THE CASE FOR A CARBON TAX IN ALBERTA

[chuckChuck]

http://www.policyschool.ucalgary.ca/?q=content/case-carbon-tax-alberta

THE CASE FOR A CARBON TAX IN ALBERTA
†
Sarah Dobson and Jennifer Winter
SUMMARY
In 2007, Alberta demonstrated that it could be a leader in the effort to reduce greenhouse gas
emissions by becoming the first North American jurisdiction to put a price on carbon. Given that
the province had long been criticized for its central role in the carbon-based economy, Alberta’s
move was important for its symbolism. Unfortunately, the emissions policy itself has delivered more in
symbolism than it has in actually achieving meaningful reductions in greenhouse gas emissions.
The Specified Gas Emitters Regulation (SGER), as the carbon-pricing system is formally called, has
only helped Alberta achieve a three per cent reduction in total emissions, relative to what they would
have been without the SGER. And emissions keep growing steadily, up by nearly 11 per cent between
2007 and 2014, with the SGER only slowing that growth by a marginal one percentage point. Alberta’s
carbon-pricing policy simply fails to combat emissions growth; the province needs a new one.
Lack of progress in reducing emissions appears to be partly attributable to the fact that many large
emitters find it more economical to allow their emissions to rise beyond the provincially mandated
threshold, and instead are purchasing amnesty at a lower cost through carbon offsets or by paying
the levies that the SGER imposes on excess emissions.
But it is also partly attributable to the fact that the SGER only applies to large emitters who annually
produce 100,000 tonnes of CO2-equivalent all at one site: mainly oil sands operations and facilities
that generate heat and electricity. This excludes operations that emit well over that threshold, but
across diffuse locations. The transportation sector, which is typically spread out in just such a way, is
the third-largest sector for emissions in Alberta. Its emissions are also growing faster than those of
the mining and oil and gas sector, even as emissions in the electricity and heat generation sector are
actually declining. And if we combine the emissions from the transportation sector with those of the
manufacturing and industrial sector, which can also be characterized by scattered operations, they
substantially exceed those of the electricity and heat generation sector. Indeed, over 58 per cent of
Alberta emissions come from places other than oil and gas and mining.
There will surely be those who prefer strengthening SGER to a carbon tax; this is not likely to
make enough of a difference for Alberta to meet its carbon-reduction goal of 218 Mt by 2020. The
government would make far more progress by implementing a broad carbon tax, similar to the one in
British Columbia, which applies to all emitters and consumers. The cost to the economy would not be
steep: For a $20 per tonne tax, the cost would be 0.9 per cent of gross output (or 1.7 per cent at $40 a
tonne). And the cost to households would be less than $700 a year. As in B.C., the proceeds would be
better recycled in the form of reduced corporate income taxes, personal taxes, and subsidies to low-
income households, to offset the extra burden and distortions a carbon tax would create. But unlike
the current SGER, a carbon tax would succeed in being more than a symbolic, largely futile gesture.
†
An earlier version of this paper, entitled “An Assessment of Alberta’s Specified Gas Emitters Regulation,” was submitted for
consideration to Alberta’s Climate Change Advisory Panel.

[chuckChuck]

the full paper is available at the link in the previous post.

[furrowtickler]

As farmers , if carbon is the catch phrase of the day , we should get $50/AC for the massive carbon sink to maintain zero till and min tillage practices .
You in CCC ? Captin Chucky Carbon ...

[chuckChuck]

