Juno News - October 23, 2020


Canada's inefficient and ineffective carbon tax

Topics
carbon tax effectiveness
Mentioned
Elmira Aliakbari Andrew Lawton Show Carbon Pricing
Everything's a Confidence Motion Another broken promise by Justin Trudeau

Episode Stats


Length

14 minutes

Words per minute

142.84

Word count

2,006

Sentence count

93


Summary

Summaries generated with gmurro/bart-large-finetuned-filtered-spotify-podcast-summ .

A new report from the Fraser Institute argues that Canada's carbon tax is not the most efficient way to reduce greenhouse gas emissions. In this episode, Andrew Lawton talks with Elmira Ali-Akbari, Associate Director of Natural Resource Studies at The Fraser Institute and author of the report, about why carbon pricing isn't working.

Transcript

Transcript generated with Whisper (turbo).
Topics generated with Qwen2.5-3B-Instruct.
Hosts, guests, and mentioned names generated with spaCy (en_core_web_sm), reconciled against Wikidata.
00:00:00.000 you're tuned in to the Andrew Lawton Show.
00:00:10.380 Let's talk about one of my biggest pet peeves,
00:00:12.680 and I suspect one that I share with a great many of you tuning in to this show,
00:00:16.880 the federal government's carbon tax,
00:00:19.160 or as it likes to call it, I believe, the Greenhouse Gas Pollution Pricing Act,
00:00:23.060 which is basically the tax on everything,
00:00:26.100 the tax on your fuel, on your gas heating at home,
00:00:28.820 the tax on anything you buy that's been produced in Canada,
00:00:32.300 on anything that's been shipped to you.
00:00:33.680 It is literally the tax on pretty much every stage of the supply chain,
00:00:38.960 and it's supposedly going to help save the world from the evil scourge that is a greenhouse gas,
00:00:44.940 but at the same time, this is also not something that I am as optimistic in,
00:00:50.040 and I know a lot of you aren't either.
00:00:52.200 Forgetting about the environmental side of the discussion here,
00:00:54.960 let's focus on the economic aspect.
00:00:57.500 A new report from the Fraser Institute says that this carbon tax that we have in Canada,
00:01:02.440 and in fact, most of the carbon taxes put in by very similar wealthy nations around the world,
00:01:07.460 don't actually economically meet the criteria necessary to say they are efficient and effective.
00:01:13.940 The report is Carbon Pricing in High-Income OECD Countries.
00:01:17.580 The author is Elmira Ali-Akbari, who's the Associate Director of Natural Resource Studies at the Fraser Institute,
00:01:24.680 and the author of this report.
00:01:26.380 Dr. Ali-Akbari, thank you very much for coming on.
00:01:28.880 Good to speak with you.
00:01:29.920 Thanks, Andrew, for having me.
00:01:32.440 So let's start off with what it was you really set out to find.
00:01:35.600 When you decided to bring together these countries around the world, what were you looking for?
00:01:39.540 So it's widely acknowledged that carbon pricing is the most efficient way to reduce greenhouse gas emissions
00:01:47.780 and address the issue of climate change.
00:01:50.780 However, some key conditions must be met for carbon pricing to be efficient,
00:01:56.600 or in other words, to be the least costly approach for reducing emissions.
00:02:01.560 The first condition is something we call revenue neutrality,
00:02:05.420 and that means that all the revenues from carbon pricing should be used to reduce other costly taxes in the system,
00:02:13.360 such as reducing personal or business income tax rates.
00:02:16.940 The second condition, which is also related to the first one,
00:02:20.780 is that governments should avoid subsidizing substitutes for carbon-emitting activities,
00:02:27.360 such as subsidizing wind and solar energy sources,
00:02:31.960 because subsidizing these substitutes will increase the cost of reducing emissions
00:02:37.600 and will defeat the whole purpose of carbon pricing,
00:02:41.220 which is allowing the market and prices to find the right substitutes.
00:02:48.160 And the third condition is that the introduction of carbon pricing
00:02:52.280 should trigger the repeal of the existing and corresponding emissions-related regulations.
00:03:00.100 We shouldn't be adding carbon pricing on top of existing regulations.
00:03:04.440 So in our recent study, we examined existing carbon pricing policies in 31 high-income OECD countries
00:03:12.840 to determine whether these existing systems meet the key conditions of a well-designed carbon pricing policy.
00:03:22.860 And we found that no country has implemented a well-designed carbon pricing policy.
00:03:29.300 More specifically, no country is using all the revenues from carbon pricing to reduce other taxes,
00:03:37.280 which help with, you know, improving economic growth.
00:03:41.200 Our study found that 74% of the carbon tax revenues collected in 14 countries on average
00:03:53.620 are simply used as general revenues for the government.
00:03:58.540 Only 14% of the carbon tax revenues, again on average, were returned to taxpayers.
