Carbon tax trick to implement, experts say

As the pace of global warming continues to accelerate, pressure is being brought to bear on Canada to improve its environmental record

Geoff Regan, a Liberal MP from Nova Scotia, and the vice-chair on the standing committee for the environment and sustainable development said the Liberal position on the adoption of a carbon credit system is not new. Liberal opposition leader Stephane Dion announced his intention to support such an initiative in March of last year. The efforts to set up a credit system have been stalled ever since the bill mandating the creation of a carbon trading system was defeated in the House of Commons.

Regan says that the Liberal proposal, if passed in to law, would set limits for how much carbon dioxide Canadian companies are allowed to emit. If they exceed those limits, stiff fines will be imposed, which the company will have the option putting towards reducing its own environmental foot print or towards the development of green technology such as tidal or wind power.

The Conservative Party was unavailable for comment, however, they have taken steps to reduce carbon emissions through the creation of $1.5 billion trust for clean air and climate change. The Conservatives have also set up a $2 billion eco-energy initiative designed to promote increased fuel effiency in cars and greater use of clean energy sources.

Despite the political wrangling taking place in Ottawa, steps are already being taking in Nova Scotia to move a more environmentally sound economy. Traditionally, Nova Scotia has relied on its rich coal deposits and off-shore oil reserves for much of its energy production. With the recent shift towards renewable power sources, however, this is beginning to change.

The Ecology Action Centre in Halifax is also supportive of reductions in carbon emissions. Brendan Halley, a member of the energy committee believes that a tax would be more beneficial in the long run than a trading system. He said the Nova Scotia business community is in favour of a tax because it simplifies the issue by putting everybody on a level playing field.

The Ecology Action Center is also working directly to reduce the emission of greenhouse gases through projects such Solar Gain. According to Halley, Solar Gain is a financial analysis service provided to companies looking to install solar water heaters in their buildings. The Ecology Action Centre is also involved with several transportation projects and green building initiatives.

Halley also believes that companies such as the Nova Scotia-based Minas Basin Pulp and Power could serve as a model for other companies in Nova Scotia looking to reduce their carbon footprint without hurting the bottom line.

Halley believes that Nova Scotia is in an interesting position. Because of the fact the Nova Scotia economy is so heavily dependent on carbon, Halley believes that as Nova Scotia continues to move off of fossil fuels, the province will become “a test case for the rest of the country.” What this means, according to Halley, is that because of its location on the Atlantic Ocean, Nova Scotia is in a prime position to take advantage of wind, tidal and solar power. In so doing he believes that Nova Scotia would be taking a fundamental step towards building an environmentally sustainable economy.

The real issue according to Ross McKitrick, an economics professor at the University of Guelph, is one of implementation. A trading system would place a cap on the total amount of carbon released into the atmosphere, but would leave the price of permits to the discretion of industry. In contrast, a carbon tax, if implemented would allow the government to set the price of carbon emitted into the atmosphere, but would allow industry to decide how emissions are actually worth.

McKitrick believes that there will be more of an economic impact if a cap and trade system adopted in Canada, as opposed to a carbon tax. He says that cap and trade systems are designed to function in a similar manner to an agricultural board. A government agency or panel would sell permits to companies, allowing them to emit a certain amount of carbon dioxide. He cautions that one of principle problems with a cap and trade system is that as Canada begins to make larger and larger cuts in its carbon emissions, the costs of those cuts will be passed on to the consumer. As a result, says McKitrick, a cap and trade system will cost three to four times more for a 20 per cent reduction in emissions than it would for a five per cent cut.

McKitrick says the best evidence for the effects of a cap and trade system are best seen studies of the American economy, which reveals one of the principle dangers of a cap and trade system. Because the cost of carbon credits will increase exponentially over time as emissions are cut back, only the very largest companies will be able to afford them and the creation of a cartel becomes a possibility. McKitrick credits this possibility as the reason why Nova Scotia businesses favour a carbon tax instead of a trading system.

He cautions that a carbon tax has its own pros and cons, however. McKitrick favours a carbon tax over a cap and trade system due to its stability and points to the European carbon market as an example. He argues that the European system has demonstrated an inherent instability with credit prices ballooning as high as 30 Euros per ton and dropping to as low as few cents. For McKitrick, a carbon tax makes sense because of its stability. He believes that by imposing a flat tax and allowing companies to regulate the amount of carbon they emit, a 10 per cent reduction in carbon emission may be a real possibility. He cautions, however, that as the price of oil has gone up over the past three years, studies have forced economists to rethink the impact a carbon tax will have on the Nova Scotia economy, as considerably higher gas prices have had very little negative impact on the consumption of gasoline. This new information has caused some economists, such as McKitrick to reconsider the possible effectiveness of a carbon tax.

The Green Party of Canada has also made its position regarding a carbon trading system clear. Elizabeth May, the head of the Green Party of Canada agrees, but further elaborates on her position saying that unlike the Liberal proposal, which would only tax heavy polluters such as Nova Scotia Power and the oil industry. May said that the Green Party’s proposal would see a $50.00 tax levied on every ton of carbon that is produced in Canada.

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