India worried about carbon tariffs from the European Union

This article from yesterday's Economic Times of India entitled, "Exports to Europe may trip on carbon barrier", shows why Canada should be prepared to have carbon taxes. The article begins with:

"Indian goods being exported to the European Union may face higher barriers if the 27-member grouping goes ahead with a proposal to place a carbon tax on goods imported from advanced developing countries."

Of course, all is not cut and dry. The article notes that a bilateral agreement between the EU and India contains a national treatment clause which says that, "bilateral trade partners have to treat goods from partner countries in the same way as goods originating from the home country." The problem, I think, is that, because the EU's cap and trade system awards credits for free, and does not auction them off, it could be argued that goods orginating in the EU do not pay all of the carbon burned in the fossil fuel energy that goes into their manufacture. In addition, some EU countries have their own carbon tax, but some do not.

If Canada had a carbon tax, then exports to the EU would not be faced with a carbon tariff.

The take-home message is that carbon tariffs are coming. You can pay them to a foreign government or you can pay them to your own government (which, in the Green Shift plan, is going to return it to the people in direct tax breaks). Let's get ready.

Isn't "Green Shift" a generic term?

Apparently there is (or isn't?) some controversy over a possible trademark infringement involving the name "Green Shift". There is indeed a company called "Green Shift". In fact I have a box of their stuff in my basement (sugarcane fibre plates, cornstarch cups, potato starch utensils, and napkins) that we used at the Kingston Liberal Party barbeques last summer.

I have to say that I viewed Green Shift as a rather generic term so I'm surprised that this controversy over a trademark infringement has come up. I did some Googling and besides my favourite vendor of barbeque supplies, I came up with:

1) Green Shift is a project of ecoPerth with support from Transport Canada’s MOST program. Green Shift sets out to tackle household vehicle use in small town and rural situations.
2) GreenShift (greenshift.com) develops and commercializes technologies that facilitate the efficient use of natural resources. We do so today by developing and integrating new clean technologies into existing biofuel production facilities, by selling equipment based on our technologies, and by using our technologies to directly produce and sell biomass-derived oils and fuels.
3) The Green Shift Project: A proposal from the Silicon Valley Institute for Global Sustainability

4)Green Shift: Changing Attitudes in Architecture to the Natural World (Paperback)
by John Farmer (Author), Kenneth Richardson (Editor) "This book is an account of how buildings from the eighteenth century to the present time have reflected the momentous changes

5)Reducing carbon dioxide emissions from the production, operation and disposal of computers is to be the aim of a new government taskforce. The public-private "Green Shift" taskforce will be led by Manchester City Council.

6) Michigan students demand green shift from automakers

Published by ninarizzo, January 13th, 2008 Clean Cars , Climate Challenge , Events , Oil , Transportation , global warming

7) Cranfield expertise could drive forward green shift

Written by Sam Fountain

Wednesday, 05 March 2008

Expertise at Cranfield University could be driving forward the world’s move toward green cars, providing high-end testing capabilities which could attract industry investment to the region.

8) Green Shift: Economics of Going "Green"
April 19, 2005
Produced by Robbie Harris

Building environmentally friendly homes and buildings is the buzz among developers these days. This report investigates the meaning of building green, who is doing it, and whether it can be cost effective.


Well, you get the idea. There are lots more instances of the term "green shift" being used in various places so it seems like a generic term to me. I hope they don't spend many resources fighting over it.

More economists Stephen Harper might think are crazy?

I'm inspired by a nice post at Far and Wide today

Let's begin with the Stephen Harper reaction to the Green Shift.
From the Canadian Press: "This is crazy economics. It's crazy environmental policy," Harper said at a news conference in Huntsville, Ont

Let me add some crazy economists to Far and Wide's list, namely, the Pigou Club:

(I'm copying from their website here)

Pigou Club is described by its founder as “an elite group of economists and pundits with the good sense to have publicly advocated higher Pigovian taxes, such as gasoline taxes or carbon taxes.”

Pigou Club was founded by Dr. Gregory Mankiw by stating his legendary manifesto in the Wall Street Journal. As time passed more and more economists were added to the list of people supporting the Pigou Club. They include people from all sides of the political spectrum:

Nicholas Gregory Mankiw, founder, former chairman of President George W. Bush's Council of Economic Advisors

Nobel prize laureates

• Gary S. Becker (+ J. Bates Clark Medal)
• Joseph E. Stiglitz (+ JBCM)

John Bates Clark Medal

• Lawrence Summers
• Paul Krugman

Other fine Pigou Club Members:

Al Gore (former vice president)

Alan Greenspan (former Fed chief)

Amity Schlaes (Wall Street Journal)