00:04:06.280 And this suggests that, you know, existing carbon taxes are mainly used as a tool for governments to raise revenue
00:04:15.080 rather than a mechanism to reduce emissions in the most affordable way possible.
00:04:24.040 In addition, we found that no country that introduced carbon pricing
00:04:28.480 has eliminated the existing and corresponding GHG-related regulations.
00:04:34.780 In fact, most countries have done the opposite,
00:04:38.540 and they have introduced even new regulations following the introduction of carbon pricing.
00:04:45.760 Emission caps, clean fuel standards, renewable power mandates,
00:04:51.160 these are just some examples of these regulations that undermine the cost-effectiveness of carbon pricing policies.
00:04:59.500 I want to talk about some of the specifics you mentioned a moment ago about how the money is spent.
00:05:05.000 But before then, just getting to really the fundamental thesis of this report,
00:05:09.800 am I correct that you're not saying a carbon tax itself is a bad thing,
00:05:13.760 but just there's a right way and a wrong way to do it?
00:05:15.880 Or is it that so many of these mechanisms you think would be required for it to be better designed
00:05:21.040 are just not happening in carbon tax policies that we see around the world?
00:05:25.040 That's a really great point.
00:05:27.120 So, you know, most economists, including me,
00:05:30.000 believe that carbon pricing is the most efficient way to reduce greenhouse gas emissions.
00:05:34.480 But we believe that the way we are designing and implementing those policies are really important.
00:05:42.500 While tackling climate change is a priority,
00:05:45.720 we should really pay attention to the way that we are designing and implementing these policies.
00:05:50.940 If we have a well-designed carbon pricing policy,
00:05:54.900 we can reduce greenhouse gas emissions in an efficient and productive way.
00:06:01.440 And this is basically what our report is about.
00:06:05.100 So let's talk about how it's spent,
00:06:07.600 because I know this was a big part of the discussion in Canada
00:06:10.900 about whether the money that the government brings in through the carbon tax
00:06:14.640 had to be used for specific emission reduction programs,
00:06:18.880 or whether it could just go into general revenue.
00:06:22.080 Why does that matter?
00:06:23.160 I mean, in the sense of the effect a carbon tax would have on consumers, on industry,
00:06:28.040 it's the same.
00:06:29.140 How does it matter from an efficiency standpoint,
00:06:31.760 how the government spends the money?
00:06:34.460 So the revenue neutrality condition explicitly says that
00:06:40.240 the collected revenue from carbon tax
00:06:43.120 should be used to reduce other costly taxes in the system.
00:06:47.600 And the reason is that, and this is really important,
00:06:50.920 the reason is that, this is a bit technical, but I try to put it simple.
00:06:55.320 When we introduce a carbon tax or any other form of tax,
00:06:58.860 we create an economic inefficiency,
00:07:01.660 which results in something economists call deadweight loss.
00:07:05.520 Deadweight loss is a cost to society
00:07:08.540 resulting from an inefficient allocation of resources within a market.
00:07:14.140 So the idea is that when we are, basically, when we are having a carbon tax,
00:07:18.400 that creates some efficiency costs.
00:07:20.980 So to mitigate that efficiency costs,
00:07:23.180 we should be using revenues from carbon tax to reduce other costly taxes.
00:07:28.900 And, you know, when, for example, in Canada,
00:07:32.220 the federal government is now using its carbon tax revenues to kind of,
00:07:37.680 it's using 90% of its carbon tax revenues to recycle it back to households
00:07:42.940 through issuing lump sum rebates.
00:07:46.780 While issuing lump sum rebates, you know,
00:07:49.880 generates some economic efficiency benefits,
00:07:53.940 but the benefits would be larger, you know, if we reduce other taxes.
00:08:00.720 Many papers have shown that when we use carbon tax revenues
00:08:06.100 and recycle them back to the economy in a form of tax cuts,
00:08:10.160 that would result in greater economic efficiency
00:08:14.860 compared to a case where we just issue lump sum rebates.
00:08:20.060 So, and the intuition is also simple,
00:08:22.360 because remember those taxes, such as income taxes,
00:08:26.200 they discourage work, they discourage investment and savings.
00:08:30.680 So when we reduce those taxes,
00:08:33.160 we can help more with improving economic growth.
00:08:37.940 And that's why, you know, it's really important
00:08:40.560 that all the revenues that we are collecting from carbon pricing
00:08:45.100 should be used to reduce other taxes.
00:08:47.520 And this is not something that the federal government is currently doing.
00:08:51.900 One thing I'm curious about,
00:08:53.520 and in the list of countries against which you've compared Canada,
00:08:57.260 the 14 OECD countries that have implemented carbon taxes,
00:09:01.220 there's a huge range of what that actual tax rate is.
