Alberta, Paris and the Yukon

Two out of three ain't bad, as the old saying goes. The Alberta NDP's new carbon tax and climate change plan gets two big things right, but makes one potentially big mistake that could store up plenty of trouble for the future.

Two out of three ain’t bad, as the old saying goes.

The Alberta NDP’s new carbon tax and climate change plan gets two big things right, but makes one potentially big mistake that could store up plenty of trouble for the future.

The first good thing about the plan is that it taxes all carbon emissions in a transparent way. Economists have been harping about this for years. Some plans only target big polluters or certain industries, which raises questions of fairness and also lets large swathes of the economy go on with business as usual. Having a tax embedded in prices clearly seen by businesses and consumers may be annoying, but it’s also a great way to get people to change their behaviour.

The Alberta plan isn’t perfect in this regard, since the politicians couldn’t resist layering a baffling array of new regulations and subsidies on top of the carbon tax. But at least an economy-wide carbon tax is the core of the scheme.

The second good thing is that it is a made-in-Alberta solution. This prevents the federal government from coming up with some kind of national scheme that becomes a back-door way to transfer money from one part of the country to another according to the political needs of the government of the day in Ottawa. We already have the equalization program to help have-not provinces.

Fixing carbon emissions is hard enough without getting it tangled in intra-provincial wrangling over who should get who else’s money.

The thing the Alberta scheme gets wrong is that it is also a tax grab. Only some of the carbon tax revenue will be used to cut income taxes. B.C.‘s carbon tax, on the other hand, is “revenue neutral.” Not only does B.C. report that per capita greenhouse case emissions were down over 10 per cent from 2007, the year before the tax was introduced, to 2013, but B.C. has used the tax revenues to reduce a wide range of business and personal taxes. This helps attract job-creating investment, improve incentives to work, and let working people keep more of their wages.

There are several risks from Alberta’s tax-grab approach. One is that higher taxes raise the cost of living and reduce the incentive to invest and work. It’s hard to tell exactly what the long-term impact of higher taxes are, but remember that high-income earners in Alberta will see their marginal income tax rate rise nine points after the combined effect of the new governments in Edmonton and Ottawa. Layering on a tax-grab carbon tax on top of that will pretty much put an end to the “Alberta advantage.”

The bigger risk is that the tax grab gives oxygen to political forces who would rather do nothing about climate change, and there are no shortage of those. It will be much easier for opposition Wildrose politicians to campaign against a tax grab than a revenue-neutral, B.C.-style carbon tax. Turning climate change into a right-left battle won’t be helpful in the long run.

So what does this mean for the Yukon and our leaders’ upcoming visit to the Paris climate talks?

Paris reminds us that something has to be done about climate change. I find the long-term scenarios terrifying. Rising sea-levels and climate-induced famines may make the Syrian refugee crisis look small. Within 90 days of Paris, there will be another first ministers meeting to discuss Canada’s plan.

The Yukon needs to do something.

One option is a carbon tax. If we go that way, it needs to be revenue-neutral. The Yukon government does not have a revenue problem, and our economy needs to be as attractive to investment and workers as possible given our isolated position.

But a seven-cent-per-litre carbon tax is not likely to be enough. B.C.‘s carbon tax has been praised by the World Bank and, as noted above, per capita emissions have fallen. However, other factors were at play too. B.C.‘s per capita carbon emissions actually started falling significantly several years before the carbon tax was implemented, due at least in part to big reductions in manufacturing emissions (including the hard-hit pulp and paper sector).

Overall, thanks to population growth, Environment Canada says B.C.‘s total carbon emissions were a modest 2.5 per cent lower in 2013 than they were in 2005 (but still 24 per cent above where they were in 1990). This is not enough to save the planet.

Another option is an attack on fossil-fuel heat. In 2012, Yukoners burned around 139 million litres of fossil fuel, according to Statistics Canada. It’s hard to tell from the report exactly how much of this was for heating, but let’s estimate a fifth to be conservative. That would be about 30 million litres.

A major push to build more renewable electricity generation combined with an effort to switch more homes to electric heat could make a big dent in our carbon emissions. Switching just 15 per cent of Yukon homes and businesses from oil to electrical heat would reduce emissions by a greater proportion than B.C. did from 2005 to 2013.

This approach would also create local Yukon jobs building the renewable energy plants and renovating homes.

The carbon tax and an attack on fossil-fuel heat are both reasonable options to reduce Yukon emissions meaningfully. We might even want to do both.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He won this year’s Ma Murray award for best columnist. You can follow him on Channel 9’s “Yukonomist” show.