More Carbon-Tax Hand-Waving

by Oren Cass

Forgive the intrusion on Trump discussion, but perhaps I can create a plausible link by noting that many of you are contemplating moves to Canada.

Over at the New York Times, Eduardo Porter is touting the success of British Columbia’s carbon tax as proof the policy works and should be adopted in the United States. I’ve rambled at great length about the shell games played by carbon-tax proponents, constantly changing their proposals to combine large benefits from some with small costs from others. Porter’s rendition of the “look at British Columbia!” argument is a particularly egregious example.

“The most important takeaway for American skeptics,” writes Porter, “is that the policy basically worked as advertised. British Columbia’s economy did not collapse. In fact, the provincial economy grew faster than its neighbors’ even as its greenhouse gas emissions declined.”

The only problem is that the tax did not reduce emissions. True, emissions declined upon implementation of the tax in 2008. But something else happened in 2008 – a global recession that sent GDP (and, with it, energy use) declining in British Columbia and around the world. Emissions then grew in 2011, 2012, 2013, and 2014.

The better way to measure a policy’s effect is to look for declining emissions intensity — that is, emissions per unit of GDP. This typically declines over time regardless of climate policy, as an economy becomes more energy-efficient. But an effective carbon tax would need to accelerate that decline. Here is British Columbia’s greenhouse-gas emissions per unit of GDP since 2000. Try and spot where the carbon tax went into effect:

But was British Columbia doing better than the rest of Canada? No. Here are emissions across Canada’s provinces. Try and guess which one implemented a carbon tax between the dark blue bar of 2005 and the light blue bar of 2013:

We could also compare British Columbia’s progress with that the United States. From 2007 to 2013, British Columbia improved the efficiency of its emissions (that is, emissions per dollar of GDP) by 11 percent. Over the same period, the U.S. improvement was 13 percent (emissions, GDP).

Sure, by implementing a carbon tax so weak that it doesn’t change the trajectory of greenhouse-gas emissions, one can also avoid significant economic damage. (Though, as Porter acknowledges, some industries have been hurt — imports of U.S. and Chinese cement grew from 5 percent to 40 percent.) But what’s the point of that? And what kind of model does it provide?

Porter’s column devolves into a bizarre set of excuses that seem more like anti-tax arguments. The failure “is not entirely British Columbia’s fault” because of “a collapse in the prices of oil and gasoline.” Obviously, anyone contemplating a carbon tax would be facing that exact same price collapse. “British Columbia could do with some help from its neighbors,” because it is losing out to competitors who do not have such a tax. That hardly suggests the U.S. should jump into the same boat, in a world where its own economic competitors do not.

We are left with a policy that doesn’t work and whose economic obstacles would equally obstruct a U.S. effort. Could a much larger tax produce larger impacts, on both emissions and the economy? Yes. But British Columbia seems in no rush to try that. Maybe that is the better lesson to learn.

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