The Carbon Tax We Never Voted For

I find it fascinating. I really do. The last major federal election was based upon diametrically opposing viewpoints of a single issue: the carbon tax. On the one side was Stephane Dion’s “Green Shift”, and a plan to incorporate that into an encompassing policy that would guide the actions of the government in almost every way. It was such a radical change for Canadians that many simply resisted it because of the fear of the unknown. The Liberals had never fared so poorly at the polls, leading me to believe that the rejection of the Liberal party wasn’t a vote of confidence for the governing Conservatives so much as it was a clear rejection of environmentalist populism.

Perhaps the phrase “environmentalist populism” seems out of place in the context of Stephane Dion’s 19 seat loss and the end of his leadership of the Liberal party. But I don’t use the term based upon the popularity of the policy, but on the notion of a time-specific policy being driven through by an idealistic politician. In reality, the Green Shift represented a threat to our economic stability at a time when all signs were pointing to a downturn economy. While many were putting climate change at the top of the priority list in boom times, that place took a tumble as the indicators went south. Its difficult to be idealistic when you’re unemployed and have mouths to feed. That generally isn’t a problem for the politician who proposed the policy, on the other hand, since in either case he gets his taxpayer-funded salary and fully-indexed pension.

Now Canada is set to adopt climate-change regulations comparable to those being pushed through mercilessly in the United States, but for a different set of reasons. To keep Canada’s place as the largest trading partner with the United States, they’ll have to conform to certain standards set by the Obama administration in order to avoid massive environmental tariffs:

In an interview Tuesday, Mr. Prentice said it is too early to predict whether the bill that narrowly passed the U.S. House of Representatives last Friday will be adopted in its current form by the Senate, where it faces a rougher ride.

But he said Canada will bring in regulations to match new U.S. laws governing greenhouse-gas emissions – and vowed to be as tough on Canadian industry as the U.S. government is on its big emitters.

Under the American Clean Energy and Security Act, all U.S. industrial emitters will need permits for every tonne of greenhouse gases they send into the atmosphere. The U.S. oil industry argues that the bill will hammer the refining sector by forcing companies to pay huge fees for the permits, while other industries – notably the power sector – would receive free permits to cover a portion of their current emissions.

The Waxman-Markey bill (named for its co-sponsors, Democrats Henry Waxman of California and Edwin Markey of Massachusetts) also contains measures that would penalize Canadian exporters if Washington determines that Ottawa’s regulations are less vigorous than those adopted by the United States.

This move is a dangerous challenge to NAFTA, and indeed to the entire scope of international trade agreements. By imposing environmental penalties to companies unable to meet U.S. standards, it could change the entire dynamic of trade relations, and even that of our economy. This is no small game being played by the Obama administration, and there are serious fears that it could jeopardize the recovery of the U.S. markets. Additionally, this gives the Americans the chance to decide what gets to be environmentally-friendly and what does not, bending the rules for free trade into one that would favour the interests of the U.S.

But the biggest fear is probably the most valid one. Any cap and trade system that drives out energy-intensive industries from North America to developing nations could devastate our economy and our workforce. As Shawn McCarthy writes in the Globe and Mail, such moves would lose jobs, “while doing nothing to reduce global greenhouse gas emissions.”

And that’s the crux of meaningless populist policies, isn’t it? Doing something that seems like the right thing to do at the time, whilst not recognizing the devastating Law of Unintended Consequences behind it. I recently saw an amusing diagram that describes the problem facing the Obama administration:

1. High unemployment, or people making less money means
2. Sales and income tax revenue goes down so that
3. Governments run budget deficits which leads to
4. Governments raise business taxes which means
5. Big business picks up and moves overseas and we’re
6. Back to square 1

h/t Sidelines