Carbon Taxes = Tax Grab
September 30, 2008 · By Shane Edwards
So, both the BC Liberals and the Federal Liberals are screaming under the load of selling the carbon tax to Canadians.
Apparently, 73% of British Columbians believe it’s a bad idea. Those are big numbers.
I was talking with my carpoolie the other day (we manage to solve the world’s problems each and every day in the 35 minutes between work and her place) and in our discussion I found myself summarizing what the real problem is.
The problem is the BC carbon tax is right now 2.4 cents a liter on gas (with other amounts on natural gas etc.)Â With a pump price of $1.29 that’s about 2% of the purchase price.
Historically speaking, five years ago gas prices were about 75 cents per liter. Through market forces alone we have seen a 100% increase in price in the last 5 years. And how much has the consumption dropped? I think I am overstating it, but it’s about 5%, depending on what you use to measure. Some would argue that it hasn’t dropped at all.
So, let’s compare then. If a 100% increase in pump price = 5% decrease in usage, what will a 2% increase in pump price do?
And that’s why carbon taxes are nothing but a tax grab.
And again, Shane demonstrates his ability to pass judgement on proposed solutions without requiring any real understanding of said proposals.
But you’re right, Shane, the Green Shift is a tough sell, and the Liberals have shown they are not as effective communicators as the Cons.
Correct me if I’m wrong, but taxing a product, as a method to reduce the consumption of said product, only works if there is a reasonable alternative.
How many alternatives are there to natural gas, gasoline, diesel, coal, etc.?
Please enlighten me, Abbatoir. I would like to understand how this mystical carbon tax is supposed to change how we use energy without trebling the cost of it.
Sometimes the simple answer is the right answer.
Greg, I’m afraid you are mistaken. Taxing a product can reduce consumption of said product, even if there is no direct alternative to said product, particularly if this product can be used more efficiently.
We are seeing the result of higher gasoline prices already, today. Sales of gas-guzzling SUVs have plummeted, and demand for fuel-efficient compacts and hybrids have soared. The resulting efficiency gains are a direct result of the increased prices.
This carbon tax is not primarily directed at consumers, but at industry. As the cost of doing business as usual increases due to new taxes, alternatives become more attractive. If costs can be reduced by implementing newer, more energy-efficient processes or technologies, businesses will take those steps.
Despite your sarcasm, Shane, I hope even you can see some logic here. Businesses are very adept at reducing costs, particularly in a competitive economy. This tax will increase the ROI for businesses to become more energy-efficient. The businesses that do it well will gain a competitive advantage, and will spur investment in this area.
I hate to say it, bud, but you are missing something significant.
If the cost of doing business increases here, then companies simply relocate. Pollution controls have been in place for years in certain sectors and they have simply driven the business out of the country. The production of asphalt shingles is one that springs to mind first. It’s all well and good to want to protect the environment, but my point with this post, and that’s the one that escapes you, is that the government is not prepared to introduce real incentives to change behaviour. And as long as they are simply acting for appearance’s sake, it will be a tax grab. As for Dion’s “producer’s” carbon tax, it will damage in two ways: in increases in the price of products, and in companies and jobs abandoning Canada for cheaper marketplaces.
The only sector this is not true for is the resource sector. There, the companies have little choice because we have the resources, and others do not. So, if you want to undo the last century of effort in diversifying Canada’s economy and return us to simply the raw materials source for more sophisticated countries, then I hope that Canadians see this dream for what it is and reduce whatever party agrees with you to rubble.
Shane, I have to agree that you have a good point about the concern of driving some businesses to relocate out of the country. I have to disagree about the extent of the problem, however, particularly when the carbon tax is coupled with a corporate tax cut.
Presently, corporations pay taxes on their revenue. More revenue = more taxes, and they can take no measures to reduce these taxes without sacrificing revenue. If, instead, some of their tax burden is based on the amount of fossil fuels they produce, they can take action to reduce their tax bill, without sacrificing revenue.
Moving a business offshore can be an expensive endeavour, and there are many factors beyond the tax bill.
