Carbon Taxes, the Economy, and the Poor

November 12, 2007
Carbon Taxes, the Economy, and the Poor

By Mark Jaccard, Nic Rivers and David Keith

In a recent article, Aldyen Donnelly argued that evidence from the UK and Norway show that greenhouse gas taxes (a.k.a. carbon taxes) fail to reduce emissions, hurt the poor and cost manufacturing jobs. Throughout the article, she blames academics (“Mark Jaccard, among others”) for promoting carbon taxes when we should instead be explaining the advantages of regulations “like fuel efficiency standards for auto makers and mandates that require electric utilities to buy a certain portion of their total sales from zerogeneration sources.”

Donnelly might wish it were only us academics suggesting that pricing is an effective way to reduce emissions. But the CEOs of Canada’s 25 largest corporations and the chief economist of Toronto Dominion Bank, who have recently come out in favour of pricing emissions, are not academics. In fact, a recent poll by BBC World Service showed that 57 percent of Canadians support a carbon tax, rising to 81 percent if the tax is “offset by other tax breaks so that total taxes remain the same.” 

Donnelly suggests that carbon taxes and other regulatory policies cannot co-exist. But even we ivory tower academics know the world is not so simple, indeed we have frequently emphasized the potential effectiveness of the very regulatory policies Donnelly is describing. But the norm among countries who are serious about the climate change risk is to apply a combination of policies to ensure we can no longer freely emit greenhouse gases.

So, yes, we agree that greenhouse gas emissions can be reduced by regulations, but we find scant evidence for Donnelly’s claim that greenhouse gas taxes are ineffective, have hurt the poor or have cost manufacturing jobs.

Donnelly claims that Norway’s carbon tax has had a perverse effect in leading to rising emissions relative to Canada and poor economic performance. She invites the reader to look at official national statistics. So we did. According to the national statistics offices of Norway and Canada, during the period 1990-2005, per capita greenhouse gas emissions increased 7.5 percent in Canada but fell 0.4 percent in Norway. At the same time, the Norwegian per capita economic output grew 47 percent compared to Canada’s 30 percent while Norway’s oil and gas production per capita grew at much faster rates than Canada’s.

Norway’s economy has performed wonderfully while its carbon taxes have helped propel it into global leadership in emission reduction technologies. After the imposition of the carbon tax in 1991, the Norwegian company Statoil took the decision to implement the  Sleipner project, in which carbon dioxide is injected into a deep saline aquifer 1,000 metres under the North Sea floor. According to Statoil’s website, the "Decision to inject was taken in 1991 following the introduction of a CO2-tax." … "The Sleipner West licensees would have had to pay [about $70 million Canadian per year] in Norwegian carbon dioxide tax had they released the greenhouse gas to the air."

In the same vein, Norway may soon be the first country to generate near-zero-emission electricity from fossil fuels with its coastal project to generate electricity in concert with carbon capture and storage. The pressures of the carbon tax, alongside other policies, are helping Norwegian businesses to become world leaders in the emerging field of clean energy.

Continue Reading in the Financial Post.

See also: David Keith, Op-Ed