from the same policy paper:
OUR RECOMMENDATION FOR ALBERTA: A CARBON TAX
Our recommendation is for Alberta to proceed with the simplest, least costly and most
transparent emissions-reduction strategy going forward. In our view, that is a carbon tax
with full revenue recycling. While a comprehensive emissions tax would be preferable,
in that it would price all greenhouse gas emissions in Alberta, carbon emissions from
combustion of energy sources are the easiest to track and measure, and administrative
simplicity should also be a consideration. Following B.C.’s lead, if Alberta put a
broad-based tax on emissions produced through combustion processes, it would cover
approximately 87 per cent of emissions, 73 per cent when excluding fugitive emissions,
based on 2013 emissions data.
112
Even excluding fugitive emissions, this would be a
significant step forward from SGER, with not only more emissions priced, but facing a
higher price as well.
As shown in previous work, a carbon tax has the significant benefit of being neutral across
firms, making it less costly in terms of productivity.
113
That is, the change in energy prices
110
Specifically, in 2012 British Columbia introduced a carbon-tax relief grant for commercial greenhouse growers that refunds
80 per cent of the carbon tax paid on natural gas and propane for heating and carbon dioxide production. In 2014, the
province introduced a carbon-tax exemption on the purchase of coloured gasoline and coloured diesel fuel for farm use.
These programs were introduced in response to concerns that the carbon tax was having an undue negative impact on the
competitiveness of British Columbia’s agricultural sector. A 2014 study, however, found little evidence that the carbon
tax had a statistically significant effect on agricultural competitiveness or trade in the province. Source: Nicholas Rivers
and Brandon Schaufele,
The Effect of British Columbia’s Carbon Tax on Agricultural Trade
, Pacific Institute for Climate
Solutions, July 2014, http://pics.uvic.ca/sites/default/files/uploads/publications/Carbon%20Tax%20on%20Agricultural%20
Trade_0.pdf.
111
Sustainable Prosperity,
The Competitiveness of a Trading Nation: Carbon Leakage and Canadian Climate Policy
(Policy
Brief), March 2011, http://www.sustainableprosperity.ca/sites/default/files/publications/files/The%20Competitiveness%20
of%20a%20Trading%20Nation.pdf.
112
Environment Canada, “National Inventory Report 1990-2013.”
113
Trevor Tombe and Jennifer Winter, “The Importance of Policy Neutrality for Lowering Greenhouse Gas Emissions,”
SPP Research Papers
(Volume 6, Issue 4), March 2013, http://www.policyschool.ucalgary.ca/?q=content/importance-
policy-neutrality-lowering-greenhouse-gas-emissions.
34
is the same for all firms, regardless of size or industry, meaning no distortions to economic
activity are introduced by the policy. The carbon tax can also be equally and directly
applied to emissions attributable to individuals. This makes it the option with the broadest
and most direct coverage.
At the facility level, cost neutrality is not a characteristic that is shared by SGER, which
only applies to large emitters and affects these firms differently depending on their
productivity and the emissions-intensity of their production. While a cap-and-trade program
would be an improvement over SGER, the price of carbon can vary from one auction to
the next, creating the potential for differential treatment among firms and uncertainty
with respect to planning for long-term emission costs. A cap-and-trade system will
generally also have the additional complexity of managing a credit system for emissions.
Lastly, while it has broader facility coverage than does SGER, it will typically still have a
minimum threshold for participation. Below this threshold there will be emissions that are
not covered by any policy.
When considering a policy to address emissions reductions at the individual level, SGER is
irrelevant, as there is no mechanism through which it applies to individuals. Québec’s cap-
and-trade system indirectly includes individual emissions by requiring distributors of fossil
fuels to obtain emission permits. For example, a refinery distributing gasoline must obtain
emission permits for the amount of carbon that is released when the gasoline is combusted
in a vehicle engine. The permit price is equivalent to a carbon tax applied to the producer
side of the market, and economic theory tells us the tax incidence —
the share of the tax
paid by producers versus consumers —
will be the same as if the carbon tax was applied
directly to consumption.
If the incidence of a cap-and-trade program versus a carbon tax on consumers is the
same, then this suggests the consumption response will also be the same. This conclusion,
however, ignores the fact that the carbon cost to individuals under a cap-and-trade system
is arguably less transparent and less certain than in the case of a direct carbon tax, and this
can affect a consumer’s behavioural response. For example, recent research on the salience
of British Columbia’s carbon tax on motor gasoline demand found that, holding all else
constant, a five-cent increase in a carbon tax on gasoline will lead to an 8.4 per cent decline
in demand. In contrast, an identical five-cent increase in the market price of gasoline
will lead to a decline in demand of only 2.1 per cent.
114
The authors therefore conclude
that the carbon tax is four times more salient than the market price of gasoline. It is not
unreasonable to expect similar results to apply to natural gas for residential heating. As the
cost of the cap-and-trade policy is likely to get passed down to consumers as higher market
prices for fuels —
as opposed to a dedicated line item explicitly stating the amount of the
carbon tax —
this suggests a cap-and-trade system will be less effective than a carbon tax
at achieving individual-level emissions reductions.
With broad coverage, the largest downside risk of a carbon tax is likely to be its competitive
impact on trade-exposed industries. A study of the effect of a national carbon price on
Canada’s competitiveness found the largest impact to be in fossil-fuel-extraction industries,
114
Nicholas Rivers and Brandon Schaufele, “Salience of carbon taxes in a gasoline market,”
Journal of Environmental
Economics and Management,
Volume 74 (November 2015), 23-36.
35
suggesting companies in the oil and natural gas sector may be particularly at risk.
115
The
authors assume, however, a carbon price that rises from $15 per tonne of CO
2
e in 2010
to $115 per tonne in 2020, which is likely well beyond the value of a potential carbon tax
in Alberta. Given the value of Alberta’s proposed carbon tax is in the sub-$50 range, we
recommend all sectors be covered to start, but for the government to monitor the impacts
on trade-exposed industries. If negative competitive impacts are found, then the tax can
be amended to introduce measures such as those previously described to help mitigate
competitive impacts. In addition, if revenue from the carbon tax is used to lower corporate
income taxes, this would mitigate some of the negative consequences to trade-exposed
firms

