Taxes and the Environment

Environmentally-minded politicians like Stephane Dion and Elizabeth May seem to assume that environmental taxes should be revenue neutral. In particular, the plan always seems to be to reduce income tax by the same amount as the consumption tax. This is wrongheaded, because:

1. Income taxes are progressive. Consumption taxes are not. We need some consumption taxes, but we should not shift away from income tax.
2. Environmentally-based consumption taxes, such as gas tax, should be used to move our society to a less oil-dependent state. The revenue should be used to subsidize public transit, to promote alternative energy sources, and to help people transition to less polluting lifestyles.

The parking lot at any mall is full of SUVs, vans and pickup trucks. Big buses chug along with a handful of passengers, if that. Ontario homeowners flagrantly waste energy, meaning that we're blanketed by pollution from the Nanticoke coal-burning generators - which our current provincial government wants desperately to shut down, but can't at current consumption levels.

Nothing is going to change without sustained higher prices for oil. When the price increase is caused by taxes, we have revenue to help people deal with the transition.

If the environment turns into a full-blown crisis, then we need to address it with a holistic vision of our society, not blinkered policies that see only the environment. We need to move into a new way of operating that preserves certain principles, such as modest income redistribution. This isn't like a war, when there are privations for a short period. This is about finding a permanent way to operate our society in a more environmental way.

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The Energy Boom

It's a familiar tale. American companies pump Canadian oil and ship the crude to US refineries. There's an oil pipeline south from Alberta, but none east to Ontario and Quebec. The oil boom is creating jobs at the oil patch, but not nearly as many jobs as it could be creating. Meanwhile we provide tax incentives for the oil industry. Our free trade agreement with the US ties our hands in terms of how much oil we sell them, so, for example, if we wanted to slow production until less polluting methods were available, we couldn't.

A recent article in the Canadian edition of Time says that Canada needs to start acting like a global energy superpower, but so far we can't even get past interprovincial squabbling.

Here's a winning election campaign policy that I offer up for free to any party that wants to use it. Make your symbol a banana in a circle with a cross through it. Suggest ways that Canada can become a more advanced economy rather than just a resource supplier to other countries.

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Carbon Tax: Good, Necessary, Politically Dangerous

The enduring problem with democracy is that the voter has an inherent conflict of interest between the good of the whole and their personal well-being. So even though voters are crying for environmentalism from their government, they are also stridently opposed to any increase in gas prices - even though an increase in gas prices is the only way to improve the environment. Governments of Canada have not tried to raise the gas tax significantly since Joe Clark was tossed out of power in 1980 for making such an attempt. Consequently, the fuel efficiency of Canadian vehicles has plummeted and our contribution to greenhouse gas emissions has skyrocketed. Canadians cry that they want something done - but they won't stomach higher gas taxes. And as long as gas prices stay low, Canadians pollute like there's no tomorrow.

Finally the market stepped in and prices have started to rise. It's a pity that the excess revenue is going to the oil companies instead of the government. The government could be offsetting the pain of higher gas prices by improving urban transit, inter-city passenger and freight rail, home insulation programs, and on and on. That's the whole point of gas taxes.

Now Stephane Dion has suggested a carbon tax and he risks losing the next election over it - even though it is an idea that is not only good but necessary to effect a transition that will prevent disaster for Canadians. I disagree with one major part of Dion's proposal: the carbon tax should not be revenue neutral. Revenue from the carbon tax should be earmarked for programs that will help offset the pain of higher carbon prices, as outlined in the previous paragraph.

I have an 11-year old Corolla that I drive sparingly - a couple thousand kilometers per year. I have put off replacing it, in part, because I'm waiting for more fuel-efficient car options to come on the market. The SmartCar is a little too small; it's more suitable for a two-car household. Hybrids offer lower gas prices but a higher purchase price and higher maintenance costs; plus, their battery presents environmental problems for disposal. The diesel VW Beetle is an excellent car with better mileage than even a hybrid, but it's way too pricey. The Toyota Echo (3-door model) was just about perfect but it disappeared almost as soon as it was introduced. Surely, now that gas prices have risen car manufacturers will start to offer more fuel-efficient options.

Better fuel efficiency in vehicles is only part of the solution. Disposable diaper prices are rising 8% this summer, according to the Globe's Report on Business. The RoB laments that low-income consumers are being disproportionately hurt by higher prices, and "their influence on demand is so weak that even a concerted effort to cut consumption might be ineffective in cooling the hot market and pushing prices back down." The RoB misses the point. The goal is not to push prices back down, but to change consumption patterns. And in that regard lower income consumers could lead the way. For example, there is a convenient alternative to disposable diapers: the disposable diaper insert. You buy a washable diaper that has a pad that can be flushed. This product is thousands of times better for the environment; it is even more convenient; and it is far cheaper. Once widely known, I have no doubt it will be adopted. We continue to rely on disposable diapers because there's big profit in them for certain companies who advertise like crazy.

Toiletries, cosmetics, home cleaning products and the like tend to face non-price competition: consumers react less to price and more to advertising, packaging, and brand loyalty. That's why people buy toilet paper and paper towels that cost more than twice the lowest price brand. That's why they fall for heavily-advertised but ridiculous products like disposable brooms. It will take a massive force to get the market to stop succeeding with ever-more ridiculous disposable products. Sharply higher prices and resulting exposure to cheaper alternatives might just wake us up.

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The Case for Biofuel

Biofuel has been taking quite a beating recently. The arguments for biofuel are:

- We need a replacement for oil, if not now, then not far in the future.
- Biofuel is less polluting than fossil fuel because carbon is absorbed while the plants grow, which offsets the carbon that is produced when the biofuel is burned.
- Biofuel can be produced and used locally, unlike oil which typically must be shipped long distances and refined in central locations.
- The process of producing and refining biofuel is less polluting than oil.

