A carbon tax and a carbon cap-and-trade program are fiscal policy tools that a government can implement to reduce carbon dioxide (CO2) emissions to the atmosphere (see figure) and help in the fight against climate change.

Carbon taxation policies are essentially fees imposed on the burning of carbon-based fuels or any other process that emits CO2. The purpose is to shift the social costs of the impacts from emitting CO2 into the atmosphere from the general public to the entities that emit most of that carbon dioxide. Of course, industrial scale emitters will pass the cost back onto their customers to the extent possible. For example, oil producers will pass the cost through to refiners who will pass the cost onto the John or Jane Does who buy gas and commute to work. Ideally, a properly designed carbon tax policy would be revenue neutral, in that the net cost to businesses and individuals would be spent by the government to mitigate the actual impacts, and such that John and Jane Doe would ultimately realize the benefits.

Unfortunately, it seems that governments around the world are mostly focused on implementing the taxation side of a fiscal policy to address climate change and doing a poor job of the consumer side. With carbon taxation, there will be some losers – those who pay more for their electricity and gasoline – and some winners – those whose homes are saved from rising sea level or those who won’t suffer from pollution related health issues.   The challenge is how do you “sell” a tax that appears to take from one group of people and gives to another, and yet make all parties feel that they are winners?

To date the scientists have done excellent work studying the issues around climate change, preparing technical treatises, and creating lofty goals. And the politicians have been successful selling the concept to those individuals who do not really need to be sold, i.e. the wealthy who don’t need to worry about the cost, and the zealous environmentalists who want to protect the environment at any cost (especially when paid by others). However, they have been failing at creating the necessary social consensus required to get things done and selling the concept to the vast majority of the people who will ultimately pay the cost. The problem is that the cost of gasoline or food or electricity is visible, immediate, and unambiguous. By contrast, the costs of climate change are hidden within public and private health expenditures, emergency relief funds, and the degradation of, and subsequent remediation of, the environment. Although glaringly obvious from decade to decade, such costs are almost imperceptible from day to day. As a result, grass roots campaigns have emerged that have been successful in delaying or even cancelling some early efforts by focusing on the cost to the everyday person who is just trying to make a living.

A good example of this is the current situation in Canada. The Canadian Federal Government is in the process of implementing a carbon tax as a means to achieve Canada’s commitments under the 2015 Paris Agreement. It is set to start at $10 (CA)/tonne this year and increase by $10 per year to reach $50/tonne in 2022, and then higher beyond that, if necessary. It has been billed as “revenue neutral” and relatively “painless” to consumers, but a recent study has indicated that the $50/tonne tax will cost the average Canadian between $603 and $1120 per year, depending upon province. Conservatives are rallying around this cost and branding the initiative as another “tax and spend” program. Doug Ford, the new premier of the province of Ontario, which has been operating under a cap-and-trade program since 2017, quoted during his campaign: “Every cent spent from the cap-and-trade slush fund is money that has been taken out of the pockets of Ontario families and businesses.” A large part of Mr. Ford’s support came from suburban commuters who paid an estimated 3% more for gasoline (or should we say petrol?) under the program last year. One of his first actions as premier was to revoke the cap-and-trade program and vow to fight the national government over any attempt to impose the carbon tax.

However, failure of carbon taxation is not a foregone conclusion. There is an example of a successful emissions taxation policy – the cap-and-trade program in the 1990s to solve the urgent environmental problem of acid rain. But with acid rain, the culprit was clear – one could see the yellow haze plume coming from coal burning power plants. And the impact was both clear and emotional – burning eyes, increased acidity in lakes and rivers, and dying forests. The program initially created winners and losers, but with success, ultimately, everyone became a winner.

So, what is needed to change the dialog and generate broad public support for a carbon tax? In this hyper-partisan political climate in which neither politicians nor news media is trusted to tell the truth and climate deniers appear to have the loudest voices, the best chance of success is to implement carbon fiscal tools in a visible, well-planned and as equitable a manner as possible.  The following are some suggestions:

• Show that severe hurricanes hitting the coast, crops dying, fires raging, polar ice caps melting, coastlines flooding, etc., etc. are happening now, not in some distant future.
• Narrate clearly, in easy to understand terms, the science behind global warming and the “hidden costs” of CO2 emissions to the average person.
• Expand programs to allow participation by individuals as well as corporate entities. For example, a person who buys an electric vehicle (EV) or a solar roof system or even uses public transportation to commute receives credits based on the CO2 savings, which he/she can use immediately to reduce the cost of the item, sell in the open market, or apply to a tax bill. (Note that the current federal tax credit in the US for purchasing an EV appears so arbitrary and uncertain that many potential EV purchasers won’t factor it into their decision, to say nothing of the fact that it might not show up in one’s pocket for over a year after the purchase.)
• Finally, mobilize the institution that can tell the most compelling story and market it to the everyday person – Hollywood. Imagine a new Marvel villain Carbonite, who draws his power from carbon dioxide in the atmosphere, and a new superhero Climateman, who goes around the world shutting down sources of CO2 emissions to weaken him and ultimately defeat him to save the world.

This should be sufficient to change the hearts and minds of an uncertain public.

Guest blog by S. A. Shelley

Are we on the cusp of mass adaptation of Electric Vehicles (EVs) for transportation?  Probably not for at least a while longer. When doing the financial analysis comparing EVs to Internal Combustion (IC) Vehicles at the personal or family level, the comparison usually yields these results: (more…)

Guest blog by S. A. Shelley

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Guest blog by S. A. Shelley

Revenue Trap: ” A focus on revenue at the expense of weakened strategy and reduced profits.”

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