Saturday, February 03, 2007

Step One is a Carbon Tax

Because I can't get enough of that glorious Kyoto talk...

Olaf linked to an article a few days ago claiming the following:
But the problem is the Kyoto deadline. Ms. Donnelly estimates it would cost $80-billion in new capital spending projects (including building retrofits, manufacturing plant upgrades and redesigning vehicle and engine production lines) to achieve the transformation Kyoto compliance would require.

"The problem is that even if we had the skilled labour and cash in place to start construction on all $80-billion in capital projects today, most of the new clean energy supply would not be delivering energy product to Canadian consumers before 2013," she said.
Olaf says it sounds low to him -- I dunno, I've heard $100 billion estimates for the US economy, which is ten times our size. So color me skeptical.

But let's run with this $80 billion estimate. What would it take to raise $80 billion before 2012, our Kyoto deadline? Assuming our economy grows not at all in the next 4 years... 2% of GDP. A bit less, even. Hardly insurmountable, though I acknowledge that it's not trivial either. How do we raise this kind of money?

Well, the Stern Report says there's a social cost to a tonne of carbon of about $85. Canada emits approximately 760 million tonnes of CO2 per year.

760,000,000 X $85 = $64.6 billion. A year. So a reasonable and well-researched level of carbon taxation could fund 3/4 of the capital costs this estimate says we need per year, or more than 3 times the amount cited by 2012. Obviously, a tax like this takes time to get off the ground, but it's worth pointing out that some countries have much higher levels of carbon taxation -- Sweden has a tax of $150/tonne of CO2, though with some partial and full exemptions for some industries.

I think a reasonable starting place would be to start at $50/tonne, and add $10 to the tax every year for a decade. By 2018, we'd be paying Sweden levels of taxation on oil, coal, and natural gas.

And as anyone who's read up on this matter knows, the best case scenario is when industry and business engage in massive carbon tax evasion -- changing their investments and business plans to emit less carbon. The tax works twice.

Is it doable? Almost certainly. In Canadian politics, the biggest problem with environment and energy issues is the division of powers between Federal and Provincial governments. But the feds have basically unlimited taxation powers, so this is well within Ottawa's constitutional rights. All we need now is a government that doesn't view taxes as the mark of the beast.

6 comments:

Olaf said...

John,

On the surface, I like carbon taxes. The idea of confronting environmental challenges by aligning the actual costs of production and consumption with the behavior of individuals and corporations is music to my ears, compared to the alternatives.

But this level of taxation seems a bit much for most Canadians (let alone corporations) to swallow. I'd be interested to hear how much it would cost consumers (in heating bills and gasoline), which is where the much of costs would appear.

I mean, if the oil sands produce 30 million tonnes a year, that's an additional cost of $2.55 billion; they'd freak. Plus, when it comes to heating, just the coal plants in Ontario produce around 24 mil, which is around $2b, which would almost certainly be downloaded to the consumers, who would also freak.

Anyways, all stuff that I'm sure you knew, and I suppose that "freaking" is what you'd expect. I guess I just like to hear myself type.

adam said...

Seems like you answered yourself there Olaf - yes there will be freakouts. There always are when introducing something like this. Remember after all, that the automotive industry would have had us believe that mandatory seatbelts would mean economic ruin.

But it is (carbon tax) a method of "confronting environmental challenges by aligning the actual costs of production and consumption with the behavior of individuals and corporations", and to shy away from such a solution because people would like it is to shy away from those actual costs.

And it's worth pointing out that the $85/tonne is an example - it could be less and we would still cover the cited costs before 2012. Neither would it be a flat $85 in all cases.

john said...

The other thing to say is that the costs passed on to consumers would be smaller than often thought. For example, there's only 20 pounds of CO2 for each gallon - 5 pounds to the litre - of gasoline. So the tax increase for gasoline would be on the order of 10 cents.

As for coal, the US averages 1.34 lbs of CO2 per kwh generated, or .6 of a metric tons per Mwh. The additional cost to the residential consumer -- assuming it all got passed on to the consumer -- would still be managable.

Jeremy Kirouac said...

We have to acknowledge that carbon taxes are probably not a realistic option. Liberals are against it, and the Conservatives are certainly against it as well.

There are other ways of meeting Kyoto and other ways of internalizing external costs. Central to meeting our Kyoto targets will be municipal planning, where 80% of Carbon emissions are derived.

What can be done? Better transit, retrofitting of buildings, ensuring that all new buildings are built to the highest environmental standards, reducing waste (as Toronto is taking the lead on), moving towards distributive energy regimes (meaning less reliance on centralized grids), urban agriculture and a reduction of food miles, recycling of materials and water, etc, etc...

The solutions are there. Unfortunately, the public imagination keeps coming back to simplistic magic bullets like Carbon Taxes which, in my view, aren't politically feasbile.

The truth is that we'll need to use a lot of different different tactics. Municipalities are central to our efforts of reducing GHGs.

john said...

Jeremy,

Why do you think carbon taxes are unfeasible, or for that matter what makes you think they're a silver buller? How exactly do you intend to raise the money for mass transit, building retrofits, etc?

Carbon taxes are one important part of the solution, but I never said they were the only one. In fact, if you'll read the title of this post, I explicitly call it the first step.

Jeremy Kirouac said...

John,

How would I raise money for mass transit and building retrofits? How about removing subsidies to oil and gas companies? How about ensuring the current government doesn't cut any more taxes or the GST? How about the fact that mass transit and building retrofits are more economic? How about the fact that you can delay or avoid infrastructure upgrades through better buildings and municipal planning? How about tax shifting?

The fact of the matter is that an investment in green design pays itself back many times over. From the simple measurement of economics (not to mention improved health and human development) it's better for the state, it's better for businesses, it's better for communities and individuals. Redirecting funds towards better, greener development is not so much the problem.

Now, to get to the point that I think really irks you (because I'm sure you're already familiar with the above), why do I say that carbon taxes are not feasible? Well, we can start with Alberta and the NEP. Or even more simply, we can recognize that both Harper and Dion are opposed to it.