Saturday, 3 May 2008

Carbon tax: a regressive hoax

The Labour government and the Green Party have been moving towards carbon taxes as a way of curbing greenhouse gas emissions. British Columbia in Canada has just announced the introduction of such a tax. However, this excellent editorial from the current issue of Canadian Dimension magazine makes some devastating arguments against carbon taxes. Evidence from British Columbia is that carbon taxes are simply passed on to working class people by the fossil fuel corporations. The “free market” doesn’t deliver any alternatives and the tax hits those who can least afford it most.
B.C.’s Carbon Tax: A Regressive Hoax The editorial in the current issue of Canadian Dimension magazine (May/June 2008) H.L. Mencken once wrote, “For every complex problem there is an answer that is clear, simple, and wrong.” British Columbia’s recently announced carbon tax is a case in point. It won’t reduce greenhouse-gas emissions and it will have no impact on global warming – but it will hurt working people and the poor. According to carbon-tax advocates, greenhouse gases are growing because emissions are free: corporations and consumers don’t pay when they use the atmosphere as a carbon waste dump. By imposing a price on products that produce CO2 and related gases, a carbon tax will cause consumers and corporations to adopt low-emission products or technology. Presto! Free-market magic works again! Even the most committed defenders of carbon taxes agree that this kind of tax will only work if two conditions are met: The tax must be high enough to cause buyers to switch to alternatives, and there must be alternatives available at prices buyers can afford. Neither is true for the B.C. plan. The budget proposes a tax of $10 per tonne of emissions this year, rising to $30 per tonne in 2012. For gasoline, this works out to 2.4 cents per litre this year, rising to 7.2 cents per litre in four years. By way of comparison, the average retail price of gas in Canada, adjusted for inflation, has risen forty per cent in the past five years. The increase is the equivalent of $120 per tonne of emissions – four times as much as the maximum tax proposed in B.C. But consumption did not decline. In fact, during the same period both gasoline sales and greenhouse-gas emissions rose to record levels. In effect, we’ve already tried a much tougher carbon tax than B.C. is proposing – and it didn¹t work. Corporations passed the cost onto customers, and wealthy consumers absorbed higher prices easily. Working people and the poor tightened their belts, spending less on other things. Why has the demand for petroleum products been so inelastic, so unaffected by price increases? Because, contrary to the carbon-taxers’ wishful thinking, the much-vaunted free market did not deliver alternatives. Despite oil prices that have risen farther and faster than any tax advocate proposes, the market has not given us clean energy, or low-emission cars, or cost-effective carbon-capture technology, or universally accessible mass transit, or energy-efficient homes and offices. Cities continue to be designed around roads and single-passenger vehicles. The main thing that the market has produced in response to rising oil prices is the Tar Sands. Rather than investing in clean energy, corporations are putting billions into the biggest, dirtiest industrial project in the world. Could the B.C. government use carbon-tax revenues to expand public transit and other alternatives? Perhaps – but what it is actually doing, as recommended by carbon-tax advocates, is cutting other taxes so that the carbon tax will be “revenue neutral.” Businesses will do particularly well: not only are their taxes being cut, there are no restrictions on their ability to pass the taxes on to customers. As a nod to social justice, the plan promises “Climate Action Credits” to offset the carbon taxes paid by low-income people. However, as the National Union of Public and General Employees points out, credit payments will not keep up with annual tax increases; by 2012 low-income people will pay twice as much in carbon taxes as they receive in credits. In short, the B.C. carbon tax is regressive, shifting ever more of the province’s tax burden onto working people, while reducing taxes on corporations. It will do nothing to cut emissions or slow global warming. The liberal environmentalists who have endorsed this scheme should hang their heads in shame.


Semi said...

NICE Blog :)

glenn said...

While a carbon tax is better than cap and trade, it is regressive and likely will lead to greater government spending.

The way to avoid this is return the tax equally to all tax filers. This makes it less regressive since higher income people use more fossil fuels and since it is all returned to taxpayers, it should not lead to greater and often wasteful government spending.

My dictionary says a tax is used to fund government. This then would not be a tax, but rather an assessment against carbon pollution to be returned to those bearing the cost of the pollution. The carbon tax should increases each year replacing fossil energy with cheaper renewable energy. It would not be expensive as wind and thermal solar are already close to being cost competitive with coal generated electricity.