It’s time to rally around cap and trade

Alex Etchell and George Hoberg

 pdf version here


The BC election is over and Gordon Campbell’s Liberals have secured a third term in office. For many climate activists, that the Liberals did not lose this election because of their carbon tax is a positive sign. As the logic goes, if Campbell had lost and the defeat could be blamed on the carbon tax, a political chill would have been cast over elected officials in other jurisdictions interested in pursuing effective climate policy.


Now that the election is over, however, it is time to take stock of the evolving landscape of climate action policy. Ironically, at a time when many are hailing a significant victory for BC’s carbon tax, it is becoming increasingly apparent that those committed to real climate action, in BC and elsewhere, need to deemphasize the carbon tax and rally around cap-and-trade at a federal and international scale.


There is broad consensus in the climate action policy community on the need to use government policies to put an effective price on carbon. But there has been considerable disagreement between those advocating the carbon tax and those advocating cap-and-trade. This debate continues to confuse politicians and the public, and frustrates progress on the urgent actions we need. Meanwhile, a combination of recent events has, in our view, dramatically strengthened the relative merits of cap and trade. We’ve now had two elections in Canada where the carbon tax has been an important issue, and the replacement of the recalcitrant Bush administration with a new President and Congress committed to emissions pricing changes the policy landscape.


In comparing the merits of policy instruments, we need to consider both a variety of criteria, and also how BC fits within the nascent larger climate policy regime. Many policy analysts apply four criteria when evaluating alternative policies:  effectiveness, economic efficiency, administrative feasibility, and political feasibility. Because of the legal limit placed on carbon emissions, a cap and trade system gives the greatest assurance of effectiveness. By pricing every unit of carbon the same, carbon taxes are widely acknowledged to be the most economically efficient instrument. In addition, while cap and trade policies allow for fluctuations in carbon prices in response to market conditions, carbon taxes have the advantage of providing price certainty, facilitating efficient responses from polluters. Carbon taxes are simpler administratively because they can use existing revenue collection mechanisms, and don’t require the elaborate system of regulated auctions and permit trading markets that a cap-and-trade system needs. If we consider only these three criteria, the carbon tax comes out ahead in the evaluation:  its efficiency and administrative advantages outweigh a modest disadvantage in effectiveness.


When the criterion of political feasibility is factored in, however, the balance of the scales shifts strongly towards cap and trade. We’ve seen what happened with Stephane Dion’s proposed “green shift” in the federal election. And, although Gordon Campbell won this week’s election, the carbon tax proved to be at least a moderate political liability. According to an Ipsos Reid exit poll, 26% of voters surveyed said the carbon tax was very important in influencing how they cast their vote. Of these, 57% voted for the NDP who had vowed to axe the carbon tax, while 25% of carbon tax voters voted liberal, and 13% voted green. These results are consistent with previous public polling on carbon taxation. While few polls appear to have carefully compared public views of carbon tax vs. cap-and-trade, what polling has been done on the carbon tax has been quite negative (see the appendix below).


Part of the apparent public preference for cap-and-trade over a carbon tax may be based on misinformation because many wrongly assume that consumers won’t pay as much, when economic analysis shows that to achieve the same level or reduction, a cap-and-trade system will be at least as costly to consumers as a carbon tax. But the public also seems to prefer cap and trade because they believe it is more effective – the assurance of a specific limit on emissions appeals to them in a way that a tax scheme does not. Whatever the basis for the public opinion, it is time for the climate action policy community to acknowledge the political liabilities of the carbon tax and rally around the next most efficient policy instrument, cap and trade.


In addition to acknowledging the centrality of political feasibility to policy instrument choice, we also need to appreciate the need to coordinate policies across jurisdictions. As the recent Achieving 2050 report of the National Roundtable on the Environment and the Economy argues, there are significant costs to the fragmented initiatives emerging across Canada and the United States. Competition for businesses among jurisdictions makes it harder for politicians to enact policies that increase the costs of doing business. Coordination across a number of jurisdictions increases trading opportunities, allowing more cost-effective greenhouse gas reductions.


The election of Barack Obama makes it highly probable that the US will finally adopt greenhouse gas reduction policies. Outside a small circle of think tank economists, carbon taxes are not even on the table in the US due to the American cultural antipathy to taxation. Cap and trade is the approach Obama has proposed, and the US Congress is currently developing. There will be substantial economic and administrative advantages to coordinating Canadian federal and provincial policies with the emerging US system. Indeed, the Harper government has stated an intention to develop a compatible system.