I am operating under the assumption that some real action is mandatory, and the status quo is not an option, so we must find the most reasonable and effective plan to move forward. If you do not agree that action is required, then of course the status quo is far more attractive.
If you are against taking any action, then say so, and we can safely assume you will oppose any plan. If you agree we need to take action, then please, propose your alternative.
The one thing I am unclear about is the difference in effect on revenue as opposed to profit. If the green shift only applied to profit, it might not be quite as damaging, but still damaging.
But you want to know if I am just being ornery or not. The answer is I fully support Harper’s approach to dealing with pollution on a regulatory basis, with penalties and fines for those who exceed certain measurable numbers.
You’re quite right to distinguish between the effects on revenue vs profit – I was trying to be careful on that point. Clearly, if significant investment is required to reduce costs due to carbon tax, that affects profit directly in the short-term. Of course, the corporate tax reductions also have a direct effect on profit.
Thank you for honestly answering the question. I’m glad to hear you support dealing with pollution, at least on a regulatory basis. Do you consider CO2 a pollutant? Would you support the kind of penalties and limits that would be required to have the necessary effect? That seems like too much of a step function to me…no penalty below the limit, but a steep fine above the limit. Wouldn’t that would only encourage companies to stay just under the limit?
You could have talked about the elasticity of demand for gasoline a bit – that might clear up some confusion.
economics.about.com
Espey examined 101 different studies and found that in the short-run (defined as 1 year or less), the average price-elasticity of demand for gasoline is -0.26. That is, a 10% hike in the price of gasoline lowers quantity demanded by 2.6%. In the long-run (defined as longer than 1 year), the price elasticity of demand is -0.58; a 10% hike in gasoline causes quantity demanded to decline by 5.8% in the long run.
Based on that assumption, a 2% price increase would correspond with roughly a half-percent decline in demand in the short run, declining to around 1% in the long run.
I do not consider carbon dioxide to be a pollutant.
I am not too sure that I am on board with that.
Then we simply can not agree on the issue, Charles. CO2 and other greenhouse gases are pollutants, the status quo is not an option, and real action is required – these are facts to me, so my opinions regarding any environmental plans are shaped from there.
Similarly, you do not hold these to be facts, and therefore any action which would upset the status quo is obviously unappetizing. So until one of us finally understands that the other is right, we’ll just have to agree to disagree, and we can presume you are against anything involving addressing any alleged carbon issue.
Not necessarily.
Consider the following hypothetical: I am a government official and I want to grab taxes. I want to deceive the electorate of my true motives. Thus, I assume the air of an environmentalist and ride the wave of the new environmental trend. With the power invested upon my by the state, I may truly be that sinister.
Hmm…strike ‘and I want to grab taxes’ from your hypothetical, and you have a striking description of the current prime minister.
It is impossible to know a person’s motives.
Nope, I’m not. Taxing carbon is more about generating revenue than reducing use or increasing efficiency. Taxes are not an efficient way of altering behaviors – if they were we would see far less people smoking, drinking, or even working for that matter.
Agreed, but those are market forces at play, which have nothing to do with taxes.
I disagree. Industry is funded through consumer spending. You can’t slap a tax on a industry and not expect the consumer to pay a higher price. And considering the importance of fuel in our economy, a carbon tax will affect the prices of nearly everything.
Agreed – BUT, lasting changes to our way of doing business will likely only come from business, not from government. Taxing carbon and then spending the revenues on the development of alternative energy technology (or dumping the money back to citizens through tax breaks and tax credits) will only result in warping the existing market incentives for the development of new technologies.
Governments are neither efficient nor smart when considering the way they invest or spend the public monies.
Greg,
Abattoir is right. Taxation can influence behavior regardless of whether there are alternatives or not.
Now, whether the proposed taxation is an efficient method of altering behavior towards the said goals is a different issue but taxation can influence behavior. Just imagine a 500,000% tax rate.
Just to be even more technical, I will point out that “alternatives” to How many alternatives are there to natural gas, gasoline, diesel, coal, etc. is a meaningless economic concept because there is always the alternative to not consume energy at all.