The objections to biofuel are:

- Chemical fertilizers and pesticides, as well as mechanized farm equipment required to produce biofuel and trucks to transport it, all use a lot of oil - meaning that biofuel is not "carbon neutral."
- Fields are being diverted for biofuel crops, which is contributing to the current international food crisis. If biofuel took the place of oil (as proponents hope), the land required would be so great as to cause enormous disruption to the food supply.
- Biofuel crops are leading to deforestation. In the Amazon rain forest, farmers are clearing forest to plant corn that is needed because US corn farmers have converted to biofuel production. In Malaysia, forests are being cleared to grow palm oil that is used in biodiesel.
- Huge government subsidies are required for biofuel; these could be used for more effective environmental programs.
- Biofuel production requires a lot of water (although some claim that the water is cleaned and released as steam which falls locally as rain).
- The main proponents for biofuel are US corn producers and their lobbies, who are interested in their own wealth, not the environment. Politicians who support biofuel are just pandering to an influential lobby.

The case against biofuel has become pretty fierce recently. However, I think we should take a step back. Thirty years ago it was not uncommon to hear similar arguments against solar and wind power: they would never produce as much energy as it took to produce them; they were not reliable enough to put on the energy grid. But technology increased their efficiency and solutions were found for their problems. The same is happening with biofuel: now that money is being poured into the technology, not just in the US and Europe but also in places like China, Brazil and Venezuela, biofuel technology is in a state of rapid change. One day we may get most of our biofuels from waste and sea algae.

The compelling argument for biofuel is that we need a replacement for oil. The cherry on top is that biofuel can be much less polluting than oil. It seems sensible to build this technology, even if it has drawbacks at the moment.

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The Problem of the Oil Sands

As we all know, Canada's greenhouse gas emissions are rising out of control. The increase is largely due to pollution in the Alberta oil patch.

Garth Turner had a good post last week about the issue. He says that in addition to the huge amount of greenhouse gas emissions, "one barrel of oil takes more energy than the oil actually delivers, plus about four barrels of water." The process results in huge quantities of polluted water and there's no way to clean it.

This link to Garth's post includes a lively comments section with lots of additional information and dissenting opinions.

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Forums on Urban/Rural Issues and on Energy (Yet More Notes from the LPCO AGM)

There were separate forums on urban/rural issues and energy. Both were well attended. I'm starting to get a bit tired of typing, so I'm going to just list a bunch of ideas and statements from my notes. Some of these were made by the panelists but many were comments from delegates.

Bridging Rural and Urban Canada
We lost a lot of rural votes in the last election. We need to understand why.

Urban and rural are not two solitudes. We need to understand the linkages. For example, 30,000 jobs in Toronto GTA depend on mining (marketing, tax consulting, finance, technology, etc).

Iogen - cellulose waste from corn stalks, is better than ethanol.

Technology is making new opportunities. For example, call center technology means that people can work at home for high wages, anywhere that has high speed internet. Ditto with remote health diagnoses.

If we allowed communities to be sponsors of immigrants, a town could request to sponsor doctors and nurses, for example.

We've done a lot to reduce poverty in children and seniors, but not enough for poor working-age adults. Someone working minimum wage full time makes $2,000/year less than the poorest senior.

We have to remember that many non-urban areas aren't involved in resource extraction or farming. Places like Barrie and Collingwood are small cities.

We need to do more for public transit within and between small towns.

We need government action on Manitoba flooding and rural sewage.

We should consider different policies for rural areas, such as bonfires, driving junker cars on private property, etc. "The regulatory load infringes on rights and on way of life."

Farmers are not getting a fair share in the marketplace. "Farmers are buying at retail and selling at wholesale."

We need transition programs for farmers to move to organic farming in response to consumer demand for organic food.

We need structural change in the party to demonstrate our commitment to exurban areas. For example, a rural commission. For example, staff reps for rural Canada. We send our press releases to the Globe & Mail but people in small towns don't read it.

Health in rural areas is a big issue.

We need short sharp direct statements on what we're going to do.

We need an emotional response, not just a policy response.

We should all work to put the rural discussion in every leadership debate.

Energy
This is a new world of high energy prices and they're here to stay.

Canada sells the US a lot of energy.

"We seem to have lost our energy advantage in Canada."

How to help Canadians cope with higher energy costs - should we have a rebate? We could eliminate the excise tax on gas for prices over 75 cents a liter, or eliminate the GST on the excise tax (both promises of the Conservatives before the election).

Studies have shown that gas has to get to $1.80/liter before drivers change their behavior.

A big issue is how to expand the tar sands without increasing C02 emissions.

Another issue is Chinese state-owned enterprises buying Canadian energy resources.

Argument about whether clean coal is an oxymoron.

Instead of shipping natural gas to the US, we should use it in value-added petrochemical production in Canada.

Our current policies are based on dirt cheap oil from Saudi Arabia: it was cheaper to import oil by tanker than to produce our own. Our old policy was "import to the east, export from the west." We should make sure we serve ourselves before other countries.

In Ontario, two-thirds of our hydroelectric capacity is not used.

Our accounting concepts work against limiting demand. For example, nuclear power costs don't reflect the long-term and off-balance sheet costs.

Another issue is shipping energy to the US and the free trade agreement.

Our environment and energy are integrated with the US. All of our exports of energy are to the US. Our biggest increase in C02 emissions is from tar sand extraction. We should charge the US for the pollution costs, just like the tire tax.

University engineering programs are too traditional. The government should encourage students to learn about non-traditional energy sources like solar and wind.

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