The lie of cap and trade and politics

Published: September 17, 2012, 7:38 pm
Updated: 3 years ago




As a matter of terminology, the NDP leader is correct. What the party proposes, and what Mulcair campaigned on in his run for leader, is not a carbon tax, collected from consumers and businesses in the same way as a sales or excise tax, but a system of tradable emissions permits known as “cap and trade.” The government would set both an overall limit on carbon emissions and the amount each business would be allowed to emit; those that could get by on less than their allotted quota would be permitted to sell what was left to others, allowing the latter to exceed their quota by the same amount. The burden of adjustment is thus borne by those who can do at least cost, meaning lower costs for society

But while the two systems differ in how they are applied, in concept they are identical. A carbon tax raises the price of carbon, which has the effect of reducing its quantity. Cap-and-trade schemes reduce the quantity — which has the effect of raising its price. Either way, the quantity of carbon emitted is less, and the price is higher. As far as consumers are concerned, the result is the same. Indeed, as the economist Stephen Gordon has pointed out, assuming the initial allotment of emissions rights are auctioned, rather than handed out free, the revenue yield to the government is the same as well. (Otherwise, the difference in price is pocketed by the corporations.)

The NDP, for all its loathing of dishonesty, is engaged in the pretence that cap and trade, because it is not called a tax, would not have the same effect as a tax, that is of raising prices to consumers. Naturally it would prefer the Conservatives did not remind people of this fact — as the Conservatives would no doubt prefer people were not reminded that they stood for exactly the same policy in 2008. Both parties pretended throughout that election that the costs of cap and trade would fall only on a relatively small number of “large emitters,” who for some unknown reason would not pass them on to consumers.

So the lie the NDP hotly accuses the Conservatives of telling — that they would impose a carbon tax, rather than cap-and-trade — is simply the inverse of the lie it would prefer to tell: that carbon tax and cap-and-trade do not amount to the same thing. And the “tax on everything” the Conservatives claim the NDP would impose is the same “tax on everything” that was until lately their own party’s policy.

The same, for that matter, could be said about current Conservative policy, which is simply to demand that corporations reduce their carbon emissions, by regulatory edict, without any of the efficient cost-shifting allowed under cap and trade. It is thus more costly than cap and trade — or would be, if the Tories had gotten around to implementing the regulations in more than a handful of sectors — and less effective: as the environment commissioner has recently reported, the Tories are nowhere near hitting even their own targets for emissions reductions. And yes, those costs are almost certainly passed on to consumers, as well.

After all the accusations and the counter-accusations, then, here is what the dispute between the two parties boils down to. The NDP pretends their policy won’t raise prices to consumers, but will reduce emissions. The Conservatives pretend their policy will reduce emissions, but won’t raise prices to consumers. Glad I could clear that up for you.