Brodie's Public Policy and Global Governance Blog

There has been a lot of talk as of late about carbon taxes and the role they may play in addressing climate change concerns. WIth one of the major parties in Canada emphasizing a carbon tax as the main policy of their election platform, carbon taxes in Canada have not been fairly represented. The Liberal party, led by Stephan Dion, is proposing that Canada introduce a carbon tax while reducing tax burdens in other areas.

This proposed "green shift" has met serious opposition from the Conservative party of Canada as well as many members of the public. It has been painted as a tax increase that will hurt families and make all goods and services cost more. Considering public opinion regarding energy prices this is a smart political move. Especially if you are a party looking to snatch a majority government by playing populist politics. But for those of us who are concerned more about whether we are going to have a planet to live on than how much our groceries cost, the mudslinging of election time politics is a little bit concerning.

There are many misconceptions about a carbon tax that I would like to clear up. A carbon tax would not represent an increase in the overall tax burden or damage the economy. The premise of the green shift is that taxes on consumption (of goods other than fossil fuels) and income would be alleviated, and this tax burden would be shifted to a tax on fossil fuels. That is, the overall tax burden would remain the same, it would just be shifted away from consumption and income to the consumption of fossil fuels.

While some may argue that this will make goods cost more, this is untrue. In essence goods would likely cost the same in relative terms because the income you recieve would be taxed less, meaning you have more money in your pocket even if prices rise and these goods would be taxed less when you go to purchase them. Furthermore, taxes on income are highly distortionary, that is, there is a deadweight loss associated with taxing income. A carbon tax, penalizing a behaviour directly are much less distorionary. Having a less distortionary tax system means more efficiency in the economy which would likely offset any rise in costs that would be experienced.

This also satisfies the "polluter pays principle." All of us who burn fossil fuels, from industry to individual persons never pay the true cost of fossil fuels. When we burn these fuels and release carbon into the atmosphere we rely on ecological services that essentially soak up these harmful by-products. The problem is that we are surpassing the natural limits of the environment and as a result we are degrading the natural environment which is leading to a variety of health costs including rising asthma and respiratory diseases. We do not pay for these costs when we burn fossil fuels and this is what economists call an externality. An externality is a cost or benefit that is not fully accounted for by the market. A carbon tax helps to internalize externalities to reflect the true cost of burning fossil fuels. If we incorporated all of the externalities associated with burning fossil fuels I would not be surprised if there were very few people who could afford to drive their cars.

In short, a carbon tax will only ensure that we take responsibility for our actions and address what is perhaps one of the greatest challenges to mankind. Before you write off the idea of a carbon tax, do a little research for yourself. There is a lot of false information circulating about what I beleive is a truly progressive idea. Carbon taxes are certain to be unpopular with businesses because it will force polluters to pay the true cost of their activities. While it may make gas more expensive than it already is at the pump, addressing climate change is a moral responsibility that we as consumers of fossil fuels need to bear.