Andrew Samwick (Prof. of Economics, Dartmouth College)

Andrew Sullivan (journalist)

Anthony Lake (National Security Advisor to Bill Clinton)

Brink Lindsey (Vice President for Research, CATO institute)

Christopher Farrell (economics editor, BusinessWeek)

Clive Crook (senior editor, The Atlantic Monthly & National Journal)

David Frum (speechwriter for George W. Bush)

George Schultz (US Secretary of Labor, Treasury and State)

Gregg Easterbrook (senior editor, The New Republic)

Hal Varian (Prof. University of California, Berkeley)

Joe Klein (jorunalist)

John Tierney (journalist, The New York Times)

Jonathan Rauch (journalist)

Kenneth Rogoff (Prof. of Economics, Harvard University)

Megan McArdle (journalist, The Economist)

Mike Moffatt (Economics guide at About.com)

Nouriel Roubini (Prof. of Economics, Stern School of Business, NYU)

Richard Posner (former Prof. University of Chicago Law School)

Robert H. Frank (Prof. of Economics, Cornell University)

Robert N. Stavins (Prof. of Business and Government, Harvard University)

Ted Gayer (Prof. of Public Policy, Georgetown University)

Thomas Friedman ( op-ed columnist for The New York Times, 3x Pulitzer Prize winner)

Tim Harford (journalist, The Financial Times)

Tyler Cowen (Prof. of Economics, George Mason University)

William Baldwin (editor, Forbes)

William Nordhaus (Prof. of Economics, Yale University)

The Green Shift: Why it's the right time for this policy

Respected Globe and Mail columnist, Jeffery Simpson, wrote a column earlier this week entitled, "Carbon tax: the right policy, the wrong time" which claimed that, while a revenue-neutral carbon tax is a good policy in the long run, now is a bad time to implement it because the rapid rise in oil prices has, "create[d] genuine hardship for a lot of people". Simpson's article, I think, elucidates what Warren Kinsella said in a blog post which ended with: "I'm not saying no to a carbon tax. I'm saying no to a carbon tax now."

I don't doubt that many Canadians are experiencing some hardship now with the recent rise in oil prices. But that is a reason for providing some tax relief now with tax cuts and refundable tax credits. Look at Dion's Green Shift from another point of view: it's a plan to help Canadians with the higher price of oil by cutting income taxes.

How is this tax relief going to funded? Fortunately, not by borrowing from the future. We're already passing on much of the burden of dealing with environmental degradation to future generations. It will not be funded by cutting social programs. It will not be funded by increased taxes on gasoline because the existing federal excise tax on gasoline is already equivalent to a roughly $40/tonne CO2 tax. But it will be funded in a way that will gently put the brakes on our production of greenhouse gases.

People have been focusing too much on gasoline, and not enough about the fact that much of the Green Shift's tax relief will be funded by users of coal. Higher oil prices might make people think about using less gas, but they have also caused people to burn more coal, a dirtier energy source than oil. This is just one reason why higher oil prices are not a good substitute for a carbon tax.

Warren Kinsella, say yes to tax relief funded by a tax on fossil fuel CO2 emissions now!

Lifting the ban on offshore oil drilling in the US: another reason why the high price of oil isn't a great way to reduce greenhouse gas emissions

In the news today is a report that George Bush, supported by Republican presidential candidate John McCain, is urging the US congress to the repeal the ban on new off-shore drilling for oil. John McCain previously opposed offshore drilling, but now he and others have been changing their minds and supporting some off-shore drilling.

I'm not going to debate the merits of off-shore drilling here, but it's fair to say that the ban was in place to curtail an environmentally risky way to search for oil.

What I will say is that this is a further illustration of why a high price of oil is no substitute for a carbon tax. High prices for oil mean more money paid to suppliers of oil, and more incentive to produce oil in environmentally or socially risky ways. In the US that means more incentives to drill in the environmentally sensitive Arctic National Wildlife Refuge, or off-shore. Here in Canada we are well aware of the environmental and social stresses caused by the boom in the oil-sands industry.

A carbon tax is different from a high oil price because with a tax, although the buyer pays more money, the seller receives less money. A tax would not increase the incentive to produce more and more oil and to thereby take more social and environmental risks.

Finally, a carbon tax produces revenues for our government, and not for unfriendly foreign governments. None of that tax money would go to the Taliban or to Al-Qaeda. I can't say the same for all the money that North Americans spend on crude oil.

Picking a fight between cap and trade and carbon taxes is not going to help Canada move forward

Here is my letter to the editor that was published in the Kingston Whig-Standard on June 12, 2008. It is in response to a letter that can be found here

Reponse to Letter to the Editor of the Whig-Standard, "NDP has best policy to cut greenhouse gases", June 7, 2008.

