Eco faceoff: Carbon tax versus cap and trade


It’s official (sort of). Premier Kathleen Wynne has cracked opened the door to a BC-style carbon tax, or at least she didn’t shoot down the idea when pressed on it last week as she has in the past. Word is the province is coming out with a climate plan of action this spring, and the two main choices on the table are cap and trade or a carbon tax. What’s the better pick, planetarily speaking? NOW asked the experts to weigh in. 

The basics

Cap and trade Under this system companies buy and trade pollution permits that are capped by government every year so the ceiling on greenhouse gases allowed is lowered annually. Quebec and California are the first jurisdictions in North America to bring in a mandatory cap and trade system as part of the Western Climate Initiative. Ontario signed up to join back in 2008 but, like a bunch of other states and provinces, never followed through. UN climate scientists have slammed EU’s cap and trade scheme as ineffective, but WCI’s leaders say they’ve learned from the EU’s mistakes. 

Carbon tax This one’s simply a pollution tax on fossil fuel use and emissions, often starting low, then gradually rising. In BC, which implemented a carbon tax in 2008, that amounts to about 7 cents per litre of gas and $30 per tonne of carbon dioxide. BC’s is revenue neutral, so the government’s mandated to cut an equal amount from income and other taxes to what it raises from the carbon tax. While BC has seen a 16 per cent drop in emissions (while the rest of Canada’s rose), a carbon tax doesn’t inherently cap greenhouse gases. 

What’s better for the planet? 

• Jeff Rubin, economist, former CIBC head and author of The End of Growth, says that while cap and trade systems are “workable” in capturing large-scale emissions from power plants, Ontario has already closed its coal-fired generating stations, a main source of greenhouse gas emissions. He argues Ontario would be better off with a BC-style carbon tax that must be applied to all carbon emissions in the economy, including tailpipe emissions from the province’s more than 8 million licensed drivers. Just last year the IMF itself, he notes, recommended that fuel taxes be increased by as much as 50 per cent in Canada. 

“With oil and hence pump prices plunging now, it’s an ideal time to make this move,” says Rubin. “If Ontario, and indeed the rest of the world, is going to be successful in controlling future emission growth, we need to shift the tax base from income to carbon.”

• Keith Brooks, Environmental Defense’s clean economy program director, is careful to note both systems can in theory reduce pollution, but says we’ve yet to see cap and trade work well, citing implementation problems in the EU. 

“But we have seen from BC a carbon tax that works very well,” he says. “It cuts emissions in a way that doesn’t hurt the economy.”

Unlike Rubin, Brook doesn’t think it should be revenue neutral considering that the province is running a $10 billion deficit and could use the new revenue for green projects. 

“It would make more sense to take money from a climate tax and invest it in climate-friendly initiatives like public transit,” he says.

• Keith Stewart, Greenpeace’s climate campaigner, argues that both can be effective at reducing greenhouse gases. But if we go with a cap and trade system, all the permits to pollute should be auctioned (so none given away to industry for free), and companies shouldn’t be allowed to buy carbon offsets (i.e., tree planting credits in developing countries), since this creates too many loopholes.

Whichever carbon pricing scheme the province chooses, Stewart says the most important thing is that it covers a high percentage of emissions (BC’s tax covers all fossil fuel burning in the province, Alberta’s carbon price only covers a tiny fraction) and that the price per tonne is high enough to encourage reductions in pollution. 

Plus, he adds, any revenues raised should be invested in green infrastructure and assisting low-income consumers deal with the higher energy prices. On the revenue neutral thing, he’s half way between Brooks and Rubin – cut some other taxes to compensate for a new carbon tax, but not by the whole value of that carbon tax. 

“Carbon taxes are more popular when governments say they’ll spend the money on green energy and transit.” Moves, he adds, that “provide services today while avoiding massive climate disruption tomorrow.” | @ecoholicnation



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