Carbon Taxes: Nudging the Free Market Fairy

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The authors of Hot Air believe that a carbon tax will magically stop greenhouse gas emissions.

Hot Air: Meeting Canada’s Climate Change Challenge. by Jeffrey Simpson, Mark Jaccard and Nic Rivers. McClelland & Stewart, Toronto, 2007.

Reviewed by Ian Angus

The Church of the Free Market Fairy is divided into two denominations.

  • The fundamentalists believe that the Free Market Fairy will always deliver the best of all possible worlds, so long as we don’t let the government interfere.
  • The moderates believe that the Free Market Fairy isn’t entirely perfect — sometimes she needs a gentle governmental nudge in the right direction.

Jeffrey Simpson, Mark Jaccard and Nic Rivers belong to the second group. In Hot Air: Meeting Canada’s Climate Change Challenge, they show convincingly that if government doesn’t act, this country’s appalling record on greenhouse gas emissions will get much worse.

“The business-as-usual rate, augmented by accelerated oil sands development, means that if we do nothing or continue with the same mix of failed policies Canada’s GHG emissions will climb from more than 800 million tonnes in 2010 to almost 1.4 billion tonnes in 2050.”

Much of Hot Air is devoted to a history and critique of the emission reduction policies of successive federal governments. Those chapters are essential reading for anyone who wants to understand why and how Canadian politicians have avoided action on climate change for fifteen years.

There is no doubt that Simpson, Jaccard and Rivers sincerely believe that Canada’s GHG emissions must be reduced substantially. But they also believe, just as sincerely, that GDP growth is always good, that Canada is inevitably “going to use more energy, not less,” and that any policy must avoid “drag on the Canadian economy.”

Faced with that contradiction, they can only propose that governments introduce a gradually rising tax on emissions, thus nudging the Free Market Fairy to produce magical new technology solutions, including emission-free cars, affordable CO2 capture and storage systems that actually work, energy efficient buildings, and more.

That won’t be the result of governments investing the emissions tax revenue in R&D or in enforcing lower emissions standards. On the contrary, Hot Air wants a revenue neutral tax, and in any case the authors don’t like government spending. Technology will evolve in the right direction because their version of Free Market Theology, embodied in a proprietary economic modelling system run by Jaccard and Rivers, tells us so. According to the model, which produces very pretty graphs, a revenue-neutral emissions tax will cause Canadian consumers and businesses to change their behaviour, reducing Canadian GHG emissions to 50% below the 2010 level by 2050.

Even if it works, that figure is far from the goal many scientists think we should aim for to avoid dangerous climate changes — at least 60% below 1990 levels.

But it’s much more likely that the emissions tax will just fizzle. So long as corporations are free to invest as they see fit, any carbon tax that’s high enough to be effective will lead to capital flight, not to investment in new technology. Faced with threatened or actual shifting of investment to the U.S. or China, Canadian politicians will inevitably pull back, leaving a tax like the one recently announced in B.C. — ineffective and easily passed on to consumers.

Carbon taxes may be part of an effective anti-emissions policy, but only if they are coupled with broad scale economic planning and a determined effort to shut down the tar sands and other major emitters. Otherwise we’ll have the worst of both worlds — the Free Market Fairy will deliver higher emissions and an increasingly regressive tax system that mainly affects those least able to pay.

[This review was written for Canadian Dimension magazine. It is scheduled to appear in the May-June issue.]


  • Jaccard is coming to U of T

    Public Policy Lecture: Getting Climate Policy Right Presented by the School of Public Policy & Governance and the Centre for Environment, University of Toronto

    Date: Friday, January 23, 2009
    Time: 12.10 – 2 p.m.
    Location: Rm. 610, Health Sciences Bldg. (155 College St.)

    Canadian policies to reduce greenhouse gas emissions for two decades have failed to achieve reduction targets. Is the present mix of policies also going to fail? Or do we finally have
    it right?

    Professor Jaccard from Simon Fraser University, one of Canada’s leading climate policy analysts, explains that while we have made some
    improvements, our policies still have a long way to go.

    Dr. Jaccard has been professor in the School of Resource and Environmental Management at Simon Fraser University, Vancouver, since
    1986 (interrupted from 1992-97 while he served as Chair and CEO of the British Columbia Utilities Commission). His PhD is from the Energy
    Economics and Policy Institute at the University of Grenoble. Mark has served on the Intergovernmental Panel on Climate Change (1993-96), for which he was awarded the Nobel Peace Prize in 2007, and the China Council for International Cooperation on Environment and Development (1996-2002). He has chaired several public inquiries, advised governments throughout the world, and is a frequent media contributor.
    He is a member of Canada’s National Roundtable on the Environment and the Economy, a research fellow at the CD Howe Institute, and lead author
    for policy in the upcoming Global Energy Assessment. He has over 90 academic publications. His 2002 book, The Cost of Climate Policy, won
    the Policy Research Institute award for best policy book in Canada and was shortlisted for the Donner Prize. His 2005 book, Sustainable Fossil
    Fuels, won the Donner Prize for best policy book in Canada. His 2007 book, Hot Air, is co-authored with Nic Rivers and Jeffrey Simpson of the
    Globe and Mail. Mark was named 2008 Academic of the Year by the association of British Columbia faculty members.

  • Thanks Allen.

    What I was trying to do in the last paragraph was leave the door open to pricing policy as one of the tools a workers government could (and probably would) use to deal with emissions.

    But I agree with your quibble — although I said taxes “may” be acceptable, the way I wrote it leaves the door much too wide open to reactionary taxes.

  • Good on you, Ian. I haven’t read the book you were reviewing, but the Free Market Fairy is a really great metaphor for the true believers.
    I would have a quibble on the wording of the last paragraph. I wouldn’t endorse “carbon taxes” without further qualification, just as I wouldn’t endorse “income tax” in general, without finding out first if the income tax was to be progressive or regressive (as it is in Australia, although they try to hide it). A confiscatory carbon tax on coal miners and oil companies — no problem. But if we sign up for carbon taxes without specifying, we will find we have “endorsed” a tax on workers who exhale too much.