In criticizing the Liberal or Green Party's green/carbon tax shifts, Jamie Masse and the NDP are picking a fight that is not going to help move Canada and the Canadian economy forward to meet the challenges of the 21st century. A carbon tax shift (rebates and lower income taxes financed by increased taxes on pollution and greenhouse gas emissions) can co-exist with a cap and trade system (which is used for managing greenhouse gas emissions from large emitters). For example, British Columbia has a carbon tax that starts on July 1, and has also joined the Western Regional Climate Action Initiative, a group that aims to establish an international carbon trading mechanism. Quebec, which just announced its intention to work with Ontario to set up a
cap-and-trade market, brought in a carbon tax on motor fuel.

Mr. Masse and the NDP seem to imply that businesses that pay a carbon tax could pass on the cost to the consumer, whereas that could not happen if they had pay for the credits that are auctioned off in a cap and trade scheme. That's clearly false. Either way a business will have a cost and some of that cost may be passed on to their customers. The "shift" part of
the green tax shift recognizes this and cuts or rebates income tax for both businesses and individuals, particularly low income individuals.

Vilifying "big, corporate polluters" and trying to put the cost of cutting greenhouse gases entirely on them, does not help to support a culture of energy conservation and efficiency. Any solution to the problem of our dependence on fossil fuels must involve efforts by every business and every individual to use energy in a sustainable manner. The participants in cap and trade schemes are so-called "Large Final Emitters" that account for only 50% of Canada's emissions. What about the other 50% of emissions that come from small emitters? As for making the 'big bad corporate polluters' pay, I would simply note that the biggest single greenhouse gas emitter in Canada
is the Nanticoke generating station, owned by us, the good people of Ontario.

Why should a carbon tax shift be considered in addition to a cap and trade scheme, or before a cap and trade scheme? One reason is that cap and trade schemes take time to set up. The 1990 U.S. Clean Air Act authorized emissions trading to control sulphur dioxide, but trading did not commence until five years later, in 1995. In 2002 the European parliament voted to endorse a cap and trade scheme for greenhouse gases but not until 2005 was the E.U. carbon market launched. A carbon tax shift, on the other hand, can be implemented much more quickly using the existing revenue infrastructure. The clock is ticking on climate change and that is why we should start moving now, beginning with a carbon tax shift. We can also start the preparatory work needed for a cap and trade scheme that would begin operating some time in the future.

Finally, the way Mr. Masse and the NDP look at things is that we need an environmental policy that respects "the needs of a fragile economy". The truth is probably closer to our needing to restructure our economy, with the environment foremost in mind, in preparation for the challenges of the 21st century. We must "energy-proof" our economy so that can withstand volatile fossil fuel prices. We must change how we live today, in order to preserve our natural environment and create a sustainable economy for future generations. A good step would be to remove the perverse incentives that we have now (pollution for free), to put a price on pollution, waste, and greenhouse gas emissions, to rebate taxes to low income Canadians, and to reduce taxes on income, investment, and innovation. A cap and trade scheme for greenhouse gas emissions also has its place, and I'm sure the NDP would be very welcome to work together with the Liberal and Green parties in this endeavour.

Green/Carbon tax shifts or Cap and Trade systems are not Tyrannical!

Neil Reynolds wrote in today's Globe and Mail Report on Business (superheading "environment") about the costs of greenhouse gas mitigation ("Obama's Climate Change Solution: Tyranny"). Basically he was presenting and spinning some work put out by the George C. Marshall Institute which he claims is a "science policy think tank". Reynolds is where most of the "climate change deniers" have retreated to right now: saying that it's going to be too expensive to do much about greenhouse gas emissions. Only he's putting a new little twist, saying that it's going to be too costly in terms of freedom and democracy for governments to do anything but let technology and the market try to solve the problem.

Whoa!!

1) The well-known climate-change denier and tobacco and oil industry lobbyist, Frederick Seitz, helped found the George C. Marshall Institute. The Marshall Institute's work was, apparently, even too much for Exxon, who cut their funding last month, and explained that "In 2008 we will discontinue contributions to several public policy research groups whose position on climate change could divert attention from the important discussion on how the world will secure the energy required for economic growth in an environmentally responsible manner."

2) Reynold's doesn't seem to understand that technology plus a market economy that had a crucial price - the price of pollution (zero) - wrong, got us to our present dire situation. Two ways to try to solve the problem are the carbon tax, which puts a proper price on pollution and lets the market take over, and a cap and trade system, which is also a market solution to a pollution problem. These are the farthest you could get from tyrannical solutions to the greenhouse gas problem.

