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Geeking out over carbon pricing

The more you hear about the carbon tax plans being put forward by the Yukon Liberals, NDP and Greens, the more interesting it gets.

The more you hear about the carbon tax plans being put forward by the Yukon Liberals, NDP and Greens, the more interesting it gets.

Unlike biologists, economists don’t get to do many experiments. You can’t put two identical countries in petri dishes, apply different economic policies, and see what happens.

The possible implementation of a carbon tax is a national before-and-after experiment, kind of like the major trade deal NAFTA 20 years ago. For economists and policy wonks, this is as much fun as you can have outside a microeconomics convention in Las Vegas.

There are at least three big policy issues. The first is about who pays and where the money goes.

The NDP plan is for half the money from the carbon tax to go into renewable energy projects and the rest will be returned to Yukoners, particularly low-income earners. There is some logic to this, since we probably need to invest more in renewable energy than we have been lately, and a carbon tax will hit low-income earners harder since heating homes and driving to work take up a larger percentage of their incomes.

As Liberal candidate and former Green federal candidate John Streicker recently reminded us, carbon taxes will indeed raise the price of necessities such as diapers (candidates of all parties seem to have chosen diapers as the example product for their debates). Indeed the whole point of a carbon tax is that it increases the cost of things that create carbon emissions, and encourages us to use less of such products.

However, the Yukon government already gets a lot of money from Ottawa. Does it really need to keep 50 percent of carbon tax revenues to pay for green projects? What about the other $1.3 billion in its budget?

The Liberals propose returning 100 per cent of carbon tax revenues to Yukoners. Streicker says that most Yukoners will actually get more back than they pay.

This sounds good, but it made me curious. Who are the unlucky people who will pay more than they get back?

Big diesel users such as placer miners would likely fall in this category. But there aren’t enough of them to pay enough to cover what other Yukoners would get back.

Perhaps the Liberals will limit the refunds to individuals so that businesses pay more than they get back.

The most intriguing possibility is that big mining companies will be the main target. A big mining project with a 100 megawatt natural gas plant would probably pay millions in carbon tax. One version of Casino’s business case had energy costs at almost $100 million in Year 2 of the mine. A carbon tax of $100 per tonne, a figure some economists think would be needed to make a meaningful change in our fossil-fuel burning behaviour, might generate more than $20 million a year depending on various technical assumptions. That works out to around $700 per Yukoner per year.

In a strange way, this might even built support for the mining industry. Currently, if a major mine goes ahead the direct benefits for Joe and Jane Yukoner are limited. Sure, the guy down the street might get a job and their favourite territorial government makes extra tax revenue. But how do they tell if it is actually being spent to benefit them?

In Oklahoma, farmers often own the sub-surface rights and get big cheques from oil companies drilling on their land. In Alaska, a successful oil industry means bigger annual dividend cheques for citizens. The Yukon lacks such a direct-drive link between resource projects and citizens’ wallets.

A carbon tax could change that. If a nasty multinational mining company burned huge amounts of fossil fuel, we would get bigger carbon tax refunds.

A second interesting thing about carbon taxes is how little even economic experts know about their effects. Take those hypothetical diapers, for example. How much more expensive will they be?

I don’t think anyone actually knows how much oil gets used to manufacture, ship and sell diapers. And it might be unknowable until a carbon tax forces everyone to start keeping track.

By the way, forcing everyone to track their carbon emissions is another major benefit of a carbon tax. Our accounting systems today focus on dollars not carbon, which makes it really hard to manage down our carbon emissions.

If the diapers are manufactured in B.C., where there is a carbon tax, then the energy used making them will become more expensive. But imported diapers won’t be similarly affected unless that country has a carbon tax too. Then it depends if the diapers are trucked from Vancouver in a diesel truck, or shipped in a low-emission barge to Skagway and trucked a shorter distance. And once here, are the diapers stored in a well-insulated warehouse heated by hydro-electricity, or a leaky shed with an old oil furnace?

We won’t know the exact outcome for diapers, and thousands of other products, until the carbon tax starts to flow through the system.

The third big question is how high a carbon tax has to get to really change our behaviour. BC’s carbon tax is currently around seven cents per litre for gasoline, and the World Bank reported that per capita carbon emissions went down 16 percent after BC’s carbon tax came in.

That’s good, but a 16 percent reduction isn’t likely enough to save the planet. How much higher would a tax have to go to really get us to change our fossil-fuel habits? It’s hard to say until someone experiments with higher rates.

You may not be excited at the prospect of participating in a real-life economic experiment, but if we’re going to fight climate change we need to find out which policies work and which don’t. And economists will be grateful. They’re bored to death writing papers about NAFTA.

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 last year’s Ma Murray award for best columnist.