April 29, 2011
Our last post called for using the Canadian election campaign to begin a national conversation on climate policy. That may finally have begun on Thursday, but the early discussion has been very discouraging. As the dramatic surge of the NDP has forced Harper to refocus his attacks away from the Liberals and onto the NDP, the NDP’s cap and trade proposal has been part of his critique. Harper has charged that the NDP cap and trade program will lead to soaring gas prices. Layton has responded by denying that the program will increase the price of gas.
Harper and Layton can only say these things by being disingenuous about their own policies. Harper’s proposals are widely recognized to be economically counterproductive, and inadequate to meet his own emission targets. Layton’s proposals will in fact lead to moderate increases in gas prices, and if they don’t, they won’t be effective.
This exchange reveals the central dilemma of the politics of climate action: We rely on elected politicians to make policy that by necessity increases the costs of some activities and goods. But politicians are loath to be seen to increase costs. The only durable way to escape this dilemma is to have voters accept the necessity of increased costs. Ignoring the climate problem is irresponsible, and an honest discussion of Canada’s choices is long overdue.
I believe there is a broad consensus among climate policy experts on four major points. Politicians who ignore these realities are not being sincere about their commitment to taking meaningful action on climate change. Voters who ignore these realities are not being realistic about what it will take to avoid dangerous climate change.
1. Substantial reductions are needed in greenhouse gases to improve the probability of ensuring a safe climate for future generations. There may be disagreement about the magnitude and appropriate timing of these reductions, but there is widespread consensus that a wholesale change in our energy system is required, and the sooner we start the more effective and efficient we’ll be.
2. There will be costs to these reductions. Any politician who hides from this fact is either insincere about their commitment to meaningful action, or is not being honest. We need a national dialogue to focus on how to design policy to get the most bang for our buck and fairly distribute the burden. These issues are addressed by the next two points.
3. There are a variety of ways to achieve necessary emission reductions that come with different consequences. The economists’ favourite solution is an economy-wide carbon tax. It is widely considered to be the most cost-effective instrument in terms of delivering a given target level of reductions for the lowest possible cost. The alternative market-based policy instrument, economy-wide cap and trade, is also considered cost-effective. The main difference between these two instruments is that cap and trade gives you a fixed quantity of greenhouse gases and allows the price to fluctuate. Carbon taxes do the opposite: they fix the price but allow the quantity to vary.
A third approach is the one proposed by Harper’s Conservatives: regulation of specific facilities. The consensus within the expert climate policy community is that regulation is the least cost-effective of these approaches. If Harper really believes his plan would cost less than the NDP’s, it is because he would be aiming for much smaller emission reductions. For the same level of emission reductions, the NDP cap and trade approach would be considerably less expensive. For the same economic investment, the NDP approach could accomplish greater emission reductions.
We need a national dialogue on which approach is most appropriate for Canada. I suspect when we do so, the outcome may be something of a surprise. Many climate policy experts, including economists, have advocated cap and trade not because they think it is a superior instrument to a carbon tax, but because they believe it will be more politically acceptable. But cap and trade is much more complex to administer, and as we learn more about the political response to cap and trade, the argument for its political advantages over carbon taxes becomes less compelling. In particular, the price certainty of a carbon tax is far preferable to large emitting industries. Once they sense the political inevitability of carbon pricing, they will insist it be through their preferred instrument. When faced with big business advocating a carbon tax, the supporters of cap and trade may happily climb on board.
My sense is that most climate policy experts would be supportive of either a carbon tax or cap and trade, as long as they are effectively designed to cover all significant sources of emissions. It is much more important to get on with greenhouse gas reductions than it is to quibble over the relative superiority of these two instruments. There is strong consensus that these two market-based instruments are far preferable to the source-specific regulatory approach favoured by the Conservatives.
4. Finally, there are ways to design these instruments to address transition and distributional issues. We can’t eliminate the fact that the transition to a low-carbon economy will be costly. But we can, through smart policy design, mitigate many of the concerns about adjusting to these new costs. Most importantly, there is general agreement on the merits of phasing in carbon pricing by starting with small increases and ramping them up over time, giving the economy time to adjust. There are also a range of fiscal instruments that can be used to moderate the income and regional distribution impacts. In Canada, the regional distributional issues are particularly controversial, but there are well-considered mechanisms to address these concerns. We need a national dialogue on the fairest way to share the burden of the imperative of climate action.
Let’s hope our party leaders can acknowledge this general consensus and engage in a more productive dialogue in the remaining days of the campaign. We need to give them the political space to do so by acknowledging that meaningful climate action will come with some costs. And after the election, let’s get busy on the long-overdue national dialogue on climate action.
If you think my summary of these consensus points is inaccurate or incomplete, please comment.