Continuing to push the carbon tax is limiting the expansion of the political coalition supporting the urgent climate action we need, and will keep us out of step with emerging policies in jurisdictions with which we need to cooperate. We need to coalesce around a coordinated cap-and-trade framework, and dedicate our energy to designing and implementing an effective, efficient, and equitable policy.




Recommended Reading:



Canadian Chamber of Commerce. “A Carbon Tax vs. Cap-and-Trade Policy Brief.” December, 2008.


Green, Kenneth et al. Climate Change: Caps vs. Taxes.” American Enterprise Institute for Public Policy Research. June, 2007.


Jaccard, Mark & Nic Rivers. “Canadian Policies for Deep Greenhouse Gas Reductions” in Jeremy Leonard, Chistopher Ragan, and France St-Hilaire, editors, Canadian Priorities Agenda: Policy Choices to Improve Economic and Social Well-Being, Montreal: Institute for Research on Public Policy, 2007.


Roundtable on the Environment and the Economy, Achieving 2050:  A Carbon Pricing Policy for Canada. Ottawa, April 2009.


Stavins, Robert. “A U.S. Cap-and-Trade System to Address Global Climate Change.” Regulatory Policy Program, John F. Kennedy School of Government. 2007.


In print only:


Jaccard, Mark, Sustainable Fossil Fuels, Cambridge:  Cambridge University Press, 2007, Chapter 8.


Simpson, J., Mark Jaccard & Nic Rivers. Hot Air: Meeting Canada’s Climate Change Challenge.  Toronto:  McClelland & Stewart Ltd., 2007.


Simpson, J. “Broken Hearts, Broken Policies: The Politics of Climate Change.” In Carbon Shift. Ed. Thomas Homer-Dixon. Carbon Shift: How the Twin Crises of Oil Depletion and Climate Change Will Define the Future. Toronto:  Random House Canada, 2009.


Appendix on public opinion polls on carbon taxes and cap and trade:

Given the need for politicians and analysts to meaningfully compare cap-and-trade and carbon taxation on the criterion of political feasibility, it is surprising that there has been little in the way of public polling to assess relative voter preference for each system. In the United States, some polling information is available on public attitudes towards cap-and-trade. In Canada, polling has focused almost exclusively on attitudes towards carbon taxation.


In June 2008, an Angus Reid Global Monitor poll asked Americans about a plan to reduce global warming that “would have the government set a limit on the amount of those emissions that companies could produce each year. Companies that exceed that limit would face fines or higher taxes, but they could avoid those penalties by paying money to other companies that produced fewer emissions than allowed.” 52% of Americans polled favoured this system while 45% opposed it and 3% were unsure.


A May, 2009 poll commissioned by the Pew Environment Group found that 50% of those Americans surveyed would feel more favourable to their Member of Congress if s/he voted for a comprehensive cap-and-trade plan to reduce GHG emissions. 12% responded that they would feel less favourable, while 28% said it would make no difference. The poll also found that, even after hearing arguments against a proposed cap-and-trade emissions plan, 62% of respondents still supported it.


In Canada, no similar polling on public attitudes towards cap-and-trade has been undertaken. Nevertheless, there is a moderate body of evidence with regards to Canadian attitudes towards carbon taxation. In June 2008, Angus Reid polled Canadians on the federal Liberals’ proposed carbon tax. Only 28% of respondents agreed that “the proposed carbon tax is the best way to curb climate change.” In that same poll, only 39% of Canadians agreed with the statement, “I am willing to pay higher taxes on fossil fuels if I also get an income tax cut.” 45% disagreed and 16% were unsure. Finally, nearly half (47%) of Canadians agreed that “putting a price on greenhouse gas emissions is a good idea.” 36% disagreed with this statement while 17% were unsure.


In April 2008, Harris Decima conducted a large poll entitled Understanding Modern Environmentalism. It found that, in general, tax measures were the least popular of those government policies that the respondents were presented with. However, cap-and-trade systems were not mentioned, so the poll gives no meaningful information about voters’ relative preference for one system over the other.


Most recently, in May 2009 Harris Decima conducted a poll for the Canadian Press on Canadian attitudes towards carbon taxation. It found that, overall, 49% of Canadians supported the adoption of a carbon tax, but that only 42% supported a carbon tax like BC’s which would incrementally increase the cost of gas and home heating fuel. According to Harris Decima’s Senior Vice President Jeff Walker, this poll made clear that a carbon tax is “definitely not a winner nationally.” Interestingly, however, an additional online poll of 1000 British Columbians found that carbon taxation can be a political liability for proponents and opponents. The number individuals who were angry with Gordon Campbell for introducing the carbon tax was similar to the number of those who were angry at Carole James for opposing it.

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