Watch for carbon pricing to be a territorial election issue

In the service of Yukon News readers, I read the Vancouver Declaration published by our first ministers last week, even though it brought back traumatic memories of pointless diplomatic conferences I attended when I was in the foreign service.

In the service of Yukon News readers, I read the Vancouver Declaration published by our first ministers last week, even though it brought back traumatic memories of pointless diplomatic conferences I attended when I was in the foreign service.

Let’s hope the first ministers surprise us with more progress and less Model United Nations bafflegab when they meet again in six months.

I have written previously about the major menace climate change poses to the planet, and how lots of economists like revenue-neutral carbon taxes like B.C.‘s. But the disunity shown by the nation’s premiers in Vancouver brings up another concept economists like to talk about: tradable goods.

This means goods that are produced around the globe and traded internationally. A relatively large chunk of the output of northern economies falls into this category, such as Minto copper, Klondike gold, Nunavut fish and N.W.T. diamonds. This means carbon taxes inconsistently applied around the world can create unintended consequences.

If the Yukon implemented a high carbon tax, for example, this would drive up diesel prices and reduce gold mining activity around Dawson or copper mining in the central Yukon. However, global carbon emissions would not go down since someone in Saskatchewan, Nevada or Mongolia would burn some diesel and mine copper or gold there.

In this scenario, a Yukon carbon tax doesn’t help fight climate change; it just hurts Yukon miners and creates jobs in Nevada.

One good question is how big this effect really is. Is it merely a theoretical scenario that right-wing economists like to rant about? Or is it real?

Mining is an energy-intensive business, from mining to milling to shipping product to market. Depending on the type of mine, energy is typically from 15 to 30 per cent of total costs. In the Yukon, given our distance from market and lack of rail transport, it is probably often at the higher end of the range.

This means that a carbon tax with a significant effect on energy costs would boost total cost by several per cent at least. For example, a carbon tax that boosted energy costs by 20 per cent at a mine running with 30 per cent of its cost in energy would result in a total cost increase of six per cent. That may not sound like much, but remember that mining is incredibly competitive and that our mines are struggling now with zero carbon tax.

A smaller carbon tax would have less impact. B.C.‘s current carbon tax works out to around 7 cents per litre, which is less than 10 per cent of the current pump price. This has some impact on behaviour, but is hardly big enough to force the big changes that would be required to meet Canada’s 2030 target of reducing emissions 30 per cent below 2005 levels.

My take is that a carbon tax big enough to put Canada on track to meet its 2030 targets would have a significant negative impact on the Yukon mining industry, unless the rest of the world also had such a carbon tax (which doesn’t seem very likely at the moment). Some mines would still be economic, if they had high grades, were close to existing power and road infrastructure, and the ore was amenable to low-cost mining techniques.

With the next first ministers confab happening in the fall, this is going to be on the Yukon election agenda.

Our politicians have three options.

First is to stand with Saskatchewan and say “no” to carbon taxes, at least until the rest of North America is also implementing a carbon tax. In the meantime, we could spend a bunch of money on other carbon-reduction initiatives to show we are doing more than zero about climate change. If you need an image summarizing the downside of this approach, think of people filling up their V8 Suburbans with cheap gas and then commuting on a cloudy day past the new solar panels on the Yukon Energy building.

Second is to have a carbon tax on everyone except mining and the oil-and-gas industry. The so-called “cap and trade” provinces like Ontario often give exemptions or sweetheart deals to politically sensitive industries. Somehow this seems to work politically in Ontario, but I wouldn’t want to be taking this campaign promise door-to-door in the Yukon.

Third is to be climate change leaders and implement a meaningful carbon tax, including on the resource industry. You could position this several ways. You could set the tax so low that it didn’t really affect behaviour, although in that case one wonders if a “feel good” carbon tax is worth the bother. You could set it high enough to be effective and then be disingenuous and try to claim mining wouldn’t really be affected, and toss out some transition support funding. Or you could just come out and say it was part of your plan to transition the Yukon to a post-resource economy, and then spray voters with a lot of words like “digital economy,” “knowledge workers” and “high-end eco-tourists.”

Unlike many issues that come up in elections, this one is actually quite important to the future of the Yukon and its economic sustainability. It will be interesting to see how the political parties play it during this fall’s election campaign.

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.

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