Tyranny, in my view, is leaving the price of pollution at zero. The subjects of our tyranny are those that will live, could have lived, or could have lived more productively in the future.

Carbon tariffs on Canadian exports?

The US Senate began deliberating bill S. 3036 today, a bill that would set up a cap and trade system to reduce greenhouse gas emissions. It is not expected to become law, but there are some important policy ideas that could become established and implemented later by the new US government that takes power in 2009. One of them is that the US could impose tariffs on imports from other countries that do not put a price on carbon. I quote the New York Times today:

The measure directs the president to negotiate agreements with those countries to ensure they are imposing binding limits on carbon emissions on their own industries. If they fail to do so, the United States will impose unspecified tariffs on carbon-intensive products like steel, paper, concrete and glass from those countries. The provision was included at the behest of labor unions and American companies in those industries who would not support the bill without such a cost equalizer.

and a little further on,

Mrs. Clinton and Mr. Obama, courting labor support, favor tough carbon-based tariffs.

It would appear that WTO/GATT rules permit a country to impose 'border tax adjustments' when it imposes a domestic environmental tax and imports from countries that do not. Because the proposed cap and trade system does not give out emissions credits for free but instead requires emitter to pay for them, it could be considered a domestic environmental tax, and the United States would be entitled to impose a carbon tariff on imports.

These WTO/GATT rules have not been put to the test yet, but European countries are interested in giving it a try and the theoretical foundation seems solid.

If we already had systems in place to put a price on carbon, whether it be a cap and trade system or a carbon tax shift, it would be a lot easier to parry the threat of a carbon tariff imposed by other countries on our exports.

A high oil/gasoline price isn't the same as a carbon tax

Here's why:

1. A high price for oil encourages more production, notably Canada's oil sands projects, which have been a major contributor to Canada's greenhouse gas emissions growth in the last few years. A tax might increase the price for gas for the buyer, but the seller doesn't get paid more and therefore a carbon tax does not encourage more production.

2. The high price of oil has been driving increased usage of coal as an energy source, notably in places like China. Coal emits more greenhouse gases per unit of energy than oil (as well as other noxious things). A carbon tax would increase the cost of energy from coal, more than it would increase the cost of energy from oil. Therefore it would reduce the incentive to switch to burning coal - something that a higher oil price does not accomplish so easily.

3. If higher oil/gasoline prices had been the result of a carbon tax, money would have been going to our government instead of to places like Russia and the middle east

A carbon tax shift is not an experiment

I'm returning now to Terence Corcoran's op-ed (May 31, 2008) entitled "The carbon experiment". Here again is his concluding paragraph which I quote in its entirety:

So carbon tax programs are an experiment — although one that has already been tried. It imposes central planning on an economy based on carbon emissions rather than economic growth and welfare. It didn’t work for the economy, it won’t work for carbon.

Which is the experiment: a carbon tax, or the absence of a carbon tax and the resulting negative externality (polluting for free, a low price for fossil fuels) that, over the years, has gotten us into trouble with climate change and the geopolitical threats associated with dependence on oil?

I'd say we have been doing a grand planetary experiment to see if it's okay to subsidize fossil fuel use by allowing people to pollute for free.

I think we have the answer. Let's stop.

Putting a price on carbon is not central planning

Terence Corcoran, editor of the Financial post has written an op-ed (May 31, 2008) entitled "The carbon experiment" with this concluding paragraph which I quote in its entirety:

So carbon tax programs are an experiment — although one that has already been tried. It imposes central planning on an economy based on carbon emissions rather than economic growth and welfare. It didn’t work for the economy, it won’t work for carbon.

I'd like to address that 'central planning' claim in the this post, and deal with the 'experiment' claim in a later post.

I find it ironic that the specter of central planning should be invoked to deter us from adopting a carbon tax. Centrally planned economies (remember communism?) tended to have official prices that did not reflect reality. The resulting inefficiency, waste, and suppression of freedom were deficiencies of that system of government. Most of the world has learned now that prices in a market are a useful tool for gathering and conveying information, and that free markets work better when prices reflect reality.

Now what does all of this have to do with carbon taxes? The point is that adding a tax to the cost of fossil fuels better reflects their real cost - a cost that includes the pollution from burning them. A higher price for coal tells everybody that it's worth spending a little more to develop renewable energy. A higher price for jet fuel tells a business to cut some of its least important airplane trips. The market prices do the work instead of a central authority deciding for people.

Now, I'm pretty sure that Terence Corcoran is not a left-winger, and so I'd suggest that he figure out how to counter Greg Mankiw, an economist who worked in George W. Bush's administration, who is in favour of a carbon tax, and who wrote this Wall Street Journal article that appeared on Oct. 20, 2006 entitled, "Raise the Gas Tax".