00:09:04.940 I think Japan was the lowest at $3 per ton of CO2 emissions,
00:09:10.260 all the way up to Sweden at, I think, 127 or so,
00:09:14.420 and Canada on the lower end at $15.
00:09:17.140 And I mean, obviously, as a Canadian taxpayer,
00:09:19.420 I just don't like tax in general.
00:09:21.080 So even if it's lower than other countries,
00:09:23.220 I would still say that there's a question of whether it's too high.
00:09:26.820 But are all of these countries comparable?
00:09:29.280 I mean, does Canada, with its industry that's heavily resource-focused,
00:09:33.240 have a place and have an ability to compare it with the economies
00:09:36.980 and greenhouse gas emissions plans in Sweden, Japan, and so on,
00:09:41.420 where they don't have that resource sector as strongly as we do?
00:09:44.700 So we cannot directly compare those taxes among countries due to some reason,
00:09:50.180 because there are differences in those programs.
00:09:52.940 For instance, in terms of, in some countries,
00:09:55.780 some sectors get compensation,
00:09:58.040 or some sectors get exempted from paying carbon taxes.
00:10:01.440 Or in some countries,
00:10:02.880 we see that the taxes apply to all the emissions basically generated in the country,
00:10:10.680 whereas in some other countries, it's only a share of emission,
00:10:14.120 a portion of emission, not the whole, basically, emissions generated.
00:10:20.120 So because of those differences within countries,
00:10:23.520 we cannot really directly compare those carbon taxes between countries.
00:10:29.640 So I guess the big question is, I mean,
00:10:33.380 are we talking about tweaks that could be made to Canada's carbon tax
00:10:38.700 in order to bring it alignment with what you're saying?
00:10:40.800 Or would it really have to go back to the drawing board
00:10:43.080 and start from scratch to qualify as being an effective and efficient plan?
00:10:48.280 Yeah, I think we can make some tweaks or reforms, you know,
00:10:52.220 to make it basically a well-designed carbon pricing policy.
00:10:55.980 Another main issue in Canada is that the federal carbon tax
00:11:01.180 is accompanied by so many other regulatory measures.
00:11:06.400 For example, we have a regulation,
00:11:08.480 and all those regulations have the same target or objective,
00:11:12.440 and that's actually the issue.
00:11:14.560 For example, we have a regulation to phase out coal-fired power plants by 2030.
00:11:20.100 We have a regulation on methane emissions in the oil and gas sector.
00:11:24.980 We have an ethanol regulation to reduce greenhouse gas emissions
00:11:30.800 in the transportation sector.
00:11:33.040 The federal government has also, you know,
00:11:35.520 proposed this sweeping regulation called clean fuel estender
00:11:39.620 to decarbonize fuel use in the country.
00:11:44.300 So all these regulations that have the same objective,
00:11:48.320 they have the same target.
00:11:49.640 When we accompany those regulations with the federal carbon tax,
00:11:54.780 all those regulations are going to increase the cost of reducing emissions
00:12:01.160 without generating any significant marginal benefit.
00:12:07.440 So that's one of the main issues with federal government's carbon tax.
00:12:12.600 The other issue is, as I discussed,
00:12:15.780 is that the way the federal government is recycling its carbon tax revenues
00:12:21.780 is not ideal.
00:12:23.340 This is not what economists have in mind.
00:12:25.760 The federal government should be using carbon tax revenues
00:12:29.360 to reduce other costly taxes,
00:12:32.000 such as personal or business income tax rates.
00:12:35.700 Again, this is not happening in Canada.
00:12:38.180 And we have also seen that the federal government
00:12:40.160 is now using 10% of its carbon tax revenues
00:12:47.160 to basically pursue some environmental goals
00:12:52.460 because that 10% goes to small and medium-sized companies
00:12:58.900 and some other organizations such as schools and hospitals
00:13:04.140 for their energy efficiency programs,
00:13:07.900 meaning that the government is kind of using that revenue
00:13:11.560 to pursue some environmental goals.
00:13:15.180 And this is not something that we should be doing.
00:13:18.760 Again, we should be having a well-designed carbon pricing policy
00:13:25.220 so that we can deliver emission reductions in an efficient way.
00:13:31.880 The report from the Fraser Institute,
00:13:34.040 Carbon Pricing in High-Income OECD Countries,
00:13:37.260 and you can check that out online.
00:13:39.540 We'll have a link in the description box.
00:13:41.600 The author of the report, Dr. Elmira Aliakbari,
00:13:44.400 Associate Director of Natural Resources for the Fraser Institute,
00:13:47.380 joins me on the line now.
00:13:49.120 Dr. Aliakbari, thank you very much for coming on today.
00:13:51.700 Great to speak with you.
00:13:53.680 Thanks for having me.
00:13:55.320 Thanks for listening to The Andrew Lawton Show.
00:13:57.480 Support the program by donating to True North
00:13:59.440 at www.tnc.news.