[ajl]

There is no case for a carbon tax because CO2 is not a pollutant and the climate is just fine here in AB. We need to focus on real problems not make phony ones. Carbon taxes are detrimental in a cold climate with an isolated population like western Canada.

[Guest]

why not call it a tax , that's what it is . otherwise farmers would get a check not a f$&ing bill . no new taxes , yea right liberals

[fjlip]

There is no case for a carbon tax because CO2 is not a pollutant and the climate is just fine here in AB. We need to focus on real problems not make phony ones. Carbon taxes are detrimental in a cold climate with an isolated population like western Canada.

Absolutely, COLD Canada should never have been part of any climate/global warming BS. Warmer is all good! The more CO2= more plants= more oxygen!

[blackpowder]

Well the boards gone so chucky is in high gear on carbon. U of C policy school definitely should affect my life going forward.
I guess tired old agriville has run its course now that u know what is gone. U win chuck. Sure wish I could be around in a few centuries or eons to see who was right. Obviously for now your vast and hard earned wisdom takes the field.
U once said my posts were full of hate. Yours make themselves appear to be on a higher intellectual plane but no less a form of hate.
I am a libertarian while you sound no different than a 1930s eugenics professor.
Of course, I dont claim any formal credentials so I have no right not to believe everything I hear on climate history. And because of that ignorance, I should be afraid of commiting heresy.
If agriville is once again another battleground for dogma with the usual suspects reciting their lines, then for now go alone. Yet u have insured yourself a seat at my going out with style f u party. The reins are now held by your kind. So either make sense to my kind or step aside and ill be on my way.

[Guest]

right on bp !

[oneoff]

It isn't piling on to say that when someone's head has swollen with the fad of the day; their repeating the theory that seemingly protects themselves....will be paid for by others who are actually currently the mainstream supporters of the economic system.

Ungrateful irresponsible wretches??

Lot like the piper not being able to call the tune.

[chuckChuck]

All I did was present 3 opinions supporting a carbon tax 2 of which were from a conservative point of view.

Whether or not you and I agree with them is irrelevant as we are not in a significant position to influence the direction this issue will go.

Those who feel their wealth and power are threatened by any change will often not support change even when faced with evidence that change will be of benefit in the long term.

If everyone acts only in their self interest then little progress will be made.

If you have a better argument then make it. But as far as I can tell many of you are in denial about climate change and unwilling to entertain any ideas about what should be done.

If you think you know better then I would suggest running in the next election and put your ideas to public scrutiny.

[chuckChuck]

Oneoff what is the point of your last post?

I will be paying the tax just as everyone else will. Ag fuel and inputs may indeed be exempted in many provinces.

Perhaps you do everything possible within the law to not pay any tax?

But since I consider it good luck to be born in won of the best countries in the world where most things work very well I don't mid paying my fair share of tax to pay for health care, education, good roads, a good justice system etc etc.

[oneoff]

And as for the supporting quotes that appear....its pretty clear that three documents in a row are designed to present a compelling volume of all the same message.

Thus the conclusion that that literature says exactly what your gut feelings are. Some claims (or all claims actually) deserve to have the flip side present to. That Chuck doesn't do.


Anyone who felt otherwise would shown some interest or "compassion" regarding at least some of the pretty compelling points. Only those who are very myopic would dismiss all responses in previous daysresponses (to your and similar threads).

I'm afraid that debating or offering counterpoints is a total waste on certain people; but there's always some hope that the general population will also see points presented and not just pages of quotes from purported experts.