NDP package is superior because they wouldn't cut taxes on upper-income households), it shouldn't matter whether these transfers are described as part of a climate change package or as part of a social equity package.

[Stephen Gordon]

THe NDP also propose a host of measures to transfer money to low-income households

Could you point me to a link? Because I've searched all over the NDP site looking for something along these lines, and I couldn't find anything.

[Style]

I wasn't expecting to have to convince people the NDP care about equity but there are a number of parts of the NDP plan that are relevant, including the sections on education, forestry, manufacturing, equality for Canadian women, fighting for equality, affordability for your family and protecting the average consumer. I would guess the most relevant would be "Confronting poverty in Canada". That section still rehearses past commitments, but these are interesting enough:

* Reinstate the federal minimum wage at $10/hour to ensure a basic living standard.
* Framework for a comprehensive national anti-poverty strategy.
* Fix the Employment Insurance system so more unemployed Canadians can qualify for the benefits they need and deserve.
* Exposed price gouging that hurts low-income families
* Early Learning & Child Care Act to create a permanent program of affordable child care for today’s families, regardless of income level.
* Post-Secondary Education Act as the heart of a plan to reduce crippling student debt and lower tuition fees for education and training across Canada.
* Reversed cuts to homelessness and housing initiatives. Rewrote the 2005 Liberal budget to redirect $1.6-billion out of corporate tax cuts to build affordable housing.

[Stephen Gordon]

Their climate change policy is regressive, and they either don't know it, or don't care. Neither explanation is satisfactory.

[Style]

Or it doesn't matter because their overall platform is progressive.

I don't see why you think it's so important for the NDP to explicitly say that their climate change policy is regressive. Harper has admitted there will be costs with the Tory policy, and defended it as being less economically disruptive than the Liberal alternative (in terms of the tar sands, he's probably right, and Dion has modified his plan to lessen the disruption for other sectors). The NDP are more progressive than the Liberals. If not, isn't it as important for the Liberals to clearly informing their supporters that they are no longer a centrist party?

[Stephen Gordon]

Well, this is not the place to go into it in depth, but the NDP's insistence that its program is in fact progressive is a source of great frustration to me. Their failure/refusal to understand economics means that much of what they advocate is pointless, and much is counter-productive.

Their climate change policy is yet another addition to the counter-productive category.

[Wolverhampton]

"Now, everyone has their irrational biases and blind spots: Liberal supporters have a tendency to be unable to recognise hypocrisy."

Fuck you, you moron. What Liberals couldn't do it resist the advice of economists who advised them them that taking Big Oil would be disastrous.

[Stephen Gordon]

Woo-hoo! My first troll!

[Manny, in Moncton]

Question about the Green Shift : since the income to that plan is, by design, expected to decrease with time but the expenses will not, isn't the plan doomed to bankruptcy?

[Stephen Gordon]

In fact the NDP is silent on the question of whether or not their specific plan on the environment is progressive or regressive. I can't find either word on their web site.

Why are they silent on the one point upon which the NDP claims to be different from the other parties?

Presumably the NDP think their plan is progressive because it is embedded within a broader platform of progressive transfers to lower income Canadians.

Like what?

given the oligopolistic structure of the oil and gas markets the oil companies will pass on any tax to the consumer

This is incomprehensibly silly. You get the same result if you assume perfectly competitive markets.

[Stephen Gordon]

None of this matters, because in all of these stories, we're always on the demand curve - and demand curves slope down: reducing the quantity supplied increases prices.

[Stephen Gordon]

Somewhere in that bafflegab must be an assertion that demand curves slope up, so I'm going to have to give up on you at this point. If you have a theory that says that reducing quantities will reduce prices, you can write it up - complete with a list of the assumptions that are required to make it work - and maybe this will go somewhere.

[Stephen Gordon]

So just what is your point? Mine is that any climate change policy that reduces quantities of greenhouse gas emissions will increase the prices of activities that generate greenhouse gases. Yours is - what? To throw up a cloud of squid-ink so that this point is obscured?

[Style]

Travis - you seem to be spending a lot of time proving that the prices of consumer goods will go up with a carbon tax. But Stephen's point is that the NDP/Tory plans will do the same thing. And this is regressive.

If you've got time to spare on this, I'd rather see an answer to Stephen's question about specific NDP policies that constitute transfers to low-income Canadians. This was my assumption too, but Stephen called me on it and I haven't been able to point to a clear NDP policy that fits. Possibly the child care, education or housing policies mentioned on the NDP site would qualify but somebody needs to find the details (hint: it probably won't be me).

[Style]

"The NDP seems to think that in certain sectors like oil and gas there are sufficient economic profits such that increased costs need not be passed on to the consumer. "

Maybe they've noticed that most consumers of Canadian oil production are not Canadian (72% of oil production and 54% of natural gas production is exported to the US - I'm not sure what percent of gas production is used to extract tar sands oil for export to the US but that would up that percent). So it wouldn't much matter whether the firms were able to pass the costs on to their customers or not. But the situation still seems to be the same under both plans - this just reduces the regressive impact on Canadians. The NDP would still need to have offsetting policies elsewhere that match the Liberals proposals.

[Rick]

Wow. When I last checked there were 4 comments. Now there are 36. Congrats Stephen!

Glen. My perception of Stephen's political preference is based on reading every one of his postings for more than two years. Stephen said I am wrong. I accept that. Your judgement of me is based on what exactly? Heck, you seem to have knowledge of what I haven't read and where I get my education. I must have offended you. Sorry.

And Glen, thank you for the quote: "But putting money back in the hands of Canadians is only part of the solution. Investing in renewable energy and conservation – helping families to use less and pay less – is also key to our plan." This demonstrates that wealth redistribution is the desired result of carbon taxation. This is socialism.

Fell free to label me anti-socialist. Partisan? Hardly.

[commonsense]

Will that be a) carbon tax or b) cap-and-trade?

Wait a minute... I don’t see c) NIETHER!

The human race does not play a measurable role in determining the mean global temperature. Carbon dioxide does not drive temperature; temperature drives the carbon dioxide. Look at the data. The carbon dioxide concentration *lags* temperature at every time scale and at all times in the history of the planet.

The most important drive of mean global temperature is the solar irradiation. After that, are the Atlantic Multidecadal Oscillation and the Pacific Decadal Oscillation - at least on time scales of interest to human beings. Both of these cycles are currently entering a cooling phase, and the solar energy output is now at a low point not seen since the Maunder minimum in the 1600’s. So we can expect at least a decade of global cooling.

ANTHROPOGENIC GLOBAL WARMING IS A FRAUD!

The IPCC is a political organization masquerading as a scientific body.

You’re quite right about one thing, though: in the large, there isn’t much difference between carbon tax and cap-and-trade.

Either one will be a death blow delivered on false pretenses to an economy already staggering under the impact of the global banking meltdown.