Saturday, 7 June 2008

Do we need a carbon tax now?

A carbon tax makes a lot of sense as a general idea. The concept is to add to the price of gasoline and other products which contribute to global warming and then rebate the tax to people by lowering income tax an equivalent amount. This is not a tax increase but it is a neutral shift and it would help reduce consumption of oil. The problem now is that market forces (supply and demand plus speculation) have driven up the price of oil so high that people are already cutting back considerably in driving and other energy use due to the high cost. This has already cost jobs in the auto sector and specifically led to the planned shutdown of GM's truck plant in Oshawa. That is bad for Ontario and Canada. A further increase in fuel costs is really not needed now. Arguably we are not paying enough for gas compared to most places in the world but the shift has already been made and a carbon tax now would only increase hardship.


Dan said...

Excellent post! When we created the Carbon Tax Center in January of 2007 we proposed a carbon tax that would be phased in over a ten-year period. Our proposal would impose a carbon tax on all fossil-fuels, with gasoline just one of the fossil-fuels that would be taxed.

Gasoline prices have already increased by the amount that we proposed in a tax. What's that mean for the carbon tax?

First, the fact that the price of gasoline has increased does not reduce the need for a revenue-neutral carbon tax on other fossil-fuels.

Second, to the extent there is a concern that gasoline prices have already increased too much, a floor on gasoline prices is a reasonable option. The floor could be set at current levels. If prices would otherwise go down, a revenue-neutral carbon tax could be used to maintain the price and the very effective price signal.

Third, it's important to recognize that a tax is preferable to simply relying upon market forces. Market forces, absent a carbon tax, send the message that we should be increasing the use of extremely carbon-intensive energy sources such as energy from tar sands. A carbon tax internalizes the societal cost of carbon, sends the proper price signal and results in revenues that can be returned through a rebate or offsetting tax reduction as opposed to simply going to energy producers.

Dan Rosenblum
Carbon Tax Center

Murray H. Miskin said...

The Liberal opposition headed by Stefane Dion is announcing its carbon tax plan and it does not increase the price of gasoline but does add to tax on other fuels including home heating oil. This is offset by cuts to personal and business income taxes. The net result would be very positive for most Canadians while encouraging energy conservation. The plan recognizes that the cost of gasoline is already high enough to discourage use by Canadians and that it is likely to get higher simply due to world supply and demand factors.