May 24, 2008

Could Carbon Tax Turn Economy Around?

I'm not going to get into the encyclopedic version of what a carbon tax shift is or go off on an anthem of why we need to deal with climate change. Rather, I'm going to throw out there why I believe a well-designed carbon tax can make a difference for both Canada's economy and environmental impact.

In the last couple of weeks there have been several articles written about the state of Canada's innovation - or lack thereof coming from private companies. The amount of money invested per worker in innovation and R&D has steadily decreased. Since the early 1990's Canadian companies have dropped from 85% of what American companies spend to the current level of around 75%. This means that Canadian companies aren't as efficient in the way they are doing things and are missing out on new business opportunities. Furthermore, Canada is far behind in green technology investment and development. Out of the estimated $5 billion of investment in green technology in OECD nations, Canada only accounted for 3% and in terms of trade, Canada is an importer with a $3 billion trade deficit. Interestingly enough, on terms of strength Canada is apparently a leader on natural resource technology while we sit near the bottom of the pack on green technology. From this dismal outlook is where opportunity lies for a well-designed and implemented carbon tax. Not only could innovation be invigorated but the economy could also get a boost.

Currently there is a bit of stagnation in the manufacturing sector and Ontario has been dealt the largest blow. However, that doesn't mean there isn't a chance for some recovery as the recent news of Wal-Mart experimenting with a solar-rooftop project has also breathed new life into a local tool and die plant. This is the type of change and recovery that can take place if there was enough incentive for all Wal-Marts and other major businesses were to adapt this plan. Furthermore, if we hark back to the days of the Montreal Protocol and the banning of CFCs, a perfect example of innovation exists. Tim Flannery wrote about this in his book, The Weather Makers (p.220),

...consider how Nortel, a US telecommunications company, benefited from the regulation. It had used the chemicals as cleaning agents, and in the late 1980's it was forced to invest $1 million in new hardware; but once redesigned cleaning systems were in place and operating, it saved $4 million in chemical waste disposal costs and CFC purchases. Furthermore, the early adoption by the United States of regulations to reduce the emission of CFCs gave American-based firms a head start on the rest of the world in innovating alternative chemicals.

And therein lies the opportunities. In one instance regulation, or in this case a tax, could foster introspection for businesses looking to cut costs through tax reduction and energy costs, and therefore turn to innovation, while at the same time the methods to cutting costs and emissions, and the development of new technologies and solutions would lead to new manufacturing and business opportunities. Aside of the benefit to the environment, I believe that a well-designed and implemented carbon tax could reinvigorate Canada's economy.

To do this the carbon tax needs to be applied to all climate change-related pollutions. Initially, the carbon tax would have to be offset through the lowering and refunding of taxes in other areas (revenue neutral). However, there would then have to be a shift in the policy - the offset has to be temporary. This is where the incentive for innovation comes in. If a company wants to further reduce their tax burden, their only option would be through cutting their emissions or creation of pollution. In the end it means that companies control their own destiny in how much tax they pay. If they want to further negate environmental responsibility then that decision comes out of their bottom line. If a company wants to pay less tax and boost their bottom line, then they cut their pollution, which in turn would cut their taxes. It's a system of mutual benefits. Canada needs to drastically reduce their eco-footprint and businesses need lower taxes. Careful design of a carbon-tax may provide the solution to get businesses to innovate, develop, and manufacture, all the while lowering Canada's global environmental impact. Now, is the time to think in extremely creative ways and use incentives and policy in a positive manner. And so far Dion seems to be the only man willing to go that far.

Dion's carbon tax shift has created quite a stir and not surprisingly the Conservatives have already exploded into episodes of hyperbole and lies about what this plan may mean for Canada. Let's remember that it's the Conservatives who have essentially denied the existence of climate change, dropped Kyoto while holding the chair position of the committee and have consistently failed to sell their own pretend emissions-cutting plan internationally. And even though the Conservatives were touted as fiscal and economic conservatives, they themselves have shunned supposed economist-wisdom by cutting consumer taxes before income taxes. So it should be no surprise that the Conservatives are quickly attacking something that tries to solve issues pertaining to both the environment and methods of taxation. It just goes to show that the Conservatives lack ideas and leadership and is a big example of why this current group won't ever win a majority.

4 comments:

Oldschool said...

Carbon Tax turns economy around??? That is patently nuts . . .
Just like the Liberal "tax business" programs of the last 30 years encouraged Canadian business to flourish. They did very well of course, on the other side of the 49th parallel.
A carbon tax will encourage the few business that are left to relocate out of the country.
Of course the citizens on fixed incomes that have to pay extra for their heating, travel and groceries will be impressed.
Taxes only generate wealth in the minds of crazed socialists, who then give it away to the unmotivated and claim victory over poverty!!!
Taxes only shrink economies, even John Kennedy said that back in 1960 . . . of course of JFK was alive today you would all think him a radical right-winger!!!

jaybird said...

The carbon tax would not seem to be the quickest and best way to help green our manufacturing sector. In fact the NDP cap and trade proposal would be better.

Cap and trade first and foremost sets a hard cap for industrial pollution. Corporations would be allowed to trade a certain number of carbon credits to ensure that they stay below the cap. If they go over the cap they pay a penalty to the government. This is money that the government can then use to help fund green tech r&d or improved rail infrastructure or help with green retrofit or green car rebate programs.

A revenue neutral carbon tax has no hard cap (at least as it has been described) and because the tax will be rebated/refunded, corporations and well off individuals can withstand the initial tax hit because they know they will get it back within a relatively short period of time. Because it is revenue neutral the govt will have no revenue to offset any of the ideas listed above.

The previous commenter says that businesses will flee if there is more regulation. That certainly needs to be considered when talking about manufacturing industries but the oil sands, logging companies, mining companies can't move offshore. There are also other ways to encourage manufacturing companies stay (combination of legislative sticks and carrots).

The 'invisible hand' of the market has done little to keep manufacturing jobs in the US. I don't think any of us (at least sane Canadians) would argue that we should be racing developing countries to the lowest wage, labour and environmental standards.

There are many countries around the world that have already implemented successful cap and trade systems. It is a system that exemplifies the success of using some stick and more carrot to the betterment of the environment and economy.

Folks can find out more about the NDP Green Agenda at www.ndp.ca (look under issues/environment).

Oldschool said...

Jaybird . . . name me one country that has benefited by Cap and Trade.
Euro banks and Al Bore have made billions selling hot air . . . taking money for supposed wrongs and planting a tree in Africa.
Anyone checked out the cost of living in these countries?
By the way . . . manufacturing in the US exceeds the total Chinese economy, certainly businesses have moved over the years, but not on the scale that Cdn business have left Canada. Unemployment in the US a little over 5%.
Human induced GW . . . is all about reducing standards of living in industrialized, democratic countries . . . in order to save us from the imagined UN created GW farce.
31,000 scients have now signed the Oregon Petition, 9,000 have PHD's . . . saying Anthropogenic GW is not real . . . I have been waiting for the provable, real science for 10 years now . . . where is it???
Earth to Al . . . where's the science!!!

Kyle said...

Oldschool, did you read what I wrote? If the carbon tax is offset by refunding or reducing other taxes than how is that going scare off businesses? Furthermore, if at some point businesses wanted to lower their overall tax burden since the offset is temporary, there is a mechanism for them to do that as well. The only companies that would ultimately not want lower taxes and develop efficiencies and new business opportunities are the ones likely to fail in the long run anyway. The evolution of the market would play out here. There are already other countries using various forms of carbon tax plans and have done so successfully.

As for a cap and trade system, unfortunately it has the potential of just becoming another commodity for speculators and being priced right out of existence. There's also the issue of still allowing polluters to pollute without any reason for them. I would much rather see a system that encourages innovation and development for efficiency and technology. There are examples already floating around that shows when one company looks to new alternatives and methods that the benefits trickle down. I mentioned the Wal-Mart example already, but there is also a company called Mondial that could also be used.

As for the potential of a carbon tax hurting the average person, there's a reason why I only went on about carbon taxes and businesses. I was thinking of a specific area when I wrote this. I don't believe a citizen-based carbon tax can be the same as a business one. Maybe if a light goes on, I'